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How To Not Pay Taxes: A Lesson from Major Corporations

Taxes are due on Tuesday April 17th. If you read that and suddenly felt your stomach go into knots, stop reading this article and go take care of your taxes. But let this be a lesson, don't

Taxes are due on Tuesday April 17th. If you read that and suddenly felt your stomach go into knots, stop reading this article and go take care of your taxes. But let this be a lesson, don’t procrastinate on this next year! However, for those of you who have gotten your taxes prepared ahead of time, that doesn’t mean being reminded about them is any easier.

The old adage that the only two things one cannot avoid are death and taxes is particularly relevant for most people this time of year. However, for America’s corporate citizens, it’s not a phrase that really applies. Not only is death not really a concern (especially if you’re a major investment bank that’s “too big to fail”), but America’s sky-high corporate tax rate is treated as more of a loose suggestion than a hard law.

A Plethora of Loopholes

The corporate community loves to complain loudly about the top corporate tax rate in America. At 35 percent, it’s the highest rate in the world. However, while there may be some corporations that are dutifully paying their taxes and have a legitimate beef, the vast majority of the lobbyists pleading their case are crying crocodile tears. The corporate tax code is so riddled with loopholes and deductions that it’s allowed major American corporations bringing in massive profits to pay next to nothing in taxes.

Effective Tax Rate Much Lower

Corporations paid between 5 and 6 percent of GDP taxes in the early 1950s. By 2010, that number had plummeted to just 1.3 percent. From 2000 to 2005, corporations averaged an effective tax rate of 13.4 percent, much lower than most other industrialized nations. What’s more, that number reached its lowest rate in 40 years last year when it dropped to just 12.1 percent of total corporate profits.

The methods for reducing this rate of taxation are fairly complicated in some cases, but they derive from an aging tax code that hasn’t seen a major update in a quarter century. In the mean time, lobbyists for corporate interests have managed to work in a wide variety of loopholes and deductions that allow companies to avoid paying taxes. A survey conducted by Americans for Tax Justice revealed that 26 major corporations, including GE (GE) and Duke Energy (DUK) averaged an effective tax rate of 0 percent from 2008 to 2011. Corporations even keep two different sets of books, one for shareholders and a second for the IRS that rarely matches the first.

“Many corporations routinely tell investors they incur millions in corporate income taxes, while the financial records they give the IRS show they owe nothing or are due refunds,” says tax journalist David Cay Johnston.

Unfair to the Rest of Us?

Whether or not keeping corporate taxes low through deductions is good for the economy is open to debate, and the argument by supply side economists that it benefits job creation and GDP growth cannot be completely dismissed. However, for the average American, it can clearly be a frustrating reality that one is paying a higher effective tax rate than some of the country’s most profitable corporate citizens.

“This isn’t fair to the rest of us,” said Bob McIntyre, director of the left-leaning tax research group.”Things do not get changed in the tax code unless someone asks.”

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