About those corp tax cuts

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About those corp tax cuts

Postby ET » Wed May 16, 2018 12:05 pm

Transferring Keith's post from the LIberty Univ thread where it started....
*** begin Keith's post *** (can't embed more than three quoted parts, so using ***)
ET wrote:
KeithE wrote:
ET wrote:Meanwhile, here in Memphis, a few weeks ago a little hometown corporation by the name of FedEx announced they would invest $1,000,000,000 - that's "billion" with a "b" - in their facilities here. Some pay actions were also announced. I'm guessing all this "fails the Jesus test". Employing more people, increasing the pay of others, generating economic activity.


Are you claiming this is due to the Trump/GOP tax cuts?? Truth is it is because Fed Ex has the opportunity (and is smartly - I think- betting on exploiting that) to deliver more packages due to changes in how we shop - online.

I am claiming that any given corporation that will have it's profits taxed at 21% instead of 35% has a lot more money to work with for whatever business goals they have. I have little doubt that FedEx and any other U.S. corporation that have announced various spending plans have done so because they expect to have greater income due to reduced taxes. Some actions may be new and due solely to tax rate changes, others may be accelerated and brought forward because a greater cash flow will exist.

If some of these companies repatriate overseas income, then we can have a discussion of whether taxing actual money at 21% is better than taxing no money at 35%.


Except that Fed Ex pays only 7.5% in federal taxes

Supposedly the Tax Cuts and Jobs Act did away with loopholes that allow such low taxes being paid. Truth is very few tax loopholes were close and those that were politically motivated (e.g tax deductions for state/local taxes which was aimed to punish people from high tax states like CA , NJ and NY who voted against the GOP). And many more loopholes were created. Read it.

Sure I get your point about some honest companies that do not already employ tax evasion tactics torch 21% taxes or lower will have more cash for investments. Even there, most are not investing but doing stock buybacks and bonuses to big shots. But if you think this will stimulate the economy, you have a long way to go to demonstrate that to me. Time will tell how stimulating these tax cuts will be.

Got to run.
*** end of Keith's post ****
Last edited by ET on Wed May 16, 2018 12:08 pm, edited 1 time in total.
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Re: About those corp tax cuts

Postby ET » Wed May 16, 2018 12:05 pm

I was working on this one when the site crashed a couple of weeks ago, so I'll go ahead and post it.

So this guy claims:
The report shows that last year FedEx paid a 7.5 percent federal income tax rate on nearly $3.6 billion of U.S. pretax income and this low rate is due in part to accelerated depreciation, a provision in the tax code that allows the company to write off capital investments faster than they wear out. It’s not surprising, then, that FedEx’s leadership is currently promoting a tax plan that would drop the company’s statutory tax rate even more, and allow it to write off capital investments even faster.

For 2015-2017, the effective tax rate is listed as as 35.5%, 33.6% and 34.6% on Form 10-K of the link provided in the article (see table about three-quarters of the way down the page). Checking the annual reports of two other large corporations in my community - Autozone and International Paper - I find that the reports specify effective tax rates in a similar range. IP had effective tax rates of 14%, 37% and 26% for 2014-2016. Autozone had effective tax rates of 32.1%. 31.2% and 31.3% for 2014-2016.

The annual reports for all three corporations are available on their respective web sites and are available for reference if needed.
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Re: About those corp tax cuts

Postby Sandy » Wed May 16, 2018 12:37 pm

Fact, corporate tax cuts have never successfully stimulated the economy, and aren't doing so now. Fact, picking out companies in industries that are expanding as examples of how the tax cuts are stimulating the economy ignore the problem of loopholes and no way to justify how it is that those who earn 80% of the income now pay less than 20% of the taxes.
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Re: About those corp tax cuts

Postby KeithE » Wed May 16, 2018 5:04 pm

ET wrote:I was working on this one when the site crashed a couple of weeks ago, so I'll go ahead and post it.

So this guy claims:
The report shows that last year FedEx paid a 7.5 percent federal income tax rate on nearly $3.6 billion of U.S. pretax income and this low rate is due in part to accelerated depreciation, a provision in the tax code that allows the company to write off capital investments faster than they wear out. It’s not surprising, then, that FedEx’s leadership is currently promoting a tax plan that would drop the company’s statutory tax rate even more, and allow it to write off capital investments even faster.

For 2015-2017, the effective tax rate is listed as as 35.5%, 33.6% and 34.6% on Form 10-K of the link provided in the article (see table about three-quarters of the way down the page). Checking the annual reports of two other large corporations in my community - Autozone and International Paper - I find that the reports specify effective tax rates in a similar range. IP had effective tax rates of 14%, 37% and 26% for 2014-2016. Autozone had effective tax rates of 32.1%. 31.2% and 31.3% for 2014-2016.

