-Caveat Lector- October 20, 2000 Study Finds That Many Large Companies Pay No Taxes By DAVID CAY JOHNSTON Goodyear Texaco, Colgate-Palmolive, MCI WorldCom and eight other large corporations earned more than $12.2 billion in profits in 1996 through 1998, but none of them ended up owing corporate income taxes over that period, according to a study released yesterday. Indeed, as a group, the companies received $535 million in credits or refunds, the report found. The study of 250 large publicly traded companies showed that 24 owed no tax or received credits against past or future tax obligations in 1998, up from 13 in 1997 and 16 in 1996. The study also found that 71 of the 250 companies paid taxes at less than half the official 35 percent corporate rate during the three-year period. The study was conducted by the Institute on Taxation and Economic Policy, a Washington research organization associated with Citizens for Tax Justice, a nonprofit group supported in part by labor unions. The group argues that the tax system favors the rich and politically connected. Corporate profits overall soared 23.5 percent during the three-year period, but corporate tax revenues grew just 7.7 percent, a disjunction that has drawn intense interest from the Treasury Department and some members of Congress who are concerned about the growing market for tax shelters and their abuse. In recent years, Congress has watered down the 1986 overhaul of the tax laws, which lowered rates and eliminated most tax shelters, and was supposed to simplify reporting. The recent changes have opened fresh opportunities for corporations to cut their taxes, the study found. "Corporate taxes are not rising along with profits because companies have found all sorts of ways to get around the reforms in the 1986 tax act," said Robert S. McIntyre, the director of Citizens for Tax Justice. "Companies also have gotten a lot of help from Congress, especially in gutting the minimum tax rules." Mr. McIntyre said that he and T. D. Coo Nguyen, the co-author, spent more than two years examining financial statements the companies sent to shareholders. All but 18 of the companies studied are on the Fortune 500 list, and the others are in the Fortune 1000. He said companies were excluded if they lost money or their tax disclosures "were crafted so that you could not figure them out." At least two companies objected to the study's methodology. Keith Price, a spokesman for Goodyear, said the study did not appear to consider an accounting rule affecting its sale of a pipeline subsidiary in 1998. It made no objection to the 1996 and 1997 figures. Michael N. Ambler, Texaco's chief tax counsel, said that his company had tax disputes with the Internal Revenue Service that were unresolved after more than a decade. If those disputes are settled with a refund, he said, that can easily distort the figures for any one year. He said that even the three-year study period was too short to give an accurate picture. Timothy McCormally of the Tax Executives Institute, which represents officials at large companies, told Bloomberg News that the companies named in the report did nothing wrong. "There is nothing in the report that suggests that any of this results from any illegal or improper activity," he said. The study by the Washington institute showed that the corporate tax burden was falling in many cases because of the growing use of stock options, which are an expense for tax purposes but do not count against profits reported to shareholders. Recent annual reports filed by Microsoft and Cisco Systems indicate that they paid no federal income taxes in 1999 because stock options exercised by employees wiped out profits for tax purposes. The study found that General Electric, I.B.M., Pfizer, Intel and Bristol- Myers Squibb also sharply reduced their tax rates because of stock options without having to show reduced earnings to shareholders. The most significant factor in the easing corporate tax burden, Mr. McIntyre said, can be traced to actions in Congress, which relaxed the corporate minimum tax in 1993 when the Democrats were in control of both the House and Senate, and again in 1997, after the Republicans had taken over. Congress made it easier for corporations to spread tax breaks and profits over many years, including reaching back to past years to get tax breaks that could not be used at the time. In at least one of the three years studied, 41 of the 250 large companies studied paid no federal income tax. Those 41 companies reported $25.8 billion in profits to shareholders in the years they paid no taxes. If they had been obligated to pay the full 35 percent corporate rate, the tax bill would have been $9 billion, but the companies received $3.2 billion in refunds. In total dollars, General Electric was the biggest beneficiary of tax breaks, the study said, saving $6.9 billion in three years. The company paid $2.1 billion in income taxes on $25.8 billion in profits, for a tax rate of 8.1 percent. The highest tax rate for the three years was paid by Winn-Dixie Stores, which paid an average of 35.7 percent of its 1996 through 1998 profits in federal income taxes. It was one of two companies that paid more than the 35 percent statutory rate because of multiyear tax rules. The other was Paccar. Copyright 2000 The New York Times Company <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! 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