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Print view: Do U.S. corporations pay high (or low) taxes? After reading Leonhardt's report, we have no earthly idea
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HOW MUCH DO THEY PAY! Do U.S. corporations pay high (or low) taxes? After reading Leonhardt’s report, we have no earthly idea: // link // print // previous // next //
WEDNESDAY, FEBRUARY 2, 2011

Explaining things can be very hard: Last night, Ed Schultz started his show as he does every night—by listing the stories which, he said, were “hitting my hot buttons at this hour.”

Those buttons concern heat, not light.

But on this evening, Schulz would try to report and explain a very important story. In our experience, Schultz doesn’t try to explain things a lot. Last night, when he tried, we’d say the rust was showing.

Rachel Maddow had promoted his effort during her own program last night. We stuck around to watch the Ed Show at 10 because of what she had said:

MADDOW (2/1/11): Enron, tech bubble, housing bubble and the scorched-earth deregulation of the banking business that led to the economic disaster that befell us all at the end of the Bush administration.

Turns out there’s a connection between deregulation and revolution as well. Ed Schultz tonight, on this network, has a really important addition to what we know already about Egypt. Nobody else has been reporting it. It is highly recommended. It’s coming up right after this show at 10:00 p.m.

We stuck around to see what we’d learn. But in our view, when Schultz began to present his report, his work was largely incoherent.

In fairness, Schultz’s topic would be quite hard for anyone to explain. But how good was Schultz at this novel task? We’re not saying that what follows is “wrong.” We’re asking a totally different question—how well do you actually understand the various things Schultz said?

Yes, we’re starting at the beginning. To watch this report, just click here:

SCHULTZ (2/1/11): It’s not just Egypt and Jordan. Yemen and Tunisia have also had mass protests. They’re all autocratic, majority-Muslim nations. But they’re not all oil states. And Tunisia is mostly secular.

So what else do these countries have in common? One thing is high food prices—a factor in how all the riots really started and how all of it started. And it’s not a coincidence that all of them have high food prices right now. Food prices have skyrocketed around the world and a big reason for that is Wall Street.

It started in 1991 with—surprise, surprise—Goldman Sachs. Before then, Wall Street speculators played only a minor role in food prices.

The way it worked, food companies and their suppliers, America’s farmers, wanted to keep their business stable, even if prices spiked for wheat, corn, or other agricultural commodities. So, they’d hedge their bets, signing contracts, “futures,” to lock in prices for some point in the future. Speculators helped, putting enough money in the system to keep things liquid.

After the Depression, FDR saw that speculators could drive up the price of wheat, corn, whatever, by betting on commodity futures the way Wall Street later bet on dotcoms. Distorting food prices like that could destroy the very stability future contracts were created to provide. So, FDR signed into law what are called position limits—limits on how much of the total betting could be done by Wall Street.

And what do you know? It worked. For decades, the price of wheat was driven by fundamentals like the weather, and Wall Street couldn`t stand it.

In 1991, Goldman Sachs asked the Commodity Futures Trading Commission, the CFTC, to give them a waiver on those position limits, so they could bet as much as they wanted. A CFTC appointee for the first President Brush said sure. More than a dozen other firms followed suit.

Goldman Sachs even created commodities indexes to simplify the betting and goose casual investors into the casino. Again, Wall Street followed suit.

Remember the real estate bubble? Wall Street wanted to hedge all of those bets it made on mortgages. So, they ramped up their bets on commodities. And when Wall Street started losing money on sub-primes, they bet it on commodities instead.

By 2008, Wall Street had five times more futures contracts in commodities than it did in 2002. Commodity indexes held about $13 billion in 2003. By 2008, it was over a quarter trillion. That’s how we got the oil bubble, and record high gas prices added to the cost of shipping food, plus speculators looking for another bubble—and you get a food bubble.

By 2008, the U.N. estimates speculators held 65 percent of corn futures’ contracts, 68 percent of soybean, 80 percent of wheat. By mid- 2008, the IMF food price index jumped more than 80 percent in just a year and a half before.

It was the first time in history the proportion of people going hungry worldwide went up. The number of chronically malnourished people rose by 75 million in 2007, 40 million in 2008. That’s why Egypt had riots back in 2008.

Along with 30 other countries, Italian moms marched against the price of pasta. Wall Street speculators admitted they were doing it.

In 2006, Merrill Lynch said speculation accounted for 50 percent of the price of commodities, half the price. In 2008, a Goldman Sachs research paper said, quote, "Without question, increased fund flow into commodities has boosted prices."

2009, even Republican Senator Tom Coburn admits the speculation, quote, "helped to inflate futures prices and thereby disconnect futures from cash prices, impairing farmers’ and grain elevator operators’ ability to hedge price risk." Got that?

Even Coburn said there was so much Wall Street money distorting prices that farmers and other guys who actually need commodity futures couldn’t use them to keep their companies stable anymore.

We don’t notice price hikes so much because most of our food prices come from marketing and packaging. But in the developing world, the price of food is everything.

