Some Businesses Pay No Corporate Income Tax—And It’s Completely Legal
- Posted on January 10, 2012 at 7:02pm by
Becket Adams
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A “skyrocketing number” of American companies are paying no corporate income taxes, according to a recent Wall Street Journal report.
That’s right—not “a dime in income taxes to the federal government,” according to “shocked” MSNBC. What’s more, some of these companies are publicly traded.
The percentage of companies organized as tax-free operations, referred to as “pass-throughs,” has risen from about 24 percent in 1986 to close to 69 percent as of 2008, according to IRS data. As many as 60 percent of companies earning more than $1 million may be paying no corporate income tax—the highest in the developed world, reports the Wall Street Journal.
“So it’s no surprise that federal corporate tax collections have plunged from 6.1 [percent] of GDP in 1952 to just 1.3 [percent] in 2010,” writes Mary Papenfuss of Newser
How do some of these companies get away with this? Surely, this is tax evasion…isn’t it?
“More and more companies are organizing themselves as pass-throughs, which means the firms pass along profits to investors, who pay taxes on that money through their individual returns,” explains Papenfuss. “Millions of small businesses have organized this way, but so have some giants like the Blackstone Group, the construction firm Bechtel, and the pipeline company Kinder Morgan.”
So, while MSNBC and the Journal report that these companies don’t pay anything in corporate income tax, investors are still paying taxes on their individual returns.
However, as Washington is slowly realizing it’s “missing out” on tax revues because of this legal method for avoiding government controls, many Democrats and even some Republicans are figuring out ways that they can tax the largest of the “pass-throughs.”
The reasoning behind Washington’s sudden desire to tax a business structure they legalized?
Congress knew these laws would encourage businesses to become “pass-throughs” (that’s why they passed them). However, “there were a hell of a lot more pass-throughs created than I think we expected,” said a former Reagan Treasury official, according to Newser.
Really? Congress didn’t expect many businesses would be interested in avoiding the corporate income tax?
Given the fact that the U.S. corporate tax rate is currently 35 percent, the highest in the developed world, and organizing a business as a “pass-though” is a cost-cutting measure, should it come as a surprise that so many businesses structured themselves around this model?
Furthermore, before anyone bemoans the decline in federal corporate tax collections from 6.1 percent of GDP in 1952 to just 1.3 percent in 2010, it might be important to note that the corporate tax rate itself has declined since 1952 from 52 percent to 35 percent. It would therefore seem disingenuous to imply that the decline in corporate tax revenues is due solely to the existence of “pass throughs.”
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Comments (80)
oneopinion
Posted on January 11, 2012 at 1:42amEveryone who thinks this is some kind of scam is a dolt. Like Capitalist Mama, I too have my business structured as an LLC. All profit is regular income (like a paycheck for those of you still working) and I pay my taxes on that.
Report Post »Seriously though, ask yourself this, if there were no corporate tax and you went to a store to buy a widget the widget would cost X-dollars. Now, the government steps in to make things “fair” and now taxes the business at 35% of its revenue. Who do you think is paying the tax?, the business?, guess again. You are, consumer person. When my taxes go up and my net income decreases I figure out how to pass that along to you. As I tell people, I (my business) do/does not pay taxes, my customers pay for everything, including the “taxes” the various taxing agencies want from me.
Without consumers there is no revenue therefore they pay for it all. There is no separate, secrete pot of money a business has that they hide when the tax man comes. When there is a business/consumer relationship the consumer controls the transaction – you don’t have to buy the product, I won’t earn any money, then I won’t pay taxes. Get it? Last, remember, every business own is a consumer also – there is no free lunch.
poweruser19
Posted on January 11, 2012 at 2:48am“I figure out how to pass that along to you” this is the part of capitolism that was not ever intended. the greed that has evoulved over time.This pass through crap is what the goverment wants becuse the tax is bigger when it is retail and not wholesale.Unless you make everything you sell you should be taxed on you parts that you use to make your widget.(it is realy cheating and the consumer is getting the short end of the stick) if you had to pay tax on your parts then you would have to make it as cheep as possible or the free market would put you out of business.The consumer should not have to pay for everything.(greed is what it is called)
Report Post »GETLIFE
Posted on January 11, 2012 at 3:36amWell now, POWERUSER, that’s the beauty of free enterprise: a less “greedy” company comes along and takes all of the “greedier” company’s customers. How simple and beautiful is that!?
What is not beautiful is government intervention and favoritism (“corporate welfare”). But that doesn’t come from greedy corporations, it comes from the government, excuse me, non-Constitutionalist government. Vote Conservative!
