Why some major corporations pay more taxes than others

Many companies lessen their corporate tax burden considerably by deploying powerful political influence (crony capitalism) and employing expert tax advisors.

GE brings good things to life. Including low corporate taxes for GE. (Via Wikipedia, logo out of copyright)

WASHINGTON, Oct/ 23, 2015 – Every year the media is loaded with reports describing the disparity in the amounts of money companies pay in taxes. WalletHub.com has weighed in on the subject with a recent report:

With taxes and income inequality taking center stage in the recent presidential debates, the personal finance website WalletHub today released its latest S&P 100 Tax Rates report. This report provides an in-depth analysis of the 2014 rates at which S&P 100 companies — collectively worth more than $11 trillion as of Sept. 30 − are taxed at the state, federal and international levels.

With tens of thousands of pages in the U.S. tax code alone, determining what company pays what amount can be rather confusing. When you add multiple layers of taxes − city, county, state and (for most of these companies) international − it becomes the financial equivalent of pandemonium. Yet, somehow many companies lessen this tax burden considerably by deploying political influence and employing expert tax advisers.

The following is WalletHub’s list of the highest- and lowest-paying businesses with regard to total taxes paid to all layers of government:

Companies Paying the Highest Taxes

1 Anadarko Petroleum
2 Occidental Petroleum
3 Devon Energy
4 Citigroup
5 Walgreens Boots Alliance
6 Unitedhealth Group
7 Exxon Mobil
8 Facebook
9 CVS Caremark
10 ConocoPhillips

Companies Paying the Lowest Taxes

1 Morgan Stanley
2 Amgen
3 General Electric
4 General Motors
5 Mondelez International
6 Celgene
8 Bristol-Myers Squibb
9 Time Warner
10 Medtronic

According to the report, S&P 100 companies pay approximately 24 percent lower rates in international taxes than in U.S. taxes. This is among the reason some of the largest businesses in the U.S. are considering relocating to other parts of the world and taking many jobs with them. Many countries around the world recognize the power of lower tax rates in making a country more competitive in attracting business.

Three companies on the lowest paying list — Morgan Stanley, General Motors and General Electric — actually pay a “negative” tax rate in the U.S. These businesses are essentially being subsidized by the U.S. tax code.

The disparity can be attributed to several reasons.

“Regulatory capture” is often a factor in which mega businesses use their considerable lobbying influence and political campaign finance reach to incentivize the creation of favorable tax and tariff incentives by the U.S. government and by governments around the world. For example, many businesses among those paying the lowest taxes have established government-recognized “green initiatives” that countries are eager to incentivize and reward.

Other companies such as General Electric, are legendary for their efforts at mitigating tax expenses. It takes an enormous amount of money and time to wage war against corporate taxation. But businesses like GE regard such expenditures as routine and over the years have reaped considerable rewards as a result of their efforts. It costs a significant amount of money and human resources to prepare a carefully detailed 5,000-page tax return as GE has done in the past, but obviously, they’ve concluded that such an effort is far better for their bottom line than paying U.S. and international taxes.

At the same time, many countries around the world have a keen interest in attracting companies in certain vertically integrated businesses. Internationally, tech companies, including Apple, Cisco Systems and Google are typical of companies that have have enjoyed special tax incentives. These businesses are still paying over 25 percent lower tax rates abroad than they would in the U.S., in a trend dating from 2013.

There are certain things each of these companies have in common. They are all extremely large and influential. Most spend an enormous amount of time and money on consultants and professionals to minimize the cost of taxes. And just as significantly, most of these companies have significant political clout that makes it possible for them to save a fortune in taxes.

The lesson we learn is that crony capitalism is alive and well and continuing to grow around the world as big businesses with the resources to do so exploit political influence and legal loopholes to minimize or avoid taxes whenever and wherever they can.

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