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More firms find tax loopholes

New survey shows 24 top US companies got refunds.

By David R. Francis Staff writer of The Christian Science Monitor / October 20, 2000

Uncle Sam sent Texaco a $67.7 million tax refund check in 1998. Though it declared $182 million in profits, the giant oil company paid no corporate income tax.

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PepsiCo got $302 million from Washington. It, too, paid no corporate tax that year on $1.6 billion in profits.

Cisco Systems, the second most valuable company in the US, paid no federal income taxes in its latest fiscal year. That despite making $2.7 billion in net earnings.

Finding tax loopholes to take advantage of is a tradition as old as the abacus.

To most corporations, it's a mark of good business. But to critics, it's an unfair way of beating the system that leaves more of the tax burden to others.

Now fresh evidence shows that the use of tax loopholes by some of the largest corporations in America is growing.

Coming at a time of a booming economy - and in many cases record corporate profits - it is sure to revive the debate over the responsibility of business in modern society.

Tax loopholes are springing up like crab grass in summer, charges Bob McIntyre, director of the Institute on Taxation and Economic Policy (ITEP), a Washington think tank.

Using legal tax dodges, 24 big companies escaped any federal income-tax burden and got Treasury checks instead in 1998, finds a new ITEP study of 250 of the nation's largest and most profitable firms.

"With significant help from Congress, corporations appear to be finding ways around the tax reforms adopted in 1986," says Mr. McIntyre.

His study comes at a time of public uneasiness with Big Business. A poll by Business Week found 66 percent of Americans believe that large profits are more important to big companies than developing safe, reliable, quality products for consumers.

The ostensible federal tax rate on corporate profits is 35 percent. But many firms, if not most, pay less than that percentage.

The ITEP study suggests the real rate is going down. The 250 companies paid only 20.1 percent on profits in 1998, down from 22.9 percent in 1996.

I want my break, too

Individuals, of course, also take advantage of any tax breaks they can find. The marginal federal income tax rate for the richest taxpayers is nominally 39.6 percent. But a study by the Joint Committee on Taxation of Congress found their actual tax rate for all federal taxes (income, payroll, excise, etc.) is about 28.5 percent of income.

Nonetheless, it annoys many taxpayers when they hear that multibillion-dollar companies escape all income taxes when they can't. They figure that what companies don't pay, individuals may have to make up in extra taxes.

Indeed, the ITEP study calculates that had all the 250 companies paid the full 35 percent rate on their $735 billion in pretax US profits from 1996 to 1998, they would have paid an extra $98 billion in corporate income tax.

Business interests say the ITEP study gives the wrong impression. Gordon Richards, chief economist with the National Association of Manufacturers, says the 250 companies examined represent "a biased sample."

For one thing, a company may pay little or no taxes one year because of unusual tax losses or deductions, but pay far more in prior or subsequent years.