A Tax Day Note To Corporate America: Pay Your Fair Share

Martin Whittaker(Forbes) | Apr. 18, 2017

Struggling with your tax filings?

Back in October, just about a month before he was elected president of the United States, Donald Trump tweeted: "I know our complex tax laws better than anyone who has ever run for president and am the only one who can fix them #failing @nytimes"  

With corporate tax reform now looming large on the legislative agenda, we are about to find out exactly what that fix looks like. The U.S. has the third highest corporate tax rate in the world - at 38.9% (combining the federal and average state tax rates), it falls behind only Puerto Rico and the United Arab Emirates. For years, Republicans have contested this high rate, believing it to be a burden on corporations that slows economic growth. Congress has put forward potential plans that would reduce the corporate tax rate by as much as half.

Of course, few, if any, corporations actually pay taxes at that rate. Earlier this spring, a study by the Institute on Taxation and Economic Policy (ITEP) showed that, between 2008 and 2015, Fortune 500 corporations paid an effective federal tax rate of 21.2% on average. Many pay far less, and some pay nothing at all. There is nothing illegal about this; companies are simply doing everything they can to reduce their tax base. And yet, in today’s court of public opinion, adhering to the letter of the law isn’t enough. Morality matters.

Which begs the question, how does the public view the corporate tax issue? Here’s what we know: (1) A majority of Americans are in support of corporate tax reform; (2) a majority also feels it is unacceptable for corporations to use overseas tax havens to avoid paying taxes, even if ensuing savings are used to fuel economic growth; and (3) people expect corporations to “pay their fair share of taxes”.

Precisely what paying a “fair share” of taxes actually means depends on your point of view. To inform matters, JUST’s rankings make plain the range in effective tax rates of the largest corporations in America, and highlight the major differences that exist, even within the same industry.

Looking specifically at taxes on U.S. sourced income, we also identified the differences between current taxes paid and total taxes accrued (including taxes deferred due to accelerated depreciation and other timing differences, as well as excess tax benefits from share-based compensation). In some cases, the variance was substantial.

Of course, the numbers themselves only tell part of the story.  What clearly matters to the public is how a company approaches its taxes, and whether it is behaving in a fair and just manner.

 

Company leaders wishing to stay on the right side of public opinion should take note.  Regardless of how the Trump administration’s tax reforms play out, the importance of staying in tune with the public’s feelings on the subject should not be underestimated.  

JUST Capital is an unaligned non-profit that ranks companies against Americans' top priorities. JUST’s second annual ranking on corporate behavior is slated to be published in October.