Report Post »wildbill_b
Posted on January 11, 2012 at 6:57am@oneopinion, You are, consumer person. When my taxes go up and my net income decreases I figure out how to pass that along to you. As I tell people, I (my business) do/does not pay taxes, my customers pay for everything, including the “taxes” the various taxing agencies want from me……………….
Very good. Now put the REST of it together. If you pass the tax along to the “consumer”, and he still WANTS to buy your product, until you over price it, we stop buying and you go out of business or lower your price, then he reimburses YOU by paying the “consumption tax” you passed along. So yes ONE that is EXACTLY how it is supposed to work. And by the way, that is the lawful tax on “earned income”. The income tax is defined by Congress as 45 Cong. Rec. 4420 (1909): Definition of “Income”
“The income tax seeks to reach the unearned wealth of the country and to make it pay its share.”
have a nice day
Report Post »BSdetector
Posted on January 11, 2012 at 8:27amAs I like to say to people “A tax on any company/business/industry is just a smokescreen covering the tax on YOU(the consumer).
Report Post »Big oil doesn’t pay for tax hikes on oil, YOU do.
Big banks don’t pay for tax hikes on bankers, YOU do.
Big pharma doesn’t pay for tax hikes on drugs, YOU do.
Big “insert evil industry here” doesn’t pay for tax hikes on them, Y O U D O!
jhrusky
Posted on January 12, 2012 at 3:11pm@poweruser19
… and that “less greedy” company has become China. Now, not only is the cost of manufacturing (which includes taxes, by the way) being passed onto you, but you‘re without a job and can’t afford it anyways.
Report Post »Malinois
Posted on January 10, 2012 at 11:44pmNo offense, but most of you don’t really understand this article. In fact, there is really no“story” here at all. There are all kinds of small businesses (LLCs, LLPs, S Corporations) that are set up this way. And as Capitalist Mama correctly points out, the owners of these companies pay taxes on every dollar of profit. In fact, with an S Corp, there is no real concept of retained earnings: I pay taxes on every dollar, even if I leave that money in the company to do something like, oh, I don’t know…give someone a job.
It‘s bad enough that the media is trying to make a story put of something they don’t understand, but we should all try to get the facts and understand the issues before blowing off steam in the forums.
If you REALLY want to have some fun at the water cooler, stop by and tell the person who owns the company where you work that you’re tired of paying all their taxes… Should go over swimmingly.
Report Post »Cat
Posted on January 11, 2012 at 12:31amBINGO !!!
It’s all about screwing the individuals’ personal wealth
Do you get it yet folks?
(Yes, the apostrophe is after the ‘s’, it means ALL of YOU)
Report Post »NYHuguenot
Posted on January 11, 2012 at 12:40amYou are right. Profits pass through to the stockholders who then pay taxes themselves although there are some savings.
Traditional. Corp pays 35% on profits. Passes 65% to stockholders who pay 15% in taxes.
Report Post »Pass through. Corp passes 100% of profits to stockholders who pay 15% in taxes.
Svt4Him
Posted on January 11, 2012 at 12:47amNo offense taken, but before you write us all off, a tightly held corporation can remunerate their shareholders in things like say…dividends, which are taxed less and avoid things like workers compensation and get huge tax credits if done correct. And you may not understand, but if there are issues of income splitting and holding companies then perhaps you will pay way less taxes. Oh right, that’s why people do it. But what do I know.
Personally though, I’m all for low corporate taxes, just for everyone.
Report Post »foobear
Posted on January 11, 2012 at 6:50am@NYHuguenot: No, pass-through income gets taxed as normal, personal income. It is not given the long term capital gains discount tax rate of 15%.
So depending on the income level of a shareholder, the passed-through income will be taxed between 10% and 35%.
Report Post »crystlgib1
Posted on January 10, 2012 at 11:38pmNo company pays taxes. Only customers, employees, and shareholders pay taxes. grrrrrrr
Report Post »Robert999
Posted on January 10, 2012 at 11:14pmIf we want businesses to create jobs in our free enterprise capitalist system then NO business should pay taxes. Businesses might be people, but they shouldn’t pay taxes. Neither should the wealthy who along with businesses are the job creators.
Report Post »Therightsofbilly
Posted on January 10, 2012 at 10:40pmNot really
Report Post »Therightsofbilly
Posted on January 10, 2012 at 10:15pm@SENSEI
You got what it takes to make a mountain man leave his home.
Report Post »watashbuddyfriend
Posted on January 10, 2012 at 10:07pmWell, how many times do I have to tell you the CORPORATIONS DO NOT pay income taxes? Yes, they do collect, then turn over to the FED, but, they just add them to the product, or service; guess who pays them: CONSUMER!
