The “people” Washington helps most: big corporations
By John F. Wasik
The opinions expressed are his own.
If corporations are people, as GOP Presidential candidate Mitt Romney recently declared, they are very special people indeed.
As you know, big corporations are treated by the courts as if they are people, yet can contribute infinite amounts of money to purchase politicians, legislation and tax breaks.
Megacorporations’ access to tax breaks and loopholes has gotten so out of control that even General Electric CEO Jeff Immelt says that the U.S. corporate tax code should be reformed. The $150-billion company managed to have a negative 61 percent tax rate last year.
Just for some late summer fun, let’s do a side-by-side comparison on how an ordinary, middle-class person would be in taxed in the U.S. and how a large corporation with a reasonably agile accounting department would operate.
You Get a Bonus. Congratulations. Maybe you can go out and buy that boat, patio set, home theater, dream vacation or pay off your credit cards. Unless you’ve made some tax-deferral arrangement, your employer will reduce your net payment by federal and state taxes plus other payroll taxes (Social Security and Medicare).
If you buy anything, you’ll pay state and local sales taxes on your purchase. If you significantly improve your home, you might pay higher property taxes. And if you’re doing the right thing by paying off your credit-card debt, you can’t deduct the finance charges. You’ll get a break if you contribute to your 401(k)-type plan, but you get taxed on all withdrawals and penalized if done before age 59 ½.
Being a hedge fund manager is a much better deal. The top 25 hedge-fund managers, who took in $22 billion last year, were blessed by a “carried interest” rule that allowed them to pay a bargain 15 percent federal tax on their profits. They didn’t have to build a thing to get this break — other than construct big piles of cash. Nice work if you can get it. Had they all been taxed at 35 percent on their profits, they would have been able to boost Social Security benefits for Baby Boomers by $1,000 apiece.
You Fix Your Roof. To come up with the money to cover this capital investment in your home, you had to pay income and payroll taxes. There’s no deduction for maintenance on a primary residence (rental properties get a break).
Let’s see what a corporate number-cruncher can do. Many capital investments are covered by specialized allowances depending on the industry. Is your company in the oil/gas business? Uncle Sam rebated some $44 billion last year. Coal? Some $2.6 billion.
What about the foreign tax credit, inventory accounting and “excess returns on intangibles transfers?”
According to the Center for American Progress, those items cost the U.S. Treasury more than $200 billion last year. That’s roughly what the government spends annually on interest. If it received more income by closing these loopholes, Uncle Sam wouldn’t have to borrow so much money to pay its bills.
You Grow Your Own Food. Smart move. If climate change gets ugly or the economy collapses due to bad banking practices again, cheap, accessible food will be worth more than gold or oil. Yet you would be taxed on fertilizer, seeds and the equipment you buy.
Oh, to be a corporate farmer. Bigger is better! Corporate agri-business reaped more than $10 billion from the U.S. Treasury.
That’s not to say there weren’t some benefits you shared with corporations: Both you and your employer could write off hefty amounts of meals and entertainment — worth a whopping $139 billion last year. But since you can’t legitimately “offshore” cash to avoid U.S. income taxes like a corporation through a foreign bank, you’re still stuck with the much bigger tax bill.
The moral of this story is that middle- and lower-income taxpayers don’t have anywhere near the kind of tax benefits that corporations receive.
If most of your income is from wages, you get almost no long-term break from payroll and income taxes while your employer gets to write-off any contributions to your retirement and health care. Note: The temporary payroll tax break enacted by the 2009 stimulus package will expire soon under a debt-reduction agreement.
Unless you incorporate yourself, create income for your business entity and hire competent accountants, all of those lucrative write-offs will continue to flow to the well-lobbied corporations.
When it comes to tax holidays, corporations still have all the fun in the sun while working people get rained upon. It’s a blue deal for most Americans. How do we level the playing field?
If corporations are to be treated as people, for the sake of the Republic and deficit reduction, shouldn’t we heed Warren Buffett’s suggestion to tax them more aggressively?