WASHINGTON — Dozens of America’s most profitable companies enjoyed tax-free years during the 1990s largely because of legal tax breaks, an independent study released Thursday said.
The report by the nonprofit Institute on Taxation and Economic Policy found that 250 companies paid an effective tax rate of 20.1 percent in 1998, down from 22.9 percent just two years before. The federal income tax rate for corporations is supposed to be 35 percent.
Of the 250 companies studied, 41 enjoyed at least one year of no income taxes, or received actual rebates from the federal government, despite pretax profits of $25.8 billion from 1996 to ‘98.
If all 250 companies had paid the full 35 percent on $735 billion in pretax profits, the study estimated the total income tax would have come to $257 billion. But tax breaks put into law by Congress lowered those companies’ tax bills by $98 billion over the three-year period.
Companies getting tax rebates in 1998 alone included Texaco, Chevron, Pepsico, J.P. Morgan, Enron and General Motors, the report found.
The study’s chief author, Robert S. McIntyre, said companies lower their taxes through depreciation write-offs, tax credits for research and development, and deductions they take when employees exercise stock options.
"We hope our findings will encourage lawmakers to re-examine this important area of taxation," McIntyre said.
The report also found that the petroleum industry paid the lowest tax rate from 1996-98, at 12.3 percent, followed by electronics at 13.1 percent, forest and paper products at 13.9 percent, and transportation at 14 percent. At the other end of the spectrum, publishing and printing companies paid 31.6 percent, gas and electric utilities paid 28.1 percent and retail and wholesale trade companies paid 27.6 percent.
"Anyone who worries about our economy’s long-term growth has to wonder why the tax code is being used to favor some industries and some kinds of investments over others, rather than letting market forces decide," McIntyre said.
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