WASHINGTON — More than half of U.S. corporations paid no federal income taxes during the boom years of the late 1990s, and those that did were able to shelter much of their income, according to congressional accountants.
The report by the General Accounting Office raises questions about whether the corporate income tax burden is too light and distributed unequally. It could undermine arguments that U.S. companies are overtaxed and provide ammunition to politicians and activists who claim companies are using loopholes to avoid paying their fair share.
"This describes a problem in the corporate tax system in which a good many of these companies are avoiding any tax obligation at all," said Sen. Byron L. Dorgan (D-N.D.), a former state tax commissioner who requested the GAO study. "We've got a bad tax law that tells ordinary folks, 'You pay up,' and allows some of the largest enterprises to avoid paying."
The share of tax receipts paid by corporations has been declining for decades, U.S. government figures show. But it has been falling at an even faster rate in many other countries, said Gary Hufbauer, senior fellow at the Institute for International Economics, and any attempt to raise corporate taxes or close loopholes in this country runs the risk of making U.S. companies less competitive in world markets.
"When you get a report like this people think, gee, they're getting away with murder," he said. "But most of the murder they're getting away with was deliberately designed by legislatures in response to competitive concerns. This is the result."
The GAO report showed that 61% of U.S. corporations paid no federal income taxes from 1996 through 2000, a period of rapid economic growth and rising corporate profits. The study was based on an Internal Revenue Service sampling of more than 2 million tax returns, most of them from smaller companies.
An estimated 94% of U.S. corporations reported tax liabilities amounting to less than 5% of their total income in 2000. The corporate income tax rate is ostensibly 35%, but companies are able to reduce their effective burden by claiming various deductions and credits, in some cases for losses incurred in other years.
U.S. companies paid an average of $11.88 in corporate taxes for every $1,000 in gross receipts, the study said.
Small corporations were more likely to avoid taxation than large ones, it showed. About 38% of big companies (those with more than $250 million in assets or $50 million in revenue) paid no taxes during the five-year period.
