The U.S. budget is a kind of national balance sheet. It reports on past and future (expected) cash flows into and out of the U.S. Treasury. The Bush administration's 2006 budget proposal includes deep cuts in social services and community development programs, while increasing military spending (without counting the cost of the war in Iraq) and preserving his first-term tax cut for corporations and the nation's wealthiest.
In just a few years, the U.S. budget has dropped from a surplus to a dramatic deficit. While corporate tax avoidance is just one of many contributing factors, it is one indication that when it comes to paying their fair share, "profits trump patriotism."
Do Corporations Pay Their Fair Share?
Although most of the budget debate focuses on which programs gain or suffer, another equally important question is who pays? The steady decline of corporate taxes as a percentage of revenues over the past four decades rarely receives the attention it deserves in budget debates.
According to a 2003 report by the Congressional Budget Office, corporate income taxes fell from $207 billion to $132 billion in the first three years of the Bush administration’s first term. The U.S. Treasury Department reports that the number rose to $ 183.8 billion in 2004. That figure represents just 9.6 percent of total revenues. And although it is up from just 7 percent in 2003, and only slightly down from 10.0 percent in 2000, it is still way down from 28 percent in 1950. Moreover, that figure ($184 billion) falls $47 billion short of the $230 billion paid to corporations (including foreign companies, repeat lawbreakers, and corporate tax dodgers) through defense department contracts in 2004.
According to the Congressional Budget Office’s Historical Budget Data, when compared to the size of the economy (i.e. as a percentage of GDP) corporate income taxes declined from 4.2 percent in 1967 to 1.2 percent in 2003, rising to just 1.6 percent in 2004.
Sometimes Corporations That Do Not Pay Their Fair Share Benefit the Most
Some companies, of course pay more than others. But according to an April 2004 GAO report, more than 60 percent of U.S. corporations didn't pay any federal taxes for 1996 through 2000, years when the economy boomed and corporate profits soared.
While the GAO did not extend its analysis to recent years, analysis conducted by Citizens for Tax Justice suggests that business tax cuts and the proliferation of tax shelters (promoted by large international accounting and tax consulting firms) have pushed the effective tax rate of 275 large U.S. corporations down by 20 percent since 2001, even as their pretax profits jumped 26 percent. In fact, dozens of companies examined by CTJ paid no taxes at all.
According to the GAO, companies that pay the least in taxes often receive the greatest taxpayer-funded benefits. For example, GAO reported in 2004 that “tax haven companies were more likely to have a tax cost advantage in federal contracting.” (See our corporations and government contracts page for more information.)
The Regulation-Busting Bush Budget Proposal:
How Bush's budget goes soft on corporate crime
The FBI predicts that "major corporate crime will impact the U.S. economy over the next five years." The FBI is currently investigating over 189 major corporate frauds, 18 of which have losses over $1 billion. The FBI asserts that "aggressive investigation and prosecution of major corporate fraud will be a key factor in restoring long-term confidence in our business leaders."
Yet the Bush administration's 2006 Budget allocates just a fraction of the $1.6 billion budgeted for U.S. Attorneys. (In its request, the Department of Justice fails to break this figure down any further. Since there is no division of the Department of Justice or FBI whose exclusive mandate is to deter corporate crime, it is difficult to assess how much is specifically spent on deterring and prosecuting corporate crime. For example, no specific effort is made to track corporate crime. It is also clear from the Department of Justice's budget request press release that corporate crime and fraud are not a priority, since they aren't even mentioned.)
As Prof. John Coffee of the University of Columbia Law School points out: “The consensus of criminologists is that likelihood of apprehension is far more important than the severity of punishment ... From a policy perspective, this means that the passage of tough mandatory sentences that impose exemplary sentences on white collar offenders will do less to achieve deterrence than investment in enforcement and detection.”
Another example of how the Bush administration's 2006 budget undermines efforts to crack down on corporate crime (and restore investor confidence in financial markets) is a proposal to cut the SEC's enforcement budget by $ 8 million .
Although the SEC’s budget has increased significantly in recent years, that increase came nearly a decade of neglect, when SEC budgets failed to keep up with an exponential growth in markets and regulatory responsibilities. The drastic shortfall in SEC's funding was widely recognized by Congress and the GAO to be a major factor in the epidemic of corporate fraud witnessed in recent years.
In 2001, for example, commission staff managed to review just 16 percent of corporate annual financial reports submitted each year (it failed to review Enron’s report after 1997). GAO concluded that the failure to increase the SEC's resources resulted in high staff turnover, resulting in regulatory delays that “hampered market innovation.” Thus, the Bush administration's proposed enforcement cuts could damage the economy by undermining investor confidence in U.S. financial markets.
But don't take our word for it. Take the word of Bush's own FBI: "The erosion of public confidence in the management of public companies will, if left unchecked, have a negative impact on the stock markets and capital raising, which will in turn have a negative impact throughout the U.S. economy."
For additional analysis of the 2006 budget proposal see: