Which Group is the Bigger Set of Idiots?

Ok, recently some of you may have read the following article: Most companies in US avoid federal income taxes

Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.


The study by the Government Accountability Office released Tuesday said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO’s estimate.

“It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called “S” corporations pay taxes under individual tax codes.

“Half of all business income in the United States now ends up going through the individual tax code,” Edwards said.

The GAO study did not investigate why corporations weren’t paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies, or 66.7 percent of them, paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of large U.S. corporations – those with at least $250 million in assets or $50 million in receipts – did not pay corporate taxes.

The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.

Dorgan and Levin have complained about companies abusing transfer prices – amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this.
“It’s time for the big corporations to pay their fair share,” Dorgan said.

Consequently, you can find the GAO report here.

Does anything strike you as to something being wrong with this news report?  I mean, besides the fact that US corporations pay BILLIONS of dollars in taxes each year?

Yes, US corporations pay BILLIONS of dollars of tax each year to the federal government.  Income tax, which is what the GAO report covers, is only one tax of many.  Most of you are aware of payroll taxes, but there are others – many others – that are too many to list here.

What is missing with the GAO report and the AP story is a little thing called “context”. 

The first-year business failure rate is not exactly a fixed number.  Estimates range between 90% and 30%, but the actual number is probably somewhere in between.  Much of this has to do with the economic climate of the US, the industry sector involved, and so on. However, as a graph of business survival shows over a ten year period, only about 30% of those businesses started a decade ago have survived.  Consequently, the survival rates for new firms for the first four years is only something like 44%, according to statistics provided by the Small Business Administration.  So, the casualty rates for a new business over it’s first decade is staggeringly high.

Now, those of you who have a brain can figure out that those few businesses that survive the first few years of operation, often times are not profitable over that period.  Many businesses take on venture capital for a fixed duration – three years commonly, sometimes five years – or will hunt down venture capital to keep the lights on, and the employees paid.  If a business is making a profit, they generally don’t have to take on venture capital, or take out loans unless they are expanding.  If they’re pulling a profit, that profit either gets paid out to the shareholders, or re-invested into the business.  However, roughly said, profit equals income, and corporate income is taxed.

Those who don’t make a profit, the venture capital keeps the business alive over a longer term, so the business can survive.  Businesses operating at a loss do not pay corporate income tax.  And most start-up and/or new businesses often run at a loss over several years, depending on the patience of the shareholders and venture capitalists.

What I’m telling you are the quick-and-dirty basics of starting a new business.

A VAST majority of businesses out there, especially start-up businesses, are small employers: employing less than 20 people.  This can be seen in the Small Business Administration data.  As anyone can tell you, this is the most volatile area of business because they often do not take in huge amounts of revenue, and do not have a huge amount collateral to use in order to get a loan.  Thus, they come and they go, and often times quickly at that.

Then again, anyone who has worked in the private sector for about ten years could tell you most of this without having the rely on statistics.

Again, when a company runs at a loss, they do not pay income taxes to the government.  This is the way the law is structured.  If they did, you’d see more business failures, as the additional financial burden would push marginal companies over the brink.  So, with what little wisdom the framers of the current corporate income tax law had, they limited corporate taxation to income and/or profits.  You run at a loss, you don’t pay corporate income tax.

“Tax them equally, regardless of profit!” you say?  Hang on: I’ll get around to answering that question.

Thus, I’ve pretty much shattered the misconception that just because you go into business for yourself, you’re not rolling in dough.  In fact, the opposite notion is perhaps more accurate.

Now, there are basically three types of businesses out there: sole-ownership, partnerships, and corporations.  The first two in that list place all financial burden on the owner or owners, and exposes them to maximum financial liability.  The last – corporations – limits liability to the shareholders (read: owners), and are fairly attractive to those people who want to start a business, but want to limit the impact of any liability to their personal incomes.  Not all businesses are corporations.  So, whatever tax implications are generated by corporations, it does not apply across the board to all business types.

So someone tell me out there, where is ANY of what I’ve basically illustrated here shown in either the Associated Press story, or the GAO report?  I’ve looked, and I can’t find anything.

I’ll clue you into something: it’s not in there either on purpose, or because the people at the GAO and the AP are a bunch of frickin’ dimwits.  I’m apt to believe it’s a little bit of both.  Senator Carl Levin, the guy who requested the GAO report in the first place, is a lefty-liberal from Michigan whose policies and philosophies have been outright hostile to businesses.  He loved to tax, and loves to spend what he has taken by taxation on frivolous crap.  Such an example is the several million he had earmarked for preserving the old Tiger Stadium, even while it is in the middle of being demolished.  What’s not mentioned in his press release is the fact that Corktown is the home site for the old Tiger Stadium.

Gee, I wonder why?

So tell me, which is the bigger set of idiots here?  The people from the GAO?  Guys like Senator Levin of Byron Dorgan?  The people from the Associated Press, who took all of this stuff WAY out of context in their reporting?

I’d like to think that the biggest set of idiots are the people who believe this agenda-driven crap in the first place.

As for just simply taxing corporations without regard to profit, it is just a little coincidental that Senator Levin is from Michigan.  Michigan is a tax-‘em-till-they-bleed state.  We had a thing called the “Single Business Tax” that recently expired; now replaced with the Michigan Business Tax.  This specific tax was levied on every business in the state regardless of income. 

Michigan is well-known for being a state with high taxation, and is often outright hostile to business.  They mandate union membership in many economic sectors.  Thus, it’s no surprise that Michigan has been in a one-state recession since the year 2000.  Unemployment rates have reached 8% or more, and a mass exodus of businesses has evacuated the state since the election of Jennifer Granholm.

I guess Senator Levin, satisfied with the work of he and his party in the state of Michigan, have decided to go national.

God help us all.

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