Tax Analysts Blog

Blaming Big Corporations Is Not the Answer

Posted on Feb 19, 2014

My friends at Citizens for Tax Justice believe that federal corporate tax burdens are too low. They also believe that the system is infected with planning opportunities that allow corporations to avoid their "fair share" of taxation. Seeing as CTJ is one of the nation’s premier progressive advocacy groups, its position is not surprising. Liberals tend to be dissatisfied with any level of taxation on wealth or capital. Without question, American corporate taxation needs reform. But CTJ has been taking a curious tactic of late. It has been discussing the tax situations of individual companies.

For example, CTJ says that in 2013, Netflix took advantage of its ability to deduct phantom costs of executive stock options in order to reduce its tax bill to zero. CTJ implies that Netflix was acting nefariously by either cheating or bending over backwards to find unwarranted loopholes. Nothing could be further from the truth. Companies routinely deduct stock options because, well, they are allowed to. What Netflix is doing is perfectly legal. In fact, CTJ notes that Facebook, Priceline, Twitter, and other companies also "take advantage" of the law. CTJ would like to see passage of the bill proposed by Sen. Carl Levin that would limit corporations’ ability to deduct stock options. But making Netflix out to be the bad guy seems unfair.

CTJ has been focusing on brand-name corporations. Last week it said that IBM paid an effective rate of only 5.8 percent on $45 billion of profit between 2008 and 2012. It says there is no reason to believe IBM did anything illegal. That CTJ says the company was acting legally implies that illegality was something worth considering. But CTJ then says that IBM was likely using accounting gimmicks to minimize its tax burdens. Yet, the real reason for IBM's "low" effective tax rate is deferral. American companies making profits overseas have little reason to bring the money home. Their keeping money overseas to escape taxation is rational. Making IBM out to be the bad guy -- which other media reports also have done -- misses the mark. Following the law is hardly a corrupt activity.

Read Comments (12)

David Carrington Jr.Feb 18, 2014

Hello David,

I think the implication is that that law is corrupt or insufficient; not that
the corporations who follow it are corrupt. Also, CTJ is using specific
examples because that's what people respond to. Rather than complaining about
the low taxes paid by "corporations", they are giving them a name.

emsig beobachterFeb 18, 2014

It's not quite correct to state that these megabusinesses are "just following
the law." These megabusinesses help shape the tax law, and other laws, through
campaign contributions and other means that are perfectly legal. Legality
should not be conflated with legitimacy. Self interest and the public interest
are not always the same thing.

Here we have a perfect system. A venal and corrupt legislative system, a
kleptocratic business "community." and a supine public. What can possibly go
right?

David BrunoriFeb 18, 2014

Hello David,

Oh I get it. Everyone (even Tax Analysts sometimes) uses names to sell ideas.
What bothers me in the case of CTJ and others is there is always an implied
charge of malfeasance. It is not quite as bad as the UK where politicians were
calling corporations that minimized their tax burdens immoral. But it is close
-- in my opinion. Anyway, thanks for writing.

Brian StrahleFeb 18, 2014

David (Brunori; for clarification),

I agree with your post and comment. Why do the media and organizations similar
to CTJ continue to blame 'the players' for the rules of the game? (That was a
rhetorical question) They should start blaming the 'rule makers.' Continuing to
make corporations out to be the bad guys for legally following the rules makes
for good press, but doesn't help us work towards any real solutions; and so,
the cycle of either bad tax policy or loopholes that corporations have a legal
right and obligation to follow (or take advantage of), while the media
complains, continues.

emsig beobachterFeb 18, 2014

David, Brian:

We "blame the players" because they do not just blindly follow the rules. These
rules did not just erupt spontaneously from the fevered brains of our
legislators and given to the world on stone tablets for the faithful to follow
without questioning. I believe that those who are just "following the rules"
played a significant part in making these rules. Neither the fevered brains of
our omniscient legislators; nor, any benevolent computer, if we had one, would
have constructed such a tax code.

emsig beobachterFeb 19, 2014

David B:

I detect some bias in your posts concerning good tax policy. Frequently, you
will excoriate the those weak willed (weak minded?) state legislators and/or
governors for providing companies with tax advantages and other "goodies" for
locating a facility in their state. I agree with you that providing these tax
"goodies" is bad tax policy. Conversely, you aim your barbs at the good folks
at Citizens for Tax Justice for shedding light on tax practices that benefit
some companies at the expense of individuals and other businesses.

