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Opinion: America's Corporate Benedict Arnolds
by Scott Klinger
Email: sklinger (nospam) faireconomy.org
Phone: 617-423-2148 ext 120
Address: 29 Winter Street, Boston, MA 02108
16 Jun 2005
“That’s un-American” is the cry heard whenever the unwritten code of American values is breached, Compassion, fairness and equal opportunity are hallmarks, and although you might not be able to recite chapter and verse of the code, you know when it is broken.
On this the 204th anniversary of the death of Benedict Arnold, one of America’s most famous traitors, it’s time to consider whether some of America’s largest corporations that pay little or no federal taxes, have indeed become traitors.
Large corporations are in full retreat from paying their fair share of taxes. In 2003, corporations paid just 7% of the cost of the US government, according to a study by Citizens for Tax Justice.
It wasn’t always this way. At the end of the Second World War, a time when paying taxes was viewed as a patriotic duty, corporations paid half the cost of the federal government. Even as recently as the 1970s, corporate taxes accounted for 20% of federal treasury receipts.
This dramatic change has shifted the cost of paying for government to smaller businesses and individual taxpayers, while at the same time boosting corporate profits and their executive’s pay.
In 2003, ten companies each reported more than $1 billion in profits to their shareholders, yet paid no federal corporate income tax. Collectively, these firms that have claimed the only way they can remain competitive is through tax breaks, earned $30 billion in profits and paid their CEOs $126 million in 2003. The average pay of the CEOs of the corporate Benedict Arnolds was $12.6 million, 51% higher than the pay of the average large-company CEO as reported by Business Week.
Who are these resurrected Benedict Arnolds? A new report published by United for a Fair Economy entitled Corporate Traitors: The Decline of Corporate Taxes and the Subsequent Rise of CEO Pay (http://www.faireconomy.org/press/2005/corporatetraitors.pdf) bestows awards on some of these tax avoiders.
Boeing, the nation’s second largest defense contractor, is honored with the “Taxes are the Real Enemy” Benedict Arnold award. Boeing received the largest federal tax refund in 2003. So large was Boeing’s $1.7 billion tax refund that it dwarfed the company’s $1 billion in reported earnings, giving the company an effective tax rate of -159% according to Citizens for Tax Justice.
Viagra maker Pfizer took home the “Taxpaying Dysfunction (TD)” award. Despite $14 billion in profits between 2001 and 2003, Pfizer couldn’t get excited enough about paying taxes to perform – sending just $1.2 billion to the federal treasury, a miserly effective tax rate of just 8.2%. In contrast, Pfizer’s industry competitor Merck paid 32.5% of its $12.7 billion in three-year profits in federal taxes.
Pfizer saw no need to be Scrooge-like when it came to paying its CEO Hank McKinnell, however, who walked away with $21.4 million in 2004, more than three times what Merck paid its CEO.
These disparities in tax rates adversely affect the competitive playing field not only between giant companies like Pfizer and Merck, but to an even greater degree between large companies and small businesses. While the average large company today pays only 18% of its income in federal taxes, many small businesses owners pay 34%.
Two centuries after Benedict Arnold used his power and influence to gain a plum assignment as commander of West Point, and then used that position to surrender this important fort to the British, we are witness to other powerful players using their privilege and standing to rewrite the nation’s tax laws for their own gain.
Corporate tax and accounting departments have morphed from backwater cost centers to sexy profit drivers. Investments in research and development have shrunk as investments in aggressive lobbying and accounting have blossomed. These corporate Benedict Arnolds, like their namesakes, are jeopardizing the nation’s security.
The American public, angered by Arnold’s betrayal, went on to fight and reclaim West Point from the British. Today the fight is about restoring the fairness of the tax system by assuring that corporations pay their fair share to maintain the society upon which their vast wealth depends.
The fight has many fronts
-Congress should reform and simplify the corporate tax code, lowering the rate, eliminating the myriad of tax breaks and implementing progressive tax principles that would tax Big Business at higher rates than small family businesses, reversing the current reality.
-The corporate alternative minimum tax, eviscerated by the Clinton Administration, needs to be restored, so that all profitable companies pay taxes.
-We need to withdraw from tax treaties with many of the 90 tax haven nations who aid and abet corporate tax avoiders.
Those who continue down Benedict Arnold’s path might, like the infamous traitor, consider taking themselves to another country. Their current behavior is un-American and unacceptable.
Scott Klinger is the corporate accountability coordinator at United for a Fair Economy (http://www.faireconomy.org) and author of the report: “Corporate Traitors: The Decline of Corporate Taxation and Subsequent Rise in CEO Pay.” (http:///www.faireconomy.otg/press/2005/corporatetraitors.pdf)
Scott Klinger may be emailed at sklinger (at) faireconomy.org.
This work is in the public domain