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Tax (Break) Day

While corporations contribute less to federal revenues, individual Americans are making up the difference.

(Image: Hiding bank via Shutterstock)

As Americans file their tax returns this April 15, corporations will be taking advantage of the dozens of special deductions, credits and exclusions written into the US tax code in order to lower their tax burden. Each year, the United States loses out on billions of dollars in tax revenue as a result of corporate tax breaks, which means Americans miss out on investments in programs they care about – things like job creation, education, safe roads and bridges, and climate change.

Listening to what corporate America has to say about their taxes, one might draw the conclusion that the US tax system places an unequal burden on big business. However, that’s simply not the case: Over the last 50 years, the corporate share of federal revenues has plunged from a high of almost 40 percent in 1943 to only 11 percent today. And while corporations pay less, individual Americans are making up the difference.

Income taxes paid by individuals will account for nearly half – 46 percent – of federal tax revenue in 2015, meaning individuals will contribute four times as much in income taxes as corporations do.

While corporate interests often cite the official corporate tax rate of 35 percent, rarely does a company actually pay that amount. In fact, a new report by Citizens for Tax Justice shows that the United States is one of the least taxed developed countries in the world. On average, US corporations end up paying a tax rate more like 13 percent.

But even that masks massive inequalities when it comes to who pays for the federal budget. Thanks to a variety of tax loopholes, some corporations are able to bring their annual tax burden down to next to nothing – or, in some notable cases, pay no federal income taxes at all. From 2010 to 2012, FedEx paid nothing in federal income taxes, despite making profits of more than $5 billion and receiving $10 billion in federal contracts from 2006 to 2012. What’s more, some multibillion-dollar corporations, like Verizon and Pfizer, actually received millions – or even billions – of dollars through federal tax refunds while earning billions in profit worldwide.

In 2013, the US Treasury lost out on $176 billion in revenue due to corporate tax breaks. To put that in perspective, that’s about $1,328 per US household.

One of the most expensive and egregious corporate tax breaks allows multinational corporations to defer paying taxes on income earned abroad until the money enters the United States. As a result, many companies leave much of their profits overseas indefinitely in order to avoid US taxes. This cost the US Treasury $65 billion in 2013 alone. Another tax break allows corporations to claim all of the depreciation of a piece of machinery or equipment – or even their corporate jets – at once (instead of over many years). In 2013, this practice cost the federal government $34 billion.

These and other corporate tax breaks have been growing in size for years; accounting for inflation, corporate tax breaks have more than doubled in size over the last two decades (in 1993, the cost of corporate tax breaks totaled just $75 billion). This comes at a time when two in three Americans think that corporations don’t pay enough in taxes.

But Congress shows little, if any, inclination to change the tax code. The Senate’s budget proposal would make no changes to corporate taxes while the House proposal would actually lower corporate tax rates. The House says it will close some special interest loopholes, but it doesn’t take on the real task of specifying which ones.

Looking at all tax breaks – not just ones that benefit corporations – the cost of tax breaks is more than the entire US discretionary budget each year. And individual tax breaks are heavily weighted toward the wealthiest Americans, with 17 percent of the benefits going to the top 1% of households. But, unlike the discretionary budget, which is subject to the annual appropriations process, where Congress is responsible for debating proposed spending and can be held accountable for its decisions, most tax breaks remain on the books until lawmakers modify them, going largely unnoticed by most Americans. As a result, the United States loses out on over $1 trillion per year in lost revenue – more than 1.6 times the 2013 budget deficit.

Every dollar the federal government spends on a tax break is a dollar it can’t spend elsewhere – whether on climate change, job training, safe roads and bridges, or clean drinking water. Yet few Americans are aware of how much spending occurs through the tax code or that multinational corporations and the wealthy are the ones who benefit the most.

Bottom line? The US tax code is riddled with tax breaks that overwhelmingly benefit corporations and the wealthy – at the expense of everyone else. Tax breaks written into the tax code deserve just as much oversight and public attention as the rest of the federal budget and it’s time the tax code reflected that.

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