December 2, 2010

Appeared in December 2, 2010 Morgan County Citizen

In response to “Equitable shared sacrifice” (11/18/10): Factually incorrect assertions were made in reference to a GAO (Government Accountability Office) report. The actual report can be viewed at: Judge for yourself.

Assertion 1: “…the majority of corporations pay NO federal income taxes on profits…”

Correction: The majority of corporations pay no federal income taxes BECAUSE they made NO profit. Profits are always taxed. Losses are not taxed.

Assertion 2: “…GAO survey attributes this in large part to tax credits and transfer pricing

Correction: No such assertion is made, (see pages 20-21)“We did not attempt to determine whether corporations were abusing transfer prices. Nor did we attempt to determine the extent to which such abuse explains any differences in the reported tax liabilities…” Additionally (page 13), tax credits are used by a mere 1% of foreign controlled domestic corporations (FCDC) and US-controlled corporations (USCC) as the basis to establish no tax liability. I’m not sure how “no attempt to determine” and “1%” constitute “in large part”.

In fact on page 12 of the report the data show that 84-91% all FCDC and USCC establish their zero tax liability (i.e. no profits) upon the simple basis of cost of goods and expenses exceeding revenue or of the carrying forward of such losses from prior years. In other words, they spent more money than they got in return.

There is no basis in this oft cited GAO report to conclude that the majority of corporations are making money (profit) yet paying no taxes (fraud). If you want to minimize the possibility of fraud then simplify the tax system. Our tax code invites fraud because complexity is an effective tool at masking it.