10 companies in the Fortune 500 with lower income tax rates than the average American family

A new report from Citizens for Tax Justice (CTJ) illustrates how profitable Fortune 500 companies in a range of sectors of the U.S. economy have been remarkably successful in manipulating the tax system to avoid paying even a dime of tax on billions of dollars in profits.

As a group, the ten companies paid no federal income tax on $16 billion in profits in 2012, and they paid zero federal income tax on $57 billion in profits over the past five years. All paid exceedingly low rates over five years – in fact, all but one had a lower tax rate in 2012 than a median-income family of four:

effective-tax-rates-2012

While General Electric, Facebook, FedEx and Pepco are fairly well-publicized tax avoiders, the CTJ report report also includes:

  • The oil and gas exploration company Apache, which paid no tax on $7.6 billion in pretax income over five years, enjoying a $169 million tax rebate over that period.
  • Health-care giant Tenet Healthcare, which hasn’t paid a dime of federal income tax on $905 million in U.S. income over the past five years, receiving a tax rebate of $51 million.
  • In the airline sector, Southwest Airlines paid no federal income taxes on $673 million in U.S. income last year, and actually received an income tax rebate of $45 million.
  • The Principal Financial Group, an investment services provider, which avoided all federal income taxes on its $919 million in 2012.
  • Ryder System, which provided truck rentals and services, paid a negative 2.3 percent federal income tax rate in 2012 and a negative 4.7 percent rate since 2008.
  • The Interpublic Group, a marketing and communications firm, also had negative tax rates both in 2012 and over the five-year period.

Get the full report from Citizens for Tax Justice »

Originally published at Washington Policy Watch

Governor’s budget proposal is a step in the right direction – but does not go far enough

by Marilyn Watkins

Our state budget is one of the main ways elected leaders make decisions on our behalf about the future our children and our state will have. Will we continue to underfund education and overcrowd classrooms, or provide adequate resources so kids in every zip code have access to high quality schools? Well, Governor Inslee was on the right track last week – refreshingly so! – when he asserted that education was more important than a handful of special tax breaks, or allowing tax rates on beer and business services to fall. teachers and students

But Inslee did not go far enough in his proposal for the 2013-2015 budget that begins this July 1st. Slashing spending on health and education has been the path chosen for 4 years now, limiting opportunity for a generation of children and young adults and undermining the health of vulnerable seniors. Now that Gov. Inslee has pointed us in a better direction, the Senate and House should identify additional new revenue to invest in our common future.

Building a Responsible Budget for Washington State suggests returning the tax rate on service businesses to the level it was 20 years ago, and ending a number of additional tax breaks that funnel money away from our paramount duty: educating our kids to be effective citizens, workers, innovators, and leaders. Together, these sources provide for $2 billion in new revenue beyond Governor Inslee’s $1.2 billion – money that could be invested in expanding quality early learning, fast-tracking K-12 improvements, lowering college tuition, expanding access to higher education, and restoring homecare services to seniors.

The state is under court order to invest substantially more in K-12 education. The McCleary decision will require the state to allocate an additional estimated $3 to $6 billion per biennium to public schools by 2018, in order to meet our constitutionally-mandated obligation to amply fund education for all children. Inslee proposes a $1.3 billion down payment in 2013-15 – but still only funds full-day kindergarten and smaller primary grade class sizes in the highest poverty schools, and continues to deny teachers cost of living raises, which have been withheld since the recession began. Keeping our best educators in the classroom should be a priority, but doing so becomes more difficult as their salaries remain stagnant.

Gov. Inslee does well in proposing the addition of 3,035 more low income preschoolers to the state version of Head Start, but cuts funding that allow working class parents access to high quality daycare for their kids. For higher education, the Governor’s budget holds the line on tuition for technical and community colleges, and limits increases to 3% and 5% at 4-year universities. But after several years of double-digit increases, it’s time to roll back tuition and expand access so our state’s young people have a shot at the high paying careers of the future.

