If the urge ever strikes you to see the kind of good work the federal government does, visit the Web site of the Government Accountability Office. The congressional watchdog investigates everything from Medicare fraud to spending in Iraq. It has the rare ability to boil down complex issues into a manageable report that average people can understand.
But a recent report on how U.S. corporations avoid paying federal income tax was confusing. Then in summarizing the findings, the Associated Press made a mistake repeated in newspapers across the country and had to run a correction.
But don’t blame the GAO for the confusion. Like all things pertaining to the U.S. tax system, the intricacies of the corporate income tax are ridiculously confusing.
So we called the author for clarification.
He explained congressional investigators examined samples of corporate tax returns filed from 1998 to 2005 and found at least 23 percent of large U.S. corporations had no federal tax liability in any given year. About 3 percent reported no tax liability for all eight years studied.
The report raises questions about whether corporations are violating the law or legally escaping taxes because of loopholes. Congress should follow up, although the GAO didn’t make specific recommendations about what Congress should do in response to the findings.
Amid all the complexity, the report’s author made perhaps the most important observation about federal tax policy: “If there’s a commentary in all this,” he said, “it’s a commentary on the complexity of the tax system.” …
The corporate income tax started out as a simple income tax applied to corporate profits. But it has become extraordinarily complex. Efforts to avoid paying taxes provide full-time employment for company lawyers and actuaries and might encourage companies to move offshore. Armies of lobbyists seek more and more exemptions, credits and deductions on behalf of American businesses. Lawmakers award the exemptions and credits as incentives for desired action. …
Presidential candidates talk about closing loopholes or reducing the corporate income-tax rate. But maybe they should support a better idea: Repeal the nation’s corporate income tax. … Instead of corporate income tax, substitute another type of tax.
The United States should have a tax system that is sensible and fair. Not a tax system that allows and even fosters not paying taxes, which apparently many U.S. companies have managed to do.
– The Des Moines Register