The head of a consortium of businesses that includes multiple profitable companies that consistently pay no or abysmally low federal taxes has been tapped to testify Wednesday at a Senate Budget Committee hearing on the "Benefits of a Balanced Budget."
Former Michigan Gov. John Engler heads the Business Roundtable and is the hearing’s lead witness. It’s not clear whether the long-term decline of our corporate income tax—and the budget deficits this decline has helped create—will be a topic of conversation at the hearing, but if it comes up it’s pretty clear what Engler will say. The Roundtable has been among the loudest voices calling for cutting the corporate tax rate from its current 35 percent. We have noted previously that the Roundtable’s position is based on erroneous claims that U.S. corporations are paying uncompetitively high tax rates domestically.
Yet it’s hard to see just what the Roundtable members have to complain about. One prominent member of the Roundtable is Xerox, a company that has long featured prominently in our regular surveys of Fortune 500 corporate tax avoidance. As it happens, Xerox released its 2014 financial report last week. The report suggests that Xerox shouldn’t be too worried about our corporate tax rate being too high, since it has been phenomenally successful at avoiding it. The company reported $629 million in pretax 2014 U.S. earnings, and it didn’t pay a dime in federal income tax on those profits. In fact, the company received a tax rebate of about $16 million last year.
And 2014 was no anomaly. Over the past five years, the company has paid an effective tax rate of just 5.4 percent on $3.6 billion in U.S. profits.
Xerox is not alone in undercutting the Roundtable’s case for corporate tax cuts. Our February 2014 magisterial survey of tax avoidance by profitable Fortune 500 corporations found that the Business Roundtable’s membership is riddled with tax avoiders: American Electric Power paid zero income taxes in three of the five years between 2008 and 2012. FedEx had two zero-tax years in the same period, as did Honeywell and International Paper. General Electric avoided all income taxes in three of five years. Goldman Sachs only managed to zero out its income taxes in one of five years—still an impressive feat given that in their zero-tax year, it reported $4.8 billion in U.S. profits. And Boeing and NextEra Energy topped them all by paying no income tax in four of five years, despite being consistently profitable in each of those years.
Few would disagree with the idea that deficit reduction is a worthy goal. But John Engler and the Business Roundtable seem not to realize that their tax avoidance is a real impediment to achieving this goal. One can only hope that the Senate Budget Committee can convince them to help achieve the “Benefits of a Balanced Budget” by actually paying their fair share of income taxes.