Close Unneeded and Outdated Tax BreaksThe additional tax breaks I propose eliminating total $800 million for the biennium and include a number that the nonpartisan Joint Legislative Audit and Review Committee has recommended for legislative scrutiny. For example, the high tech research and development preferences were adopted in the early 1990s when computer software and biotech were beginning to take off. Now they disproportionately benefit not start-ups, but some of the wealthiest corporations on the planet. Microsoft, which reported net US income of $23.6 billion in 2012, claims fully 58% of the high tech sales tax waiver, according to Department of Revenue data. Moreover, a 2012 econometric analysis found little actual impact on job creation.

It’s also time to return the business tax rate on services to the 1990s level. The U.S. economy has shifted from goods-based to service-based, yet Washington continues to rely on the retail sales tax – paid mostly on goods – for fully half the General Fund budget. Meanwhile, the burgeoning service sector – including attorneys, consultants, software engineering, and personal services – contributes relatively little for public services. This disparity between our cutting-edge economy and out-of-touch tax structure is one of the reasons it is such a struggle for the state to adequately fund education.

In 2010, the legislature temporarily raised the Business and Occupation (B&O) tax rate on services from 1.5% to 1.8%. Without legislative action, the rate will revert to 1.5% on July 1, 2013. Over the past 3 years, jobs have grown in business and professional services at over twice the rate of overall job growth in the state. From 1993 to 1998, the service rate ranged between 1.6% and 2.5% depending on the kind of service and year. Inslee proposes keeping the 1.8% rate, for added revenues of $534 million. By going back to that 2.5% rate, Washington could collect another $1.2 billion to adequately fund education.

Of course, in the long run, we have to do more than end lower priority tax breaks and tweak rates. We need a whole new tax structure that reflects the modern economy and that requires the wealthiest – who have benefited the most from civil society – to contribute their fair share. Major tax reform won’t occur before the legislature is scheduled to adjourn on April 28th, but we can still make a major new investment in our kids.

Every child starts kindergarten just once. The students who entered high school in the fall of 2009 after budgets were slashed because of the Great Recession will be graduating (for the most part, we hope) this spring. Every year we dither and postpone means another group of kids with diminished hopes and fewer life chances. Let’s stop talking and start acting.

Originally published at Washington Policy Watch

Bad math: Corporate lobbyists, conservative think tanks hawk snake-oil economics for WA

Economist Arthur Laffer is touted as a go-to source of wisdom by conservative think tanks and corporate lobby groups in Washington state like the Washington Policy Center, Evergreen Freedom Foundation, National Federation of Independent Businesses, and Association of Washington Business. But a recent report shows Laffer’s economic prescriptions are more likely to hurt than heal our economy.

selling-snake-oil-cover large

Report: Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity – from Good Jobs First and the Iowa Policy Project [PDF]

This year marks the fifth anniversary of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. Written by Arthur Laffer and others and published by the American Legislative Exchange Council (ALEC), Rich States, Poor States embodies the policy agenda that ALEC pushes to state legislators: reduction or abolition of progressive taxes, fewer investments in education and other public services, a smaller social safety net, and weaker or non-existent unions. These are the policies, ALEC claims, that promote economic growth.

But a hard look at the actual data finds that the ALEC-Laffer recommendations not only fail to predict positive results for state economies – the policies they endorse actually forecast worse state outcomes for job creation and paychecks. That is, states that were rated higher on ALEC’s Economic Outlook Ranking in 2007, based on 15 “fiscal and regulatory policy variables,” have actually been doing worse economically in the years since, while the less a state conformed with ALEC policies the better off it was.

That is true whether the outcome is growth in jobs or growth in per capita or median income. There is virtually no relationship between the ALEC ranking and state Gross Domestic Product (GDP). Further examination of the predictive power of other key components of ALEC’s rankings (income tax rates, existence of an estate tax, overall tax levels, right-towork status) shows that none had a statistically significant effect on growth in state GDP, non-farm employment, or per capita income.

