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For the week ahead of Tax Day 2011, Demos published daily writings, infographics, and illustrations that provided a fresh perspective on how we think about taxes.

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All work will be hosted at OurFiscalSecurity.org and is republishable with attribution.

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Entries in General Electric (2)

Taxes Matter Top 10 Stats

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1. The government collected less in taxes in 2010 than it has in over three generations, and tax rates are at historic lows.

2. The Bush tax cuts added $1.7 trillion to the nation’s debt over 2001-2008, which is more than it would cost to send 24 million kids to four-year public universities.

3. Corporate income taxes totaled about 1 percent of GDP this year, 60% lower than 40 years ago.

4. General Electric, which reported $5 billion in US profits, paid ZERO taxes this year. Exxon Mobil, the most profitable corporation in history, paid ZERO federal taxes in 2009.

5. The Bush tax legacy means we currently tax wealth less than work: middle-income paychecks are taxed at 25% compared to stock dividends and capital gains for the wealthiest, which are taxed at a top rate of only 15%.

6. While most small businesses dream of making a killing, only 3 out of every 100 small business owners pay taxes at the highest rate.

7. A Wall Street transactions tax of only 0.50% on short-term speculation could raise up to $170 billion annually.

8. A middle class family with two young children receives on average $1,200 through the federal child care tax credit, yet the cost of their child care averages $18,000.

9. Upper income households save an average of $5,500 thanks to the mortgage interest tax deduction.

10. Only four OECD nations collect less revenue as a percentage of GDP than the United States: Chile, Korea, Mexico, and Turkey.

— By Tamara Draut, Vice President of Policy & Programs at Demos

Loophole Land: Time to Reform Corporate Taxes

Graphic by Maxwell Holyoke-Hirsch, click to enlarge. This images may be republished free of charge with attribution to Demos. Contact mhirsch@demos.org for high-resolution file.By David Callahan

Many Americans were appalled when it was revealed recently that General Electric would pay no taxes for 2010, despite U.S. profits of over $5 billion.

But I doubt that there is a single top tax attorney or chief financial officer in the country who was all that surprised. You see, these people are denizens of Loophole Land – a very different place than W-2ville where most Americans live.

In Loophole Land, nothing is quite as it seems. Yes, there is a top corporate tax rate of 35 percent, but it is well understood that nobody actually pays that. On the contrary, many companies pay nothing at all.

How can this be?

For starters, Loophole Land has no national borders and so it is easy to shift money around in ways that avoid taxes. General Electric works all over the world, and under tax law, it isn’t taxed on its foreign profits as long as it says that it is reinvesting those profits abroad. Many companies become expert at shifting profits abroad to foreign subsidiaries in low-tax or no-tax nations. In 2008, Goldman Sachs, had 29 subsidiaries located in offshore tax havens and reported profits of over $2 billion. It paid federal taxes of just $14 million on those profits.

Loophole Land is also a place where past business losses are never, ever forgotten. So, for instance, if you run a giant conglomerate with a profit-hungry credit division that makes a lot of stupid loans to people who can’t pay them back, fear not: you’ll be able to write off those losses – in effect getting ordinary taxpayers to subsidize your gambling debts. General Electric is widely seen as a manufacturing company. But up to half of its profits during the Bush years came from its large consumer lending business, GE Capital, and that business suffered huge losses during the crash – reportedly $32 billion. Now we are all helping GE foot the bill for that unlucky streak.

Another thing about Loophole Land is that it is replete with generous tax breaks and subsidies. That’s because over time, different industries have convinced the rulers of Loophole Land that they are so important that they need a break. The National Commission on Fiscal Responsibility and Reform identified 75 different tax breaks and 30 different tax credits offered to business, calling this system “a patchwork of overly complex and inefficient provisions that creates perverse incentives for investment.”

One final point about Loophole Land: It is place where corporations find it easy to keep creating new loopholes and have enough clout to defend existing ones. General Electric spends millions every year to lobby Congress on arcane provisions of the tax code and is famous for hiring former IRS officials and former congressional staffers to help with this work. Meanwhile, at the local level, corporations have been masters at playing states and cities against each other to secure huge tax breaks, threatening to go elsewhere if they don’t get the perks they demand.

As I said, things are different in Loophole Land than W-2ville. And when you pile up all these accounting tricks and tax breaks, it is no surprise that many companies barely pay corporate income taxes. Indeed, the General Accounting Office reported in 2008 that two out of every three United States corporations paid no federal income taxes from 1998 through 2005.

Loophole Land has been good to its fortunate inhabitants, but not everyone wants the fat times to continue. President Obama’s deficit commission argued that all corporate tax loopholes be closed, and the President has said pretty much the same thing. The flap over GE’s 2010 tax bill has enraged many residents of W-2ville, even though GE finally pledged that it would pay some taxes for that year after all.

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