In performing a quick review of SEC filings of large corps with an SEC State Location Code in Washington DC, I found three corps with Total Consolidated Pretax Income of more than $4 bil each in the most recent dozen years.
Below here is the effective state and local corporate income tax rates paid, which are computed by dividing the current state and local corporate income tax paid by the consolidated pretax income, both in total for the past twelve years for each of these three larger Washington DC Corps. These three larger Washington DC Corps below had a weighted average state and local corporate effective income tax rate paid of only 2.66%, or a 73% discount to Washington DC’s current local corporate income tax rate of 9.975%.
….……………………..........Current…………………..........State&Local
….…………………….......State&Local.....Consolidated....Effective
….…………………….......Income Tax……….Pretax………..Tax Rate
….…………………….............Paid……........Income………...Paid
….……………….…...............(Millions of Dollars)
..3. Washington Post……...221...............4,734…........4.67%
..2. Pepco Holdings...........142……........4,234….........3.35%
..1. Danaher......................188…..........11,749…….....1.60%
Total all 3………..................551….........20,717……....2.66%
To show how the weighted average effective state and local corporate income tax rate paid by these three Washington DC firms has been declining, this tax rate paid was a much lower 1.65% for the most recent six years, and an even lower 0.68% for the most recent year.
And then, below here is a summary of what I call a fair measure of the Total State and Local Corporate Income Tax Loopholes Taken by each of these three larger Washington DC Corps for the past twelve years. In estimating what I think is a fair measurement of State and Local Corporate Income Tax Loopholes Taken, for ease of computation, I started by multiplying the current Washington DC Corporate Income Tax Rate of 9.975% by the total Consolidated Pretax Income of each larger Washington DC Corp for the last twelve years. Then, I subtracted the actual total State and Local Corporate Income Taxes Paid by each of these Corps for the same twelve years.
………………………......................DC…....State&Local…Resultant
………………….........…..........Corporate…..Effective.......Higher
………………….........…………......Tax……....Tax Rate...State&Local Tax
………………..........…………........Rate……......Paid…....Last 12 Years
……………………………………………………..................(mils of dollars)
1.. Danaher..........................9.975%.......1.60%...........984
2.. Pepco Holdings ..............9.975%.......3.35%...........280
3.. Washington Post…………..9.975%.......4.67%...........251
Total all 3………………………………………….1,515 (yeah, $1.5 bil)
For the most recent six years, the estimated total State Corporate Income Tax Loopholes Taken by these three Washington DC Corps was $1.1 bil, as compared to $1.5 bil for the past twelve years.
I think it makes much more sense to balance a City’s budget by closing some of the larger Corp State and Local Corporate Income Tax Loopholes, rather than by significantly reducing critical state services like education and citizen protection.
Also, I think it makes sense to use some of the funds from the closing of these larger Corp State and Local Income Tax Loopholes to provide some wise, highly stimulative, directly-targeted, job-creating tax incentives to small and medium-sized businesses.
For maximum positive effect to the US economy and to US job creation, I think the US government should let businesses have a choice on the capital expenditures they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit.
The huge Washington DC-based Fannie Mae was excluded from the above large companies because, even though it generated total pretax profits of $58.1 bil for the nine years from 1998 to 2006, it experienced huge pretax losses totaling $122.7 bil for the most recent three years from 2007 to 2009.
Once the US Government gets Fannie, Freddie, and the horrible housing crisis back on track (granted the US government so far has not executed very well on the housing crisis, but it will eventually figure it out that massive wisely-designed mortgage loan principal reductions on underwater mortgages is the only true long-term fix here), I don’t see why Fannie shouldn’t then start paying income taxes to Washington DC, and why Freddie shouldn’t then start paying state income taxes to the State of Virginia. These companies are getting the benefit of many city and state services, so why shouldn’t they have to pay for them, like other companies do?