Further analysis finds that key ALEC-Laffer claims contradict longstanding peer-reviewed academic research on how state economies grow:

  • ALEC-Laffer claim that lowering state and local taxes produces much greater job growth; in actuality, such taxes are such a tiny cost factor for businesses, and come with higher taxes on others or lower quality public services, that such a strategy fails (see Chapter 3).
  • ALEC-Laffer claim that a low top personal income tax rate is a key to small business success; in actuality, property and sales taxes – ignored by ALEC-Laffer – are far more important issues (see Chapter 1).
  • ALEC-Laffer claim that high top personal income tax rates and the presence of estate and inheritance taxes cause large-scale out-migration of high-income individuals; in reality, migration has little to do with taxes, and there is no plausible case for state estate taxes affecting job-creating investment (see Chapters 3 and 4).
  • The ALEC report asserts that state tax rates in many instances approach “Laffer Curve” territory, where tax cuts would actually increase tax revenue; in reality, tax cuts reduce revenue and result in the defunding of public goods such as education and infrastructure, which really do matter for economic development (see Chapter 5).
  • ALEC-Laffer claim that wage suppression policies (anti-union “right-to- work” laws and the lack of a state minimum wage law) lead to greater job creation and prosperity; in actuality, such laws reduce wages and benefits but have little to no effect on job growth (see Chapter 6).

Overall, Rich States, Poor States consistently ignores decades of published research, making broad, unsubstantiated claims and often using anecdotes or spurious two-factor correlations that fail to control for obviously relevant factors. Indeed, the report repeatedly engages in methodologically primitive analysis that any college student taking Statistics 101 would be taught to avoid.

Consensus academic research derives far more plausible explanations for recent differences in state results. For example, instead of ALEC’s extreme policy recommendations, the composition of a state’s economy – whether it has large or small shares of the nation’s fastest-growing industries – is a far better predictor of job and income growth.

The evidence cited to support Rich States, Poor States’ policy menu ranges from deeply flawed to nonexistent. Subjected to scrutiny, these policies are revealed to explain nothing about why some states have created more jobs or enjoyed higher income growth than others over the past five years.

In actuality, Rich States, Poor States provides a recipe for economic inequality, wage suppression, and stagnant incomes, and for depriving state and local governments of the revenue needed to maintain the public infrastructure and education systems that are the true foundations of long term economic growth and shared prosperity.

Click here to read the full reportSelling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity” from Good Jobs First and the Iowa Policy Project.

Originally published at Washington Policy Watch.

Bad math: Corporate lobbyists, conservative think tanks hawk snake-oil economics for WA

Economist Arthur Laffer is touted as a go-to source of wisdom by conservative think tanks and corporate lobby groups in Washington state like the Washington Policy Center, Evergreen Freedom Foundation, National Federation of Independent Businesses, and Association of Washington Business. But a recent report shows Laffer’s economic prescriptions are more likely to hurt than heal our economy. selling-snake-oil-cover large

Report: Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity – from Good Jobs First and the Iowa Policy Project [PDF]

This year marks the fifth anniversary of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. Written by Arthur Laffer and others and published by the American Legislative Exchange Council (ALEC), Rich States, Poor States embodies the policy agenda that ALEC pushes to state legislators: reduction or abolition of progressive taxes, fewer investments in education and other public services, a smaller social safety net, and weaker or non-existent unions. These are the policies, ALEC claims, that promote economic growth.

But a hard look at the actual data finds that the ALEC-Laffer recommendations not only fail to predict positive results for state economies – the policies they endorse actually forecast worse state outcomes for job creation and paychecks. That is, states that were rated higher on ALEC’s Economic Outlook Ranking in 2007, based on 15 “fiscal and regulatory policy variables,” have actually been doing worse economically in the years since, while the less a state conformed with ALEC policies the better off it was.