Report Post »Ohio Biker
Posted on January 10, 2012 at 10:18pmYou are 100% correct my friend, Corps pay no taxes, no government fees, no fines, no regulatory fees, never have never will. Not good, not bad, negative or positive just a fact.
Report Post »your sensei
Posted on January 10, 2012 at 9:53pmAbbyGirl . . Cryin‘ won’t help ya. Prayin‘ won’t do ya no good.
Report Post »abbygirl1994
Posted on January 10, 2012 at 9:31pmPlease go to the HuffPo, the would love you there…oh I see I‘m sorry I didn’t see the pointy hat and the broomstick.. oh and there is your pot.. Have fun stirring.. we know what you are and what you stand for.. God help us!
Report Post »abbygirl1994
Posted on January 10, 2012 at 9:29pmIf it is okay for some it should be okay for all.. no one should be exempt.. NO ONE!
Report Post »Gary_K
Posted on January 10, 2012 at 8:29pmPsst…I’ve got some news fore ya….there are absolutely no businesses that pay taxes….they pass it on to us the consumer.
Every time our vile politiciansns raise taxes on business they are really just raising our costs for products and services.
Report Post »ssbstspd
Posted on January 10, 2012 at 8:41pmGary_K
You can only get away with that for so long. There are so many legal options in the tax law for corporations to get away with paying barley anything. I don’t blame them.
Employees are the only ones who pay taxes before they get paid. Yea the government did that, reason being, was to fight 2 ground wars. Now that Obama only wants to be able to fight 1 ground war at a time, DO you think they will go back to the way when employee’s got paid first not the government ? I think not. Anything considered temporary by the federal government is always set in stone usually forever.
Report Post »ssbstspd
Posted on January 10, 2012 at 8:47pmSay that to a small business owner. Small business owners pay the most. The majority of taxes in this country. There is a reason why corporations are getting loop holes and are paying less in taxes and i promise you it has nothing to do with saving the corparations money. It is the vial democrats and the Obama regime getting ready to send the Ows crowd out to attack, And attacking is the only thing they are good at other then thinking with Emotions and no reason.
Report Post »Therightsofbilly
Posted on January 10, 2012 at 10:54pm@SSBSTSPD
I think you may have misunderstood the point that Gary_K was trying to make.
Report Post »ssbstspd
Posted on January 10, 2012 at 8:26pmAny American with basic knowledge of accounting understands this. The government has made the corporation into a huge punching bag on purpose. Corporations do not pay much in taxes, they can right off a whole lot. While small business and the employee pay the most in taxes. You may ask why is this ? Well because the liberals have set it up this way( extensive regulations, LOOP HOLES). Reason being is for massive class warfare. They know that the RICH are not going to pass up a reason to pay less in taxes.( they will hire hundreds of lawyers to find the loop holes in the regulations and taxes. A non financially educated person would pay more in taxes but the RICH and( corporations) are not morons, obviously. They play the hand they are dealt. The puzzle is coming together .Class warfare, bias news stories, the tax loop holes, the highest corp tax in the free world, created the pocket ace’s in the hole for the liberals. They rose their savior. As you could say, THE OWS clowns. They will try and beat and beat this into the American hearts, once they get there marching orders. They plan on people thinking with their emotions not with their brains. This is going to be one crazy year, and OWS was not manufactured to be honest or go away anytime soon.
Report Post »foobear
Posted on January 11, 2012 at 6:51amIt‘s funny you call them OWS clowns when you’re basically repeating their talking points.
“Big corporations own the government”
“Big corporations get special tax breaks”
etc etc.
Not saying it’s not true, just wondering if you have a split personality or something.
Report Post »republic2011
Posted on January 10, 2012 at 8:02pmTwo words… Flat Tax
Report Post »dmerwin
Posted on January 10, 2012 at 8:10pmOnly FAIR tax would eliminate corporate taxes, and death taxes and capitol gains taxes and and and…
Report Post »We are all friends here ABO ABO ABO
republic2011
Posted on January 10, 2012 at 8:01pmTwo words. FLAT TAX. That would solve all of this. We have given the government too much power. It needs to be taken away.
Report Post »G-WHIZ
Posted on January 11, 2012 at 11:45amOh–Yah! and the gubment WILL “haveto” raise the flat-tax to, say, 35,40,45…..% as they have done with ALL other taxes. WE-the-PEOPLE will still be screwed, but the tax-form will be soooo easy to fill out.
