The Corporate Free Ride

NYT editorial

Here is a crazy idea to address the United States’ gaping fiscal deficit: persuade corporate America to start paying taxes.

An investigation by the Government Accountability Office found that almost two-thirds of companies in the United States usually pay no corporate income taxes. Big companies, those with more than $50 million in sales or $250 million in assets, are less likely to avoid Uncle Sam altogether. Still, about a quarter of them report no tax liability either.

The G.A.O., which looked at tax returns from 1998 through 2005, does not tell us exactly how so many corporations managed to avoid the taxman. It simply notes that they were able to record sufficient expenses — salaries, interest and “other deductions” — to cancel out their taxable income.

We find it hard to believe that some two-thirds of American companies fail to turn a profit. What we find easier to believe is that corporations have become increasingly skilled at tax-avoidance strategies, including transfer pricing — overcharging their American units for products and services provided by subsidiaries abroad to artificially reduce their profits here.

(Continued here.)