That is true whether the outcome is growth in jobs or growth in per capita or median income. There is virtually no relationship between the ALEC ranking and state Gross Domestic Product (GDP). Further examination of the predictive power of other key components of ALEC’s rankings (income tax rates, existence of an estate tax, overall tax levels, right-towork status) shows that none had a statistically significant effect on growth in state GDP, non-farm employment, or per capita income.

Further analysis finds that key ALEC-Laffer claims contradict longstanding peer-reviewed academic research on how state economies grow:

  • ALEC-Laffer claim that lowering state and local taxes produces much greater job growth; in actuality, such taxes are such a tiny cost factor for businesses, and come with higher taxes on others or lower quality public services, that such a strategy fails (see Chapter 3).
  • ALEC-Laffer claim that a low top personal income tax rate is a key to small business success; in actuality, property and sales taxes – ignored by ALEC-Laffer – are far more important issues (see Chapter 1).
  • ALEC-Laffer claim that high top personal income tax rates and the presence of estate and inheritance taxes cause large-scale out-migration of high-income individuals; in reality, migration has little to do with taxes, and there is no plausible case for state estate taxes affecting job-creating investment (see Chapters 3 and 4).
  • The ALEC report asserts that state tax rates in many instances approach “Laffer Curve” territory, where tax cuts would actually increase tax revenue; in reality, tax cuts reduce revenue and result in the defunding of public goods such as education and infrastructure, which really do matter for economic development (see Chapter 5).
  • ALEC-Laffer claim that wage suppression policies (anti-union “right-to- work” laws and the lack of a state minimum wage law) lead to greater job creation and prosperity; in actuality, such laws reduce wages and benefits but have little to no effect on job growth (see Chapter 6).

Overall, Rich States, Poor States consistently ignores decades of published research, making broad, unsubstantiated claims and often using anecdotes or spurious two-factor correlations that fail to control for obviously relevant factors. Indeed, the report repeatedly engages in methodologically primitive analysis that any college student taking Statistics 101 would be taught to avoid.

Consensus academic research derives far more plausible explanations for recent differences in state results. For example, instead of ALEC’s extreme policy recommendations, the composition of a state’s economy – whether it has large or small shares of the nation’s fastest-growing industries – is a far better predictor of job and income growth.

The evidence cited to support Rich States, Poor States’ policy menu ranges from deeply flawed to nonexistent. Subjected to scrutiny, these policies are revealed to explain nothing about why some states have created more jobs or enjoyed higher income growth than others over the past five years.

In actuality, Rich States, Poor States provides a recipe for economic inequality, wage suppression, and stagnant incomes, and for depriving state and local governments of the revenue needed to maintain the public infrastructure and education systems that are the true foundations of long term economic growth and shared prosperity.

Click here to read the full reportSelling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity” from Good Jobs First and the Iowa Policy Project.

Originally published at Washington Policy Watch

WA Senate conservatives attack working families, vote to weaken Seattle’s sick days law

The attack on Washington’s families and middle class by Senate Republicans and “Road-Kill” Democrats continued in full force yesterday.

Conservative senators passed SB 5726, which waters down Seattle’s sick and safe leave ordinance and restricts similar laws that might be passed by other Washington cities in the future. If conservatives in the Washington State Senate get their way, this will be the fate of Seattle's landmark paid sick days law.

Who would lose the right to earn a little time to stay home when sick or to deal with their families’ health needs if the House and the Governor accept the Senate bill? Anyone working for a company without a physical location inside Seattle, as well as employees of any company who spend more than 15% of the hours they work in a year outside of city limits.

That would mean, for example, that someone working for a bakery or produce supplier based in Bellevue and spending their entire day delivering food to Seattle restaurants and grocery stores could be forced to work sick. So could a furnace installer or plumber who enters Seattle homes on a daily basis, but who is dispatched from a Shoreline office.