The annual reports for all three corporations are available on their respective web sites and are available for reference if needed.


I did find the tax rates you mentioned for FedX, IP and Autozone on a site called CSIMarket.

Here are companies headquartered in Memphis:
    International Paper.
    Pfizer.
    NYK Service.
    Schwan's Food Service.
    TBC Corporation.
    FedEx.
    ServiceMaster.
    AutoZone.

Couldn’t find anything else in Memphis except Pfizer whose effective tax rate according to CSIMarket is 25.49% 22.2% and 13.45% in 2014-2016.

But what this does not account for is money earned in the US but shuttled offshore in hidden profits (money earned offshore is taxed in those countries). Nor does it include tax breaks (e.g massively accelerated depreciation) and tax credits* lobbied for and received (often leading to negative tax rates). Here is a SUMMARY OF RESEARCH ON U.S. EFFECTIVE CORPORATE TAX RATES when all this is accounted for. The three major studies show effective tax rates of a sampling of American Corporations are 17% (US GAO) , 19% (Univ of Berkeley) and 19.4% (Citizens for Tax Justice (CTJ)). All show wide variability in corporate effective tax rates (some paying 35% and many paying 0%)

The blurb from the CTJ about tax havens is typical, but read it all.
In 2015, 57 disclosing U.S. corporations out of the 304 Fortune 500 companies holding $2.1 trillion in profits offshore have paid an average tax rate of just 6.3% on their share of those profits, which means most of the money is likely in tax havens.12


Here is a more recent study exploding the The 35 Percent Corporate Tax Myth

Profitable corporations are subject to a 35 percent federal income tax rate on their U.S. profits. But many corporations pay far less, or nothing at all, because of the many tax loopholes and special breaks they enjoy. This report documents just how successful many Fortune 500 corporations have been at using loopholes and special breaks over the past eight years. As lawmakers look to reform the corporate tax code, this report shows that the focus of any overhaul should be on closing loopholes rather than on cutting tax rates.


As a group, the 258 corporations paid an effective federal income tax rate of 21.2 percent over the eight-year period, slightly over half the statutory 35 percent tax rate.
Eighteen of the corporations, including General Electric, International Paper, Priceline.com and PG&E, paid no federal income tax at all over the eight-year period. A fifth of the corporations (48) paid an effective tax rate of less than 10 percent over that period.


Interesting they called out IP.

The tax breaks claimed by these companies are highly concentrated in the hands of a few very large corporations. Just 25 companies claimed $286 billion in tax breaks over the eight years between 2008 and 2015. That’s more than half the $527 billion in tax subsidies claimed by all of the 258 companies in our sample.
Five companies — AT&T, Wells Fargo, J.P. Morgan Chase, Verizon, and IBM — enjoyed more than $130 billion in tax breaks during the eight-year period.


How do these companies avoid paying taxes? They artificially lower their profits or claim those profits were earned in tax havens (thus their “reported” tax burden that places like CSIMarket report)
Read https://itep.org/the-35-percent-corporate-tax-myth/#howcompaniespaylow

Note that corporate taxes used to be equal to individual taxes (as a percent of US revenue source); but these days individuals pay 3 times as much.
Image

This drop from 35% (nominal) to 21% in the GOP/Trump Tax Cuts will reduce this further.

Where are these corporate tax savings going? 15% to employees wages/bonuses/benefits (most of that to the bosses who decide these things, I would guess), 39% to stockholders.

Image
Source: Five Charts That Show How Companies Are Spending Their Tax Savings

----------------- About Individual Income Taxes ------------------

* ET loves to point out that 47% of Americans pay no income taxes. Not strictly true, btw, since the 47% includes students and unemployed/retired - only 28% of those who earn money (mostly min wage or non-livable wages) pay no income taxes and they do pay payroll taxes, sales taxes, local taxes (usually), property taxes (If they have any). That lack of income tax is due largely to the Earned Income Tax Credit (a program suggested by Milton Friedman and enacted by Ford and extended by Reagan) as a means to curtail welfare programs (why take money in taxes just to give money back in welfare - reasonable).

Consider, ET, that you did not include corporate credits in calculating effective corporate tax rates (perhaps unintentionally), while claiming foul for tax credits that allow the working poor to lower their taxes.

Recalibrate your tax ideas ET, remembering the very substantial point illustrated in the chart below about the distribution of the GOP/Trump Tax Cut and Jobs Program represents the near future (more inequality than even the extreme situation that we have today).

Image

Note that since the 28% pay no income taxes, those three left most bars in the chart above goes to 0% tax break.

Also note that for the $30-40K bracket (that 4th bar), that represents $280/year, while the bar at the right represents at least a $143,000/year tax cut (>510:1 ratio). How in the heck can the GOP champion this as a “Middle Class” tax cut?

Is anyone still reading these facts?
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