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<H1>Many companies pay no income taxes, study finds</H1><SPAN class=byline>By
Charles Riley</SPAN> <SPAN class=twitterName>@<A
title="http://twitter.com/CNNmoney
CTRL + Click to follow link"
href="http://twitter.com/CNNmoney" target=_blank>CNNMoney</A></SPAN> <SPAN
class=cnnDateStamp>November 3, 2011: 3:10 PM ET</SPAN></FONT></DIV>
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<P>NEW YORK (CNNMoney) -- The corporate tax rate is 35%. But an examination of
280 of the nation's largest corporations suggests that many aren't paying
anything close to that.</P>
<P>The real tax rate paid by a slew of major corporations averages closer to
18.5%, according to a study released Thursday by two liberal tax research
groups.</P>
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<P>The report issued by Citizens for Tax Justice and the Institute on Taxation
and Economic Policy paints the corporate tax code as wildly inefficient, filled
with loopholes and subject to the influence of lobbyists who carve out special
provisions for the companies they represent.</P>
<P>The study looked at 280 companies in the Fortune 500 that were profitable for
all three years between 2008 and 2010. </P>
<P>The results: 111 companies paid effective tax rates of less than 17.5% over
the three-year period; 98 paid a rate between 17.5% and 30%; and 71 paid more
than 30%.</P>
<P>The average rate? 18.5%.</P>
<P>Some companies paid zero. And 30 actually owed less than nothing in income
taxes over the three years.</P>
<P>How does that happen?</P>
<P>At the root of the problem is a <A
href="http://money.cnn.com/2011/05/24/news/economy/corporate_tax_reform/index.htm">system
of inverted incentives</A> that encourages corporations to lobby for special tax
breaks -- and politicians to insert them into the tax code.</P>
<P>Corporations pay lobbyists. Lobbyists convince lawmakers to add tax breaks.
Lawmakers modify the tax code. </P>
<P>It wasn't always like this. The corporate tax code was cleaned of special tax
breaks during the Reagan administration.</P>
<P>The clean slate didn't last long, and over time, special provisions have been
added back in. NASCAR racetrack owners are allowed to write off the costs of
their racetracks. There's the sweet deal for companies that make Puerto Rican
rum. </P>
<P>Some of the biggest breaks go to companies that are allowed to write off
investments in equipment more quickly than they actually depreciate. </P>
<H2><A
href="http://money.cnn.com/2011/05/24/news/economy/corporate_tax_reform/index.htm">The
American tax machine</A></H2>
<P>And certain companies enjoy incentives geared specifically at their
businesses. The oil and gas industry, for example, is allowed to write off some
drilling and exploration expenses.</P>
<P>All the breaks add up -- sometimes eliminating a company's tax burden
altogether. Other companies reported so many "excess tax breaks" that their tax
burden went "negative," the study said. </P>
<P>According to the study, utility Pepco Holdings and conglomerate General
Electric have the highest negative income tax rates.</P>
<P>Pepco's profits totaled $882 million over the three-year period, while the
company had a negative tax rate of 57.6%. GE earned $10.5 billion, with a
negative rate of 45.3%, according to the study.</P>
<P>Pepco (<SPAN class=inlink_chart><A class=inlink
href="http://money.cnn.com/quote/quote.html?symb=POM&source=story_quote_link">POM</A></SPAN>,
<A
href="http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2023.html?source=story_f500_link">Fortune
500</A>) said Thursday that it always operates within the law, and that the IRS
audits every income tax return filed by the company.</P>
<P>"Pepco Holdings pays all its required taxes, including but not limited to
income, sales, use, property, and gross receipts taxes, in all the taxing
jurisdictions within which it operates," the company said in a statement. </P>
<H2><A
href="http://features.blogs.fortune.cnn.com/2011/04/04/the-truth-about-ges-tax-bill/">The
truth about GE's tax bill</A></H2>
<P>GE (<SPAN class=inlink_chart><A class=inlink
href="http://money.cnn.com/quote/quote.html?symb=GE&source=story_quote_link">GE</A></SPAN>,
<A
href="http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/170.html?source=story_f500_link">Fortune
500</A>), which runs an <A
href="http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_returns/">extremely
complicated</A> multi-national operation, took issue with the study, calling it
"inaccurate and distorted."</P>
<P>"GE paid billions of dollars in taxes in the United States over the last
decade, and we expect our overall tax rate will be approximately 30% in 2011,"
the company said in a statement. "We believe the U.S. tax system needs to be
reformed to close all loopholes, to lower the corporate rate and to provide a
territorial system like every other major country in the world." </P>
<P>GE is not alone in calling for reform. Most lawmakers acknowledge the system
is broken. President Obama called for corporate tax reform in his State of the
Union address and the concept has support among lawmakers on both sides of the
aisle.</P>
<P>The idea of reform is to lower the corporate tax rate while greatly scaling
back tax breaks, loopholes and other provisions of the tax code that allow most
corporate income to avoid taxation.</P>
<P>Despite the general consensus that something must be done, lawmakers are not
likely to tackle the issue anytime soon. It's possible that the congressional
super committee, now trying to find a way to cut the deficit, will make <A
title="http://money.cnn.com/2011/09/08/news/economy/national_debt_tax_reform/index.htm
CTRL + Click to follow link"
href="http://money.cnn.com/2011/09/08/news/economy/national_debt_tax_reform/index.htm">reform
recommendations</A>.</P>
<P>But don't count on too much action. The political atmosphere on Capitol Hill
has <A
href="http://money.cnn.com/2011/09/15/news/economy/boehner_speech/index.htm">prevented
movement</A> on many fiscal and tax issues in recent months.</P>
<P>Daniel Shaviro, a tax professor at New York University School of Law, said he
doesn't anticipate big changes in the corporate tax code, at least in the near
term.</P>
<P>"There is widespread sympathy for lowering the corporate rates," Shaviro
said. "But I I tend to doubt it happens anytime soon." <A
href="http://money.cnn.com/2011/11/03/news/economy/corporate_taxes/index.htm#TOP"><IMG
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<DIV class=storytimestamp>First Published: November 3, 2011: 5:41 AM
ET</DIV></FONT></DIV>
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<DIV><FONT size=2 face=Verdana>___________________________________</FONT></DIV>
<DIV><FONT size=2 face=Verdana>Wayne A. Fox<BR><A
href="mailto:wayne.a.fox@gmail.com">wayne.a.fox@gmail.com</A><BR></FONT></DIV></BODY></HTML>