Report Post »conservativeblackman
Posted on January 10, 2012 at 7:55pm@DMERWIN We as americans are not obligated to pay taxes! And here is the proof http://video.google.com/videoplay?docid=-1656880303867390173#
Report Post »dmerwin
Posted on January 10, 2012 at 8:03pmIt’s been tried in court. Stick to your convictions, don’t pay, I’ll send you a file in your birthday cake.
Report Post »crystlgib1
Posted on January 10, 2012 at 11:44pmoh come now his lawyer might be better than the one wesley snipes had
Report Post »packsack54
Posted on January 11, 2012 at 7:26pmThe only words I can say is THANK YOU< THANK YOU. Best video I have seen, the brainless and clueless should watch now as the time is near. I like the executive orders, esp the one that the President can call with out congress conscent for 6 months, it willbe in September or July 2012. I'm just one of those Grumphy Old men from Wabasha. Never liked Henry K. thought he was just a Na_i is disguise.
Report Post »paulusmaximus
Posted on January 10, 2012 at 7:54pmIf a pass through are such a good Idea, what if the investors are not U. S. based and pay no U,S. taxes?
Report Post »dmerwin
Posted on January 10, 2012 at 8:08pmAlso if pass throughs were great why not just eliminate the corporate taxes altogether and reduce the army of lobbyists, tax lawyers and accountants. Wait, I think I know why, congress would lose the ability to control their pet projects and corruption would be harder work. There may not have been a Solyndra, ethanol or the VOLT.
Report Post »BetterDays
Posted on January 10, 2012 at 7:50pmI’m in a pass through system myself, it passes through my hands on the way to everyone else.
Report Post »Perhaps if the federal jugernaught hadn‘t grown disproportionally to the lack of services provided we wouldn’t need to be having this conversation. Frankly, bureaucracy does not create wealth or produce a saleable product, therefor every dollar spent in a bureaucracy is just a debt that must be paid twice. In other words it’s damn poor business.
kfalcon22000
Posted on January 10, 2012 at 7:50pmThis article is crazy. There are a few reasons why corporate taxes have gone down as a percentage of GDP. For one thing, the huge increase in small businesses. Also, there is the service industry. The percentage of other types of businesses has increased as part of the GDP. It is not a requirement that a business become incorporated. I think that the advent of the s-chapter corporation has played a role as well.
The argument is one made only by uninformed people who want to raise taxes.
Report Post »Snowleopard {gallery of cat folks}
Posted on January 10, 2012 at 7:55pmAgreed, and it would not suprise me if the major corporations not paying taxes (like GE) are in the pocket of Obama’s politcial circle.
Report Post »espo
Posted on January 10, 2012 at 8:08pmHere is the media twisting the facts. S-Corps don’t pay Federal and State taxes by their shareholders do, so the Federal and State Governments are still getting their take. The manipulation is occuring with Capital Gains income. You have folks in the Finance industry who can change their salary to Capital Gains income, which significantly reduces their tax rate and their taxes, that is where the Governments are getting shorted.
A big part of GE is their Bank. Banks lost a lot of money. There is nothing wrong with a Corporation like GE posting loses from their banking operations to reduce or eliminate their income tax.
Report Post »saranda
Posted on January 10, 2012 at 10:29pmEspo – wrong. Not all shareholders pay tax on their earnings from these companies because they may be in a differenct country and not subject to US taxes. I have many Canadian friends who are shareholders in companies like Kinder Morgan and Blackstone, US government gets no income on those earnings.
Report Post »conservativeblackman
Posted on January 10, 2012 at 7:48pmAnd that is why progressives want to tax the rich! Scrap the progressive tax system, flat tax is the only solution.
**Forefathers Quote**
It would be thought a hard government that should tax its people one tenth part. – Benjamin Franklin
God requires 10%, government should get no more then that!
Report Post »brother_ed
Posted on January 10, 2012 at 7:51pmAmen.
Report Post »kevindean3
Posted on January 10, 2012 at 7:42pmCorporations don’t really pay taxes. They may write tax checks but the money behind the check comes from the consumers. If you raise the tax on Wal-Mart, they raise the price of milk. If you raise the tax on Exxon, they raise the price of gas. The bottom line of all companies, is to make money, not pay taxes. Also note, the tax bill is passed on to the stock holder. People pay taxes.
Report Post »Therightsofbilly
Posted on January 10, 2012 at 7:54pmYou got it!
Someday, maybe everyone will realize that Joe Citizen pays ALL the taxes.
Just by many different means of collection.
Report Post »jeanr
Posted on January 10, 2012 at 7:58pmA gallon of gas rose from an average of $1.31 in 1999 to $3.35 now. Tax rates on gas have remained pretty much the same during the same period. By your theory, gas should still cost about the same.
