Media Missed the Mark on Business Taxes

 

When it comes to attacks on corporate America, history tends to repeat itself. The Government Accountability Office (GAO) recently issued its report on corporate tax liabilities, as it has for many years. And once again, its data are being twisted and misinterpreted by those seeking to demonize the business community.

 

Perhaps you saw a screaming headline in your local paper or a news story on TV last week claiming that most businesses pay no taxes. These stories were based on a GAO report that appeared to conclude that 60% to 70% of companies in the United States escape the tax man.

 

What the GAO report actually said was that for the period between 1998 and 2005, corporations—not necessarily the same corporations--had no tax liability for one of the eight years in question. Let's face it ... if two thirds of all corporations paid no taxes for all eight years, we would be reading about a Department of Justice or IRS investigation, not a GAO report!

 

Let's keep in mind that there's a difference between not paying taxes owed and not having a tax liability. The GAO report doesn't say that businesses aren't paying taxes they owe. Rather, it says that some corporations did not report tax liabilities, i.e., they did not owe taxes. So how do corporations avoid having tax liabilities? They don't make any money! As any graduate of Econ 101 can tell you, there's a difference between revenues and profits. You can have many billions of dollars in revenue and still lose a whole lot of money. Just look at GM, Ford, and Chrysler. If your expenses are larger than your revenues, then you don't have any profits--therefore, no "income" to tax.

 

Actually, the situation with corporations is not all that different than with individuals. In 2005, 44 million out of 134 million individual income tax returns filed showed no income tax liability whatsoever. And this doesn't even account for all those individuals who had insufficient income to even have to file income tax returns!

 

So the idea that there is a large pool of businesses not paying taxes that they legally owe is just incorrect. Maybe misrepresenting the data or using it to make a false argument is just the media's way of trying to make a report that really says nothing into a scintillating, scandalous story. It wouldn't be the first time. And it won't be the last.