Inquirer Editorial: Too big to pay taxes

A key talking point in the Washington debate over boosting the economy is that U.S. corporations are overburdened with high taxes and can't compete globally.

But a new report by renowned journalists Donald L. Barlett and James B. Steele sets the record straight. The duo has documented that corporations aren't paying their fair share of taxes, and the resulting burden is being borne by individual taxpayers.

Barlett and Steele are updating their award-winning 1991 project, "America: What Went Wrong?" The Inquirer began publishing their new work Sunday in a collaboration with the Investigative Reporting Workshop at American University.

Their findings should help to inform the debate in Washington over taxes and spending, and to cut through the partisan rhetoric. For too long, Republican leaders have been selling the public on the notion that businesses can't create jobs because their tax burden is too high.

Indeed, the House Republicans' deficit-cutting plan features a proposal to cut corporate tax rates from 35 percent to 25 percent. Rep. Paul Ryan (R., Wis.), author of the plan, argues the proposal is intended to reform the tax code and eliminate loopholes rather than provide more tax breaks.

Barlett and Steele reported some corporations last year paid 26 percent of their profits in taxes. That's a far cry from the 49 percent tax rate they were paying in 1950, at the dawn of a period of economic growth. In 2010, as corporations were registering all-time highs in profits, their taxes were just 1.3 percent of the total national economic output - the second-lowest level since 1940.

Emblematic of this trend is GE, which reportedly paid no U.S. income tax in 2010 despite $5.1 billion in U.S. profits. (The company now says it expects to pay a small tax bill for last year; it's not required to say how much). Big firms, such as Boeing and Hewlett-Packard, also have used all available legal options to keep their tax bills minimal.

And then there's ExxonMobil, which reported total income in 2010 of $34.8 billion before taxes. It told the Securities and Exchange Commission that it paid no U.S. income taxes, although the company has said since that it will pay some taxes.

Large multinational corporations enjoy many loopholes to avoid paying their fair share of U.S. taxes. Working people, meanwhile, are not so lucky. They're more likely to pay an effective tax rate of about 7 percent, a rate far higher than some of the wealthiest corporations.

Tax reform in Washington is needed, but not to cut rates for wealthy firms that already are enjoying too many breaks.

The goal of lawmakers should be to eliminate loopholes for corporations, helping to ensure that they also pay their fair share of the overall tax bill.