The U.S. corporate tax rate was criticized when Apple Inc. was found to be evading taxes in the U.S. by using complex legal tax strategies. Now the spotlight has shifted to companies because the Government Accountability Office (GAO) has found that many profitable U.S. corporations paid an average of 12.6 percent in federal taxes in 2010.
The GAO report found many reasons for the lower tax rate, including the one-time benefits for capital investments given to companies during the recession. As the GAO did not have access to the names of the companies, but only to their data, it could not identify the companies that paid the low corporate income tax rate.
The GAO report specifically states that “for tax year 2010 (the most recent information available), profitable U.S. corporations that filed a Schedule M-3 paid U.S. federal income taxes amounting to about 13 percent of the pretax worldwide income that they reported in their financial statements (for those entities included in their tax returns). When foreign and state and local income taxes are included, the ETR (Effective Tax Rates) for profitable filers increases to around 17 percent.”
As the data GAO used included unprofitable filers, the ETR increased to 22.7%, but did not touch the 35% mark. The report states that the “GAO could only estimate average ETRs with the data available and could not determine the variation in rates across corporations. The limited available data from Schedules M-3, along with prior GAO work relating to corporate taxpayers, suggest that ETRs are likely to vary considerably across corporations.”
The report has brought to light that corporations usually do not pay the full federal tax rate of 35 percent. A previous report by the GAO found that tax avoidance by companies can cost the government up to $180 billion a year. In 2010, the Treasury received $191 billion in corporate taxes, according to the Office of Management and Budget.
It is no secret that companies use legal tax loopholes to substantially lower their tax liability in the United States by using a number of tax strategies. This makes it necessary for the government to block the loopholes that allow corporations to avoid paying their taxes fairly. It has been debated that lowering the corporate tax rate along with blocking of loopholes can prove effective in limiting tax evasion.