In the second case, you state that these companies are merely following the law
without acknowledging the fact that these very same companies had a significant
role in the making of these laws. In the first case you blame weak willed (weak
minded?) state legislators and/or governors for yielding to business demands
for tax advantages.

In both cases, legislators are responding to incentives to produce tax laws
that benefit those who can and will provide benefits to the legislators. Bad
tax policy is bad tax policy at the federal and the state levels.

David BrunoriFeb 19, 2014

Emsig,

My bad if anyone thought I was aiming barbs at CTJ. I do not always agree with
the folks over there -- but they are smart and earnest. I admire them. My point
was simply to say that highlighting individual companies often implies that
they are engaged in nefarious behavior. Some companies are guilty. But I
suspect most just take advantage of the rules in a not too different way that
you and I might take charitable deductions. And the system is so wacked that
you could pick virtually any Fortune 1000 company and find significant tax
minimization going on. By the way, I am all in favor or reforming corporate tax
laws. And I hate (although that might be too strong a word) special goodies
given out to anyone.

edmund dantesFeb 19, 2014

Please advise, how much tax did Citizens for Tax Justice pay in the last five
years? Any? Or did they take advantage of the loophole in the Tax Code that
allows liberal advocacy groups to be tax exempt?

Why should anyone be left outside of the tax tent? Until everyone is inside,
all this posturing about "fair share" is a load of bunk.

David BrunoriFeb 19, 2014

Edmund, CTJ is tax exempt like many conservative and liberal organizations in
the country. I am all for having a discussion as to whether such organizations
should be exempt. Heck why not discuss all organizations like universities and
churches.

emsig beobachterFeb 19, 2014

David B.:

I apologize for my rants yesterday. You are correct to point out that these
businesses are not guilty of anything -- they are perfectly within their rights
to use legal means to reduce or eliminate their tax liabilities. They are also
within their rights to try to influence members of Congress, which they do, to
write; was that benefit themselves often to the detriment of others.

Some business leaders may say that they feel they are "shaken down" by members
of Congress when the legislators telephone asking for "contributions." But,
even the Russian mobsters provide protection for those they shakedown. Further,
to paraphrase a great American philosopher, Mark Twain "America has no
indigenous criminal class, except Congress." I would include state and local
officials as well.

In conclusion (I'll bet you're relieved to see this) you're correct to point
out the bad tax policies of state legislators when they use their respective
tax codes to attract new businesses or retain old businesses within their
borders; but, you should also point out the bad tax policy of the U.S. Congress
when they use the tax code to reward "contributors." BAD TAX POLICY IS BAD TAX
POLICY!!

edmund dantesFeb 19, 2014

david, I absolutely agree with you. the costs of exemptions for churches and
universities far, far outweigh any theoretical benefits. and while we're at it,
let's please start to tax muni bond interest. there's no economic
justification for the exemption, only a corrupt and political one. the low
interest rates have only encouraged massive overborrowing by state and local
government, and the debt overhang is going to ruin them.

but my larger point is that it is profoundly hypocritical for any organization
that is tax exempt to complain about the taxes anyone else is paying,
especially when there is no hint of illegality to it. their own resort to tax
"loopholes" is indistinguishable from the behavior they are criticizing. i'm
offended!

Dennis CorgiatFeb 25, 2014

Corporations owe a duty to stockholders to use any and every legal means to
sustainability. If corporate lobbying legally influences legislative or
administrative actions to the detriment of the people, then the corruption is
of those officials--not of the corporations--and that is where finger pointing
is warranted.

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