Despite all their griping about the U.S.’s highest-in-the-developed-world 35% federal corporate income tax rate, big profitable U.S. companies paid just 12.6% of their reported worldwide profits in federal income taxes in 2010, a study released today by Congress’ Government Accountability Office shows. That low-sounding number is likely to fuel the debate over whether U.S. companies, after using all the tax breaks and ploys at their disposable, are really overtaxed. One point of comparison: last fall, Mitt Romney’s campaign produced a notarized letter from accounting firm PricewaterhouseCoopers stating that over the last two decades the Republican Presidential candidate had never paid personal income tax at below a 13.66% effective individual rate.
What makes the GAO’s report particularly interesting is that its analysts had access to aggregate data drawn from public companies’ Schedule M-3s—a not-public, but detailed form they must file with the Internal Revenue Service reconciling the differences between the income and expenses they report to shareholders using generally accepted accounting principles (GAAP) and those they report for tax purposes to the IRS. This allowed the GAO to calculate what companies actually paid in a given year. (The federal income tax expenses corporations report in the financial statements include estimated future tax liabilities attributable to temporary differences between GAAP and taxable income. )
The GAO report was requested by Sen. Carl Levin (D-Mich.) and Sen. Tom Coburn, (R-Okla.) last year, while they were chairman and ranking Republican on the Senate’s Permanent Subcommittee On Investigations. The subcommittee, which Levin still heads, has held hearings this year on tax reduction ploys used by Microsoft, Hewlett-Packard, and Apple Inc.
The GAO didn’t have access to individual companies’ confidential M-3s—just aggregate data drawn from them. So it couldn’t, for example, pick on the low rate paid by the tech industry, as other studies and the subcommittee itself have. But that aggregate data did allow the GAO to separate out profitable and unprofitable companies. While unprofitable companies generally pay no tax, their losses drive down aggregate corporate profits, making it look like the money-makers are paying a higher rate.