Companies use popular provision to avoid income taxes

WASHINGTON Mon Apr 9, 2012 8:54pm EDT

Women walk out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson

Women walk out of an Internal Revenue Service office in New York April 18, 2011.

Credit: Reuters/Lucas Jackson

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WASHINGTON (Reuters) - More than two dozen Fortune 500 companies paid no U.S. federal income taxes in recent years partly because of a corporate tax break that is broadly supported by Republicans and Democrats alike, a consumer group said on Monday.

In at least half of the cases cited by the group, companies made use of accelerated depreciation, a tax provision that allows increased deductions in the early years of the life of an asset.

Citizens for Tax Justice, which advocates steeper corporate taxes, said it surveyed major U.S. companies and found that 26 on average paid no net federal income taxes between 2008 and 2011, among them General Electric and Duke Energy.

"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," McIntyre said, blaming company lobbying for a failure to thoroughly overhaul the U.S. tax code in 25 years.

Accelerated depreciation will cost the U.S. Treasury $37 billion between 2010 and 2014, according to a recent estimate by Congress's Joint Committee on Taxation.

Still, both President Barack Obama and Republicans have backed an expansion of the tax break through bonus depreciation, which gives companies an even faster and larger first-year write-off. Many policymakers backing accelerated depreciation have cited the need to jump-start the economic recovery.

Disparate tax rates between companies that heavily use accelerated depreciation and those that cannot is among inequities that are prompting lawmakers to begin debate on simplifying the tax code through a major rewrite. The last such rewrite occurred 25 years ago under President Ronald Reagan.

The U.S. government's corporate tax receipts have been dwindling for decades, in part because of a plethora of special tax provisions in the code.

Revenue from corporate income taxes fell from between 5 percent and 6 percent of gross domestic product in the early 1950s to about 1.3 percent of GDP in 2010, according to the Tax Policy Center, another tax research group.

General Electric keeps its tax rate low -- an average negative 19 percent between 2008 and 2011 -- primarily by using tax benefits from its leasing business to offset profits in other units, such as the company's finance arm, McIntyre said.

"All of our businesses, to some extent, have a lower total tax liability as a result of tax incentives at the federal, state or local level for certain investments and activities," GE spokesman Andrew Williams said.

GE will pay U.S. taxes of about $1 billion for 2011 after three years of having paid no cash taxes, according to CTJ.

The company did not dispute those figures but said it will pay $2.9 billion for 2011 across all the countries where it operates.

Duke Energy's average negative 3.5 percent tax rate over the four-year period largely resulted from accelerated depreciation, according to the CTJ study.

Duke spokesman Tom Williams said the study is misleading.

"We're in a modernization phase now and we'll have four new plants by the end of this year," Williams said. "They cost $7 billion and so we're taking the tax benefits allowed."

Williams said the taxes will be paid eventually over the life of the assets. McIntyre said that may be true in some cases, but the companies can keep deferring taxes by generating more depreciation breaks.

(Reporting By Kim Dixon; Editing by Kevin Drawbaugh and Steve Orlofsky)

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Comments (3)
CITADEL4U wrote:
This is a short sighted and dumb article, that merely plays to the uneducated.

Without Accelerated Depreciation you end up with companies like ATT. Which sat on fiber optics and numerous other advanced technologies for decades. Why, because we had 30 year depreciation rates.

You have to have quick depreciation rates. In fact, depreciation should just be eliminated and replaced with cost of doing business. Which is how it is handled around the world. If you need it to make money to pay your taxes in the first place. Then you should be able to simply deduct if from your cost of doing business under an expenses line item.

America hasn’t lost one dime of tax money! It has gained Billions of dollars in taxes, wages, and advancements in society. By, getting rid of the old and buying, installing, and using the new: all the time.

Apr 10, 2012 10:28am EDT  --  Report as abuse
yrconscience wrote:
I concur with CITADEL4U; in order to continue to receive this tax benefit, companies must continually purchase new depreciable assets which in turn stimulates the economy. Given the cash reserves many major companies are sitting upon, the greater the amount of depreciable assets purchased may in turn increase company expansions and therefore increase the number employed in the U.S.

In the president’s case, Obama has been getting hammered for being anti-business, and offering no support for the continuation of this tax break would look decidedly so, not to mention appearing anti-jobs as well. No one is going to vote to end this, and given big business’ reluctance to increase employee numbers, although a slight uptick has recently occurred, it does not make sense to do so.

Thus it remains uncertain what Citizens for Tax Justice want to accomplish with their findings. As was stated this particular deduction came about during the Reagan administration’s first term, and has enjoyed the support of all following administrations and Congress. Removing this tax break would only strengthen the country’s current economic woes, regardless the tax savings certain companies enjoy, meaning whatever deficit-reduction occurred by its elimination would have to be spent out by the government as stimulus, increasing not decreasing the size of government.

I presume this so-called consumer group has foundation in the Occupy movement, although they could just as easily have Tea Party affiliation. Either way, without showing what these companies did with their tax savings, no actual conclusion can be reached by their findings.

Apr 10, 2012 11:48am EDT  --  Report as abuse
Warnin2U wrote:
Maybe someone should explain to the uneducated masses and you reporters that corporations never pay any income tax. The taxes corporation pay are collected from their customers in the form of higher prices. If you want corporations to pay 50% tax the be prepared to pay more for everything. I amazes me that so many of the uneducated, liberal arts and journalism majors don’t understand the first thing about capitalism. If you want to live in a nation where the rich pay for everything, then good luck – because it doesn’t exist! You bunnies better brush up on how thing work and get with the program of reducing taxes and reducing cost because the American dollar dollar isn’t going to buy you a stick of gum in 2 years because your politicians have stolen so much from our treasury to buy the votes of the ignorant so they could stay in office and live like kings.

Apr 10, 2012 1:36pm EDT  --  Report as abuse
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