People who basically work fulltime in Seattle, but go to meetings or work outside of their main office an average of 3 days a month could also have the right to earn sick time taken from them. In fact, large chains with multiple locations could easily game the system by rotating staff to a non-Seattle store every couple of weeks.

Senators Braun (Centralia), Hobbes (Lake Stevens), Tom (Bellevue), and Holmquist-Newbry (Moses Lake) led the fight to limit working people’s ability to care for their own health or a sick child. They championed “building a wall around Seattle” and bemoaned the dilemma of businesses in suburban and rural districts who choose to sell their products and services in the big bad city and now find themselves having to provide a few hours of sick leave a year to some employees.

Let’s be clear. Complying with Seattle’s ordinance is only complicated for firms who want to deny their workers even the most minimal paid sick leave and require them to work when they are sick. Most companies covered by the law that didn’t offer sick leave before, do now and are not having any difficulty.

Of course, no company is forced to enjoy the benefits of the city’s customer base and facilities. And after listening to business representatives, Seattle’s city council limited coverage of the ordinance to workers based elsewhere to those who are working in the city at least 240 hours in a year, or 6 full-time weeks. This was a reasonable compromise, protecting the health and safety of Seattle residents and businesses, but not requiring that workers who were only incidentally inside the city be covered.

A number of Senators stood to defend the right of local governments to protect public health and the importance of paid sick leave standards to family economic security and business vitality. Senators Keiser, Frockt, Hasagawa, Murray, Conway, Kline and Kohl-Welles all spoke eloquently in opposition to SB 5726.

Meanwhile, House Bill 1313 which would extend paid sick and safe leave standards statewide has yet to be acted on by the House, although cut-off for passage of policy bills is tomorrow.

How did your Senator vote on ESB 5726, Placing geographic limitations on local paid sick leave and paid safe leave programs?

Voting Yea: Senators Bailey (R-Oak Harbor), Baumgartner (R-Spokane), Becker (R-Eatonville), Benton (R-Vancouver), Braun (R-Centralia), Brown (R-Kennewick), Carrell (R-Lakewood), Dammeier (R-Puyallup), Eide (D-Federal Way), Ericksen (D-Ferndale), Fain (R-S King County), Hargrove (D-Hoquiam), Hatfield (D-Raymond), Hewitt (R-Walla Walla), Hill (R-E King County), Hobbs (D-Lake Stevens), Holmquist Newbry (R-Ellensburg), Honeyford (R-Sunnyside), King (R-Yakima), Litzow (R-Mercer Island), Padden (R-Spokane Valley), Parlette (R-Wenatchee), Pearson (R-Monroe), Rivers (R-La Center), Roach (R-Auburn), Schoesler (R-Ritzville), Sheldon (D-Kitsap), Smith (R-Colville), and Tom (D-Bellevue)

Voting Nay: Senators Billig (D-Spokane), Chase (D-Shoreline), Cleveland (D-Vancouver), Conway (D-South Tacoma), Darneille (D-Tacoma), Fraser (D-Olympia), Frockt (D-Seattle), Harper (D-Everett), Hasegawa (D-Beacon Hill), Keiser (D-Kent), Kline (D-Seattle), Kohl-Welles (D-Seattle), McAuliffe (D-Bothell), Mullet (D-Issaquah), Murray (D-Seattle), Nelson (D-Seattle), Ranker (D-Orcas Island), Rolfes (D-Kitsap County), Schlicher (D-Gig Harbor), and Shin (D-Edmonds)

Cross-posted from the Washington Policy Watch

$1 Billion in Progressive Annual Revenue: Take Back the Giveaways

The purpose of the above document is to outline a series of revenue proposals worth half of the $2 billion legislators will seek to save/raise/cut in the upcoming special session.  As you can see, the proposals include both tax increases on the well-to-do, and elimination of tax exemptions that, again, favor the well-to-do.

EOI doesn’t have an official position on how to address I-1053; under 1053, with a simple majority vote, legislators could put this package of tax breaks to an up-or-down vote by WA voters.