And what country imports more wheat than any other? Egypt—where the price of wheat rose 70 percent last year.

Last summer, Goldman called a report on the role of speculation in food prices, quote, "misleading,” and blamed other factors.

A lot of reports mentioned that Russia cut off its wheat supply last year. What they don’t tell you is why—because futures traders asked them to.

Let’s bring in my colleague, Dylan Ratigan. He’s got his own show right here on MSNBC week days at 4, formerly of CNBC and Bloomberg News. Thanks for coming in tonight, Dylan. I appreciate it.

RATIGAN: It’s a pleasure.

As we watched, we had little idea what that actually meant. From our perspective, Ratigan only made matters worse—after gushing about how well his host had just explained things. It might have been “a pleasure” for him. For the analysts, what followed was sheer torture:

SCHULTZ (continuing directly): I know that you have talked a lot about speculators and what has happened on Wall Street but this has really been a tsunami in the food world, which has caused a lot of havoc around the world.

Tell us, these price hikes—strictly due to speculation?

RATIGAN: No. First, I want to compliment you on your reporting, Ed. I think you just did an exquisitely good job of describing the contributing factor that financial speculation has been in the spike not just in food prices but also in energy prices.

Unfortunately, there are other factors also in the financial community that are even more sinister. There’s a mathematical certainty, Ed, that is this: all the paper currency in the world, all the money, all the paper, must by definition equal the value of all the commodities, because a commodity is equal to what the value of the currencies are in the world.

In order to cover up the massive bank theft that’s been perpetrated in this country in 2008, the Federal Reserve, under the guidance of first President Bush and now President Obama, as you know, Ed, has been printing trillions of new dollars and people, smart financial planners, have been concerned about the debasing effect that has on our currency. Well, as a direct result of the Federal Reserve’s money printing, to cover up our bank theft, that has been an additional factor in causing commodity prices to explode higher.

So, in addition, to the speculative aspects that you describe so well, a by-product of the Federal Reserve and the White House and the Treasury`s decision to go with money printing as a way to prop up our economy, is driving food prices higher.

SCHULTZ: You know, it’s just an amazing domino effect. There is no doubt.

Most of the analysts started to cry when Ratigan explained that “mathematical certainty”—the fact that “all the paper currency in the world, all the money, all the paper, must by definition equal the value of all the commodities, because a commodity is equal to what the value of the currencies are in the world.”

On the one hand, topics like this are quite hard to explain, even though they’re quite important. On the other hand, we’d have to say that these big galoots’ rust was showing as they pounded away last night. Should Big Eddie return to what he does best—yelling at us about his “hot buttons” and naming the names of the racists?

To watch the whole report, click this. Warning! It’s ten minutes long!

HOW MUCH DO THEY PAY (permalink): Our country’s hopeless political discourse runs on a diet of dueling sound-bites.

Everyone has heard these bites. Nobody knows if they’re accurate.

One such (conservative) sound-bite involves the tax rate paid by corporations. Among conservatives, our corporate tax rate is routinely denounced as “highest in the world.”

Is that familiar claim really true? Would you know where to go to find out? More significantly, would you know where to go to learn what percentage corporations actually pay, after they take their deductions?

Would you know where to go to learn what corporations pay elsewhere?

Here at THE HOWLER, we wouldn’t know where to go for such bone-simple facts. Confronted by such a debate, we’d fire up the Google and fumble around, looking for relevant info. You see, the liberal world has never built a reliable store of accurate facts about our complex tax system.

When we liberals argue tax issues, this deficit tends to shows.

But this morning, hallelujah! David Leonhardt offers an interesting piece in the New York Times about the rates corporations actually pay. Leonhardt’s piece starts to give us a rough idea of the sorts of facts a “tax encyclopedia” might contain.

In its shortcomings, Leonhardt’s piece helps us see how much information such a volume would have to include.

For the most part, Leonhardt offers a framework which is congenial to progressives: Many major corporations don’t pay a whole lot of taxes! Early on, he uses Carnival Corporation—the famous cruise line—as his prime example of a corporate low-roller:

LEONHARDT (2/2/11): But Carnival’s biggest government benefit of all may be the price it pays for many of those services. Over the last five years, the company has paid total corporate taxes—federal, state, local and foreign—equal to only 1.1 percent of its cumulative $11.3 billion in profits. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.

It is an extreme case, but it’s hardly the only company that pays far less than the much-quoted federal corporate tax rate of 35 percent.

Yikes! In the past five years, Carnival has paid only 1.1 percent of its profits in taxes, as compared to what Leonhardt calls “the much-quoted federal corporate tax rate of 35 percent.” Almost surely, the term “much-quoted” is a reference to the ubiquitous conservative talking-points concerning that tax rate. Conservatives complain about that 35 percent rate—but Carnival pays vastly less.

