Most US and foreign corporations doing business in the United States avoid paying any federal income taxes, despite trillions of dollars worth of sales, a government study released on Tuesday said. The Government Accountability Office (GAO) said 72 percent of all foreign corporations and about 57 percent of US companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005. More than half of foreign companies and about 42 percent of US companies paid no US income taxes for two or more years in that period, the report said. During that time corporate sales in the United States totaled $2.5 trillion, according to Democratic Sens. Carl Levin of Michigan and Byron Dorgan of North Dakota, who requested the GAO study. The report did not name any companies. The GAO said corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries. With the US budget deficit this year running close to the record $413 billion that was set in 2004 and projected to hit a record $486 billion next year, lawmakers are looking to plug holes in the US tax code and generate more revenues. Dorgan in a statement called the report “a shocking indictment of the current tax system.” Levin said it made clear that “too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.” The study showed about 28 percent of large foreign corporations, those with more than $250 million in assets, doing business in the United States paid no federal income taxes in 2005 despite $372 billion in gross receipts, the senators said. About 25 percent of the largest US companies paid no federal income taxes in 2005 despite $1.1 trillion in gross sales that year, they said. Among foreign corporations, a slightly higher percentage, 68 percent, did not pay taxes during the period covered - compared with 66 percent for United States corporations. Even with these numbers, corporate tax receipts have risen sharply as a percentage of federal revenue in recent years. The GAO study was done at the request of two Democratic senators, Carl Levin of Michigan and Byron L. Dorgan of North Dakota. In recent years, Senator Levin has held investigations on tax evasion and urged officials and regulators to examine whether corporations were abusing tax laws by shifting income earned in higher-tax jurisdictions, like the United States, to overseas subsidiaries in low-tax jurisdictions. Senator Levin said in written remarks on Tuesday that “this report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.” But the GAO said that it did not have enough data to address the role of what some policy experts say is a crucial factor in profits sent overseas. That factor, known as transfer pricing, involves corporations' charging their overseas subsidiaries lower prices for goods and services, a common move that lowers a corporation's tax bill. A number of corporations are in transfer-pricing disputes with the Internal Revenue Service. Either way, the nearly 1,000 largest United States corporations were more likely than smaller ones to pay taxes. At a basic corporate tax rate of 35 percent, all the corporations covered in the study in theory owed $875 billion in federal income taxes. But because the tax code allows corporations to claim legally an array of deductions, write-offs, operating losses and tax credits, the actual taxes paid were much lower. Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, the study said. The study, which is likely to add to a growing debate among politicians and policy experts over the contribution of businesses to Treasury coffers, did not identify the corporations or analyze why they had paid no taxes. It also did not say whether they had been operating properly within the tax code or illegally evading it.