Report Post »You could argue supply and demand but U.S. demand has dropped somewhat but oil profits have been about 30% higher compared to the previous decade. So, therefore, it looks as if oil companies are not comparing taxes to prices and instead are gouging the public. You really think if their rates were lowered, then they would pass the savings onto us? Fun fact: Exxon received a $156 million rebate from the IRS in 2009. Gas prices continued to climb.
progressiveslayer
Posted on January 10, 2012 at 8:04pmYou are correct sir and it‘s too bad more people don’t understand this simple concept.
Citizens tell congress tax the ‘rich’ tax businesses more,they don‘t even know what they’re asking.
Report Post »dmerwin
Posted on January 10, 2012 at 8:04pmGood point JeanR in THEORY they just pass things along but no one misses the opportunity to squeeze just a little more.
Report Post »Therightsofbilly
Posted on January 10, 2012 at 8:43pm@JEAN
No need to back to 1999
Just a hair over 3 years ago, the national average for Reg. was right around $1.61
There are other factors and forces in play.
Report Post »Therightsofbilly
Posted on January 10, 2012 at 8:44pmEdit:
No need to go back to 1999
Report Post »longranger
Posted on January 10, 2012 at 7:37pmCorporations have never really paid taxes!!! the cost is passed on at the register when you buy anything . corperate taxes = a hidden tax on YOU!!!!!!!!!!!!!!!!
Report Post »ssbstspd
Posted on January 10, 2012 at 8:19pmAny American with basic knowledge of accounting understands this. The government has made the corporation into a huge punching bag on purpose. Corporations do not pay much in taxes, they can right off a whole lot. While small business and the employee pay the most in taxes. You may ask why is this ? Well because the liberals have set it up this way( extensive regulations, LOOP HOLES). Reason being is for massive class warfare. They know that the RICH are not going to pass up a reason’s to pay less in taxes. A non financially educated person would pay more in taxes but the RICH and( corporations) are not morons, obviously. They play the hand they are dealt. The puzzle is coming together .Class warfare, bias news stories, the tax loop holes, the highest corp tax in the free world, created the pocket ace’s in the hole for the liberals. They rose their savior. As you could say, THE OWS clowns. They will beat and beat this into the Americans hurts once they get their orders. They plan on people thinking with their emotions not with their brains. This is going to be one crazy year, and OWS was not manufactured to be honest or go away anytime soon.
Report Post »13th Imam
Posted on January 10, 2012 at 7:33pmTherefore more business’s will shut down, causing more and more unemployment. Since Pelousy says more unemployment stimulates the economy, we should be roaring soon, Right Barry???
Berkshire Hathaway & Shifty Buffet
Report Post »dmerwin
Posted on January 10, 2012 at 7:30pmWe need immediate tax reform and eliminate ALL loopholes and subsidies. Flat or FAIR tax and abolition of 100,000 jobs at the IRS. Put them to work building a border fence and fixing the roads.
Report Post »streetrodder
Posted on January 10, 2012 at 7:41pmI’d put them to work shoveling crap on a pig farm.
Report Post »jeanr
Posted on January 10, 2012 at 7:29pmWell we are moving in the right direction. Now if we could just lower the rates a little more and completely crush the middle and lower classes, then we could really pay those execs that few more hundred million they really deserve. That solid gold toilet won’t pay for itself!
Report Post »singleparent
Posted on January 10, 2012 at 7:29pmThey shouldn’t have to pay in the first place…….
Report Post »dmerwin
Posted on January 10, 2012 at 7:36pmMissing the point, everyone else has an obligation and as long as we have a corporate tax they should pay. Now if we were to have real tax reform we could have a discussion about eliminating the corp tax altogether, until then they are manipulating the system and causing the individual to pay more.
Report Post »singleparent
Posted on January 10, 2012 at 7:42pmNo i think you are missing my point.
Report Post »dmerwin
Posted on January 10, 2012 at 7:50pmNo I understand the argument for no corporate tax and agree but until we change the tax structure they are A, Breaking the law
Report Post »or B. Using lobbyists to find loopholes to avoid taxes and pass the cost of the lobbyists to the consumer in the price of the product. Are we on the same page?
Capitalist Mama
Posted on January 10, 2012 at 9:29pmActually Dmerwin, you are missing the point of the article.
A “pass through” entity pays no taxes. The owners or shareholders pay personal income tax on the business profit or loss. For example, I own an LLC. My LLC pays no “corporate” income tax. I pay “personal” income tax on every drop of profit or loss. Legal, and not a loophole in sight.
Report Post »