US Chamber Responds To GAO Corporate Tax Report

by Mike Godfrey, Tax-News.com, Washington

26 August 2008

The United States Chamber of Commerce has called on the media and politicians to get their facts straight regarding company taxation following recent reporting of the Government Accountability Office (GAO) study on corporate tax liabilities.

“Once again, the GAO data has been twisted and misinterpreted by those seeking to attack corporate America," Chief Economist Martin Regalia said in a statement issued last week.

"Many news reports claim that the GAO study revealed that almost two-thirds of companies in the US usually pay no corporate income taxes. What the GAO report actually said was that for the period between 1998 and 2005, corporations — not necessarily the same corporations — had no tax liability for one of the eight years in question. If two-thirds of all corporations were paying no taxes for all eight years, we would be reading about a Department of Justice (DOJ) or Internal Revenue Service (IRS) investigation into the matter and not some synopsis of a GAO report," Regalia observed.

The findings of the report were seized upon by the Senators who requested the GAO investigation, Byron Dorgan (D-N.D) and Carl Levin (D-MI), as evidence that too many corporations are using "tax trickery" to send their profits overseas and avoid paying their fair share in the United States.

"The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes," Dorgan remarked following the release of the GAO's findings.

However, Regalia argued that the Senators and the media at large have jumped to the wrong conclusions, pointing out that there is a difference between not paying taxes owed and not having a tax liability.

"The GAO report doesn’t say that businesses aren’t paying taxes they owe. Rather, it says that some corporations did not have tax liabilities — in other words, they did not owe taxes. You can have many billions of dollars in revenue and still have R&D, labor-related and other expenses that are larger than your revenues — and therefore no 'income' to tax," he noted.

According to Regalia, Internal Revenue Service data shows that the situation with corporations is not much different from that with individuals and in 2005 – the last year of the GAO study – of the 134 million individual income tax returns filed, approximately one-third – 44 million – showed no income tax liability.

“In sum, the idea that there is a large pool of corporations not paying taxes that they legally owe is just incorrect," he concluded.

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