And Carnival isn’t exactly alone. This was Leonhardt’s full paragraph:

LEONHARDT: It is an extreme case, but it’s hardly the only company that pays far less than the much-quoted federal corporate tax rate of 35 percent. Of the 500 big companies in the well-known Standard & Poor’s stock index, 115 paid a total corporate tax rate—both federal and otherwise—of less than 20 percent over the last five years, according to an analysis of company reports done for The New York Times by Capital IQ, a research firm. Thirty-nine of those companies paid a rate less than 10 percent.

Carnival is “an extreme case,” Leonhardt says. But 115 of those 500 companies paid less than 20 percent. And please note: Those companies paid less than 20 percent in all taxes combined— federal, state, local and foreign. Leonhardt never says what these companies paid in federal taxes alone. This creates a bit of an apples-to-orange problem, as we will note a bit later.

That said: If Carnival paid only 1.1 percent overall, what did it pay in federal taxes alone? The percentage could even be less! Ditto with the other companies whose tax rates Leonhardt lists.

As noted, this opening framework is quite congenial from the liberal perspective. In our barren political discourse, conservatives tend to bellow and wail about that 35 percent rate; liberals tend to respond with vague remarks about all those corporate loopholes. And that’s where the argument tends to end, with the two dueling tribes pushing two dueling frameworks. Would you know where to go to get more information?

At THE HOWLER, we largely would not. Isn’t it time that the liberal world began to address this shortcoming?

Where would you go if you wanted to learn about this, or about some other tax issue? Where would you send a conservative friend who had mouthed some familiar talking-point—a talking-point which may be bungled or misleading? (Example: The top one percent pay [some high] percent of all federal taxes!) Such a digest of information would have to be approachable for non-experts, of course. It would also have to be fair-minded, non-tribal. It couldn’t start by telling people that they’re slobbering racists if they don’t agree with some viewpoint. It couldn’t say that their limbic brains don’t seem to be working correctly.

And by the way: Such a digest of information would have to be on the look-out for slightly misleading claims which favor the liberal perspective! The world is full of skillfully-crafted nonsense which drives folk toward the conservative viewpoint. But liberals may sometimes tip the scale a wee tad too. Let’s consider more of the information in Leonhardt’s (informative) piece.

As he continues, Leonhardt continues to tickle the fancy of liberals. By paragraph 7, he’s listing other big corporations which have paid low rates:

LEONHARDT (continuing directly): Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.

“A dirty little secret,” Richard Clarida, a Columbia University economist and former official in the Treasury Department under President George W. Bush, has said, “is that the corporate income tax used to raise a fair amount of revenue.”

Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.

Economists have long pleaded for an overhaul of the corporate tax code, and both President Obama and Republicans now say they favor one, too. But it won’t be easy. Companies that use loopholes to avoid taxes don’t mind the current system, of course, and they have more than a few lobbyists at their disposal.

Leonhardt offers some familiar perspectives; we assume these perspectives are basically accurate. He says the tax code’s endless loopholes “force companies to devote enormous time and effort” in avoidance efforts. He lists five other major companies which paid relatively little in the past five years. But at no point does he tell us what kinds of tax rates are paid by corporations in other countries. And you have to read all the way to paragraph 17 (out of 21) to gain the information we highlight below:

LEONHARDT: Carnival pays so little tax partly because of a provision that lets some shipping companies legally incorporated overseas (Panama, in Carnival’s case) avoid taxes. The fact that Carnival’s executives sit in Miami and or that many passengers board in Baltimore, Los Angeles, Miami, New York and Seattle doesn’t matter. Nor does the fact that Carnival isn’t paying much tax in Panama.

Companies that pay relatively high rates tend to be those that are not expanding rapidly and that are not as ingenious as G.E., at least on taxes. The average total tax rate for the 500 companies over the last five years—again, including federal, state, local and foreign corporate taxes—was 32.8 percent. Among those paying more than the average were Exxon Mobil, FedEx, Goldman Sachs, JPMorgan Chase, Starbucks, Wal-Mart and Walt Disney.

Say what? Very late in this informative piece, we get some striking information: Carnival and Yahoo to the side, the average rate paid by these 500 companies is 32.8 percent! To our own non-expert ear, that number seems extremely close to “the much-quoted federal corporate tax rate of 35 percent.” That said, here’s where that apples-to-oranges problem appears: The 32.8 percent includes all taxes, not just federal taxes. We’re never told what percentage these 500 companies pay in federal taxes alone. (Presumably, this is a shortcoming of the study from which Leonhardt is working.)

For the record, here’s something else we aren’t old: We’re never told how what overall percentage corporations pay in other countries. Conservatives constantly claim (or suggest) that corporations are forced to pay more in this country. Is that familiar claim true?

Here at THE HOWLER, we have no idea. Nor do we really know where to go to find out. The liberal world has largely slumbered and snored over the course of the past thirty years. Well-funded conservative think tanks have crafted pimped persuasive claims. But how accurate are these various claims? Our side has never bothered to form a real response.

Do corporations pay too much in this country? We hear this familiar claim all the time. But after reading Leonhardt’s report, we have no earthly idea.