Friday, November 5, 2010

WellPoint and Eli Lilly, Indiana’s Two Giant Corps, Should Help State’s Citizens Get Out of Their Economic Holes

WellPoint and Eli Lilly, both Indianapolis based, dominate the corporate scene in Indiana.

In a previous post, I showed that Eli Lilly generated pretax earnings of $37 bil in the past 12 years, and paid no Indiana State Corporate Income Tax, even though Indiana has a current State Corporate Income Tax Rate of 8.5%. I’m not kidding. That’s just how crazy Indiana’s corporate income tax laws are.

Now, I’m adding the Big Health Insurance giant WellPoint to the mix. WellPoint generated $29 bil of pretax earnings in the past 11 years, all earned in the US. And WellPoint paid total state and local corporate income tax of only $639 mil in those same 11 years. Thus, WellPoint paid a meager effective state corporate income tax rate of 2.2%, which is a 74% discount from Indiana's corporate state income tax rate of 8.5%.

In my earlier post, I pointed out that if, for simplicity, I just use the current Indiana corporate income tax rate of a flat 8.5%, and multiply it by the $37.0 bil earned by Eli Lilly in the past 12 years, I get $3.1 bil of what could be considered a fair state corporate income tax Lilly should have paid.

In like manner, if I just use the current Indiana corporate income tax rate of a flat 8.5%, and multiply it by the $29.0 bil earned by WellPoint in the past 11 years, I get $2,463 mil of what could be considered a fair state corporate income tax WellPoint should have paid. And when I compare this $2,463 mil with the $639 mil WellPoint actually paid, I get a shortfall of an incredible $1,824 mil, or a shortfall of $1.8 bil.

To balance the Indiana State budget, instead of wisely correcting this massive State of Indiana corporate tax loophole problem, the Indiana State Government has instead decided to lay off all of these state employees, including many educators, and they have also raised tuition of Indiana’s public universities, and they have also squeezed the costs out of so many excellent State programs.. Give me a break! That makes no sense.

With some of these $4.9 bil of State Funds.....$1.8 bil of additional State funds related to WellPoint’s state corporate income tax loopholes and $3.1 bil related to Eli Lilly..... Indiana could do some really great things like giving very healthy tax incentives to small and medium-sized Indiana businesses in order to bring down the horribly high Indiana State Unemployment Rate, like reducing tuition at State Universities, like sprucing up both K-12 and higher public education even more with wise initiatives, like investing even more in our already strong, but clearly overstressed police and fire departments, like making some wise green energy investments, like reducing property and sales taxes, like reducing the State individual income tax rates, like reducing the 8.5% corporate state income tax rate, and still having enough left over to significantly enhance the State’s Rainy Day Fund.

I really can’t understand how the State of Indiana thinks that in balancing its budget, it is permissible to cut all of these key state jobs, like ones in the critical area of education, instead of closing all of these State Corporate Tax Loopholes that let’s big corporations like WellPoint pay such a meager amount of State Income Tax, and let's Lilly pay no State Income Tax, where at the same time, so many Indiana citizens are suffering so severely economically. That's just not right, and Indiana citizens have every right to be outraged.

When you think of all the state services provided to both WellPoint and to Lilly, to their Board of Directors, to their executives, and to all of their employees, like education, state protection, and many other key services, you have to wonder why both WellPoint and Lilly think it is perfectly OK to have to pay such meager amounts of corporate state income taxes to the State of Indiana for these very valuable services they have received. And it’s not just Lilly and WellPoint. Many large Multinational Corps all over the country are following Lilly and WellPoint’s state corporate income tax avoidance footsteps here.

From an extensive review of WellPoint’s past SEC annual report filings, on the very positive side, unless you were the one gorged by their high insurance premiums or by their disallowance of your insurance claims, here is WellPoint’s US pretax income by year, for the past eleven years:

All in millions of dollars

Total….28,973 (yeah, that $29 bil)

Whoa, now that is what I call nosebleed earnings growth.

And then on the really negative side, here's WellPoint’s total corporate state and local income tax paid (received) in each year, for the last eleven years, from its SEC income tax footnotes:

All in millions of dollars:

Total….639 (yeah, that’s $639 mil, or only a 2.2% current state and local effective income tax rate paid)

I have to believe that what happened here in Indiana with these two giant corps paying such minor amounts of State corporate income tax is mirrored all throughout the country.

US Citizens should be outraged with the way their States are giving their major corps the privilege of paying such minor amounts of corporate income tax, while so many State citizens and so many State small and medium-sized businesses are in such desperate financial shape.

What is particularly troubling to me is the whole-scale layoffs of state educators all throughout the country, while large Corps are permitted to take advantage of the many, huge State Corporate Tax Loopholes to avoid paying state taxes.

Increased Education Funding, very wisely spent, is the key to making US businesses competitive in the long run on the world scene. It is also one of the key ingredients to solving the long-term unemployment and underemployment crisis the country faces.