In performing a quick review of SEC filings of large corps with an SEC State Location Code in Georgia, I found 10 large corps with Total Core Consolidated Pretax Income of more than $5 bil each, for the most recent 12 years. My definition of Core Pretax Income excludes large Asset Impairments.
Below here is the effective state and local corporate income tax rates paid, which are computed by dividing the current state and local income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 10 Big Georgia Corps. These 10 large Georgia Corps below had a weighted average state and local corporate effective income tax rate paid of 2.64%, or a 56% discount to Georgia’s current state corporate income tax rate of 6.00%.
….……………………..................Current………………….....State & Local
….…………………….............State & Local..Consolidated...Effective
….……………………....................Tax………......Pretax………Tax Rate
….……………………....................Paid…….......Income………..Paid
….……………….…......................(Millions of Dollars)
10. Genuine Parts….................433…..........7,883……......5.49%
..9. Home Depot…………….....3,268……......69,621…….....4.69%
..8. Southern Company...........913……......24,959……......3.66%
..7. United Parcel Service…..1,586….........50,436…........3.14%
..6. Bell South(1998-2005).....960............41,341............2.32%
..5. Newell Rubbermaid............97……........5,177……......1.87%
..4. Coca-Cola Enterprises.......103……........7,057…........1.46%
..3. Coca-Cola..........................938……......77,377……......1.21%
..2. SunTrust Banks………….......245……......20,702………...1.18%
..1. AFLAC...................................0...........18,817……......0.00%
Total all 10………....................8,543…......323,370…….....2.64%
For the most recent year, the effective state and local corporate income tax rates paid by these 10 Big Georgia Corps was an even lower 2.01%.
As you can see from the above list (AFLAC and SunTrust Banks), just as is the case consistently throughout the country, financial companies have very low effective state corporate income tax rates paid.
And then, below here is a summary of what I call a fair measure of the Total State Corporate Income Tax Loopholes Taken by the 9 Big Georgia Corps with total such tax loopholes of at least $200 mil each for the past twelve years. In estimating what I think is a fair measurement of State Corporate Income Tax Loopholes Taken, for ease of computation, I started by multiplying the current Georgia Corporate Income Tax Rate of 6.00% by the total Consolidated Pretax Income of each Big Georgia Corp for the last twelve years. Then, I subtracted the actual total State and Local Income Tax Paid by each of these Corps for the same twelve years.
……………………….........................GA…State & Local...Resultant
………………….........….............Corporate..Effective.......Higher
………………….........………….........Tax……..Tax Rate…...State Tax
………………..........…………...........Rate……....Paid…....Last 12 Years
…………………………………………………....................(Millions of dollars)
1.. Coca-Cola………….................6.00%.......1.21%..........3,705
2.. Bell South...........................6.00%.......2.32%..........1,520
3.. United Parcel Service..........6.00%.......3.14%..........1,440
4.. AFLAC................................6.00%.......0.00%..........1,129
5.. SunTrust Banks...................6.00%........1.18%............997
6.. Home Depot........................6.00%.......4.69%............909
7.. Southern Company.............6.00%........3.66%............585
8.. Coca-Cola Enterprises.........6.00%........1.46%............320
9.. Newell Rubbermaid.............6.00%........1.21%............214
Total of all 9…………………………………………10,819 (yeah, $10.8 bil)
For the most recent six years, the related estimated total State Corporate Income Tax Loopholes Taken, as I have defined them above, by these 9 Big Georgia Corps, was $6.2 bil, as compared to $10.8 bil for the past twelve years.
I think it makes much more sense to balance a State’s severely stressed budget by closing some of the huge Big Corp State Corporate Income Tax Loopholes, rather than by drastically 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 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, including computer software investments, they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit.
There are several reasons the refundable investment tax credit option is a wise one to both be fair to all businesses, and also to best spike up US real GDP growth and job creation. And it should result in very little, and perhaps even no, CBO-scored cost to the US Government over the next ten years.
First, many smaller businesses and most troubled businesses don’t have Cash available to buy this Equipment. And they also usually don’t have either a strong enough balance sheet, or robust enough future cash flow prospects, needed to secure financing on an Equipment purchase. And then in situations where they can get financing, the interest cost they pay will be much higher than what will be paid by a major corporation.
Second, assuming the smaller or troubled business can get financing to buy the Equipment, they won’t get the same economic tax break. Why not? Because from reviewing thousands of financial statements and footnotes in SEC filings of both smaller and troubled companies, there are so many of them that are in a significant tax loss situation, due mainly to the Great Recession. Thus, they will not be able to get the immediate 35% federal income tax benefit from 100% tax expensing of this Equipment investment in the first year, like nearly all very profitable major corporations will be able to do.
Third, many small businesses, that pay federal income taxes, don’t reach the top 35% federal income tax rate. Thus, their ultimate federal income tax benefit will be below this 35% of the Equipment cost.
So how should this clear unfairness to smaller and to troubled businesses be fixed, and at very little or no CBO-scored cost to the US Government over the next ten years?
It’s really simple. Give all smaller and medium-sized businesses the option of getting in the first year an upfront refundable investment tax credit for 35% of the cost of the Equipment. And then the tax basis of this Equipment drops to Zero, and thus no future tax depreciation deduction can be taken on it.
Such an approach directly focuses on improving the poor financial status of many of the smaller businesses and nearly all of the many larger troubled businesses out there. The jolt of job creation so desperately needed doesn’t come mainly from the huge, very profitable major corps getting 100% tax expensing in the first year. It comes from the smaller businesses, which we should be making sure get the same economic benefit from 100% expensing as major corps do. And it also comes from the many at least somewhat troubled companies, like many of the Rust Belt manufacturers in tax loss positions, needing an immediate cash jolt from this 35% investment tax credit to upgrade their equipment infrastructure in order to be more competitive, and thus they will be able to either avoid laying off more employees, or hopefully even adding to their workforces.
This upfront 35% investment tax credit also makes it much easier for smaller and troubled companies to get financing for the Equipment purchase.
And this initiative also maximizes juice to the US economy, so critically needed to create high-quality, private sector jobs. Just watch how equipment and computer software starts moving across the country in 2011. Economists really have missed this one. They are substantially underestimating the economic growth and job creation that will result from this. US real GDP growth will spike up dramatically with this combination of 100% expensing, with the 35% investment tax credit as an option.
I also would add Computer Software to the Equipment items eligible for either the 100% tax expensing or for the 35% refundable investment tax credit option. To maximize US innovation, it is very wise to tax incentivize computer software investments. Computer software is one area where the US continues to clearly excel. Computer Software drives research and technology advances. Computer Software Investents also make US businesses better able to compete globally. And the US should try to get as much of the computer software work of US businesses, now being offshored, to be reshored back to the US. And there should be very little, if any, CBO-scored cost here of adding Computer Software to the tax deal mix.
Also, I think there should be something done that addresses the need for manufacturing building upgrades. And I have a way to do it with very little, and perhaps even no, CBO-scored cost over the next ten years.
Presently, real property tax deprecation is spread over many years, much longer than the ten-year CBO scoring period.
What I would consider doing is to allow businesses that make building improvements, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. Thus, they wouldn't be allowed any tax depreciation deduction on this building improvement in the next 9 years. The tax basis of the property reduces for the first-year tax depreciation taken. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11.
This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 10 to Year 1. And it also accelerates it starting in Year 11. Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.
And then to really help the Rust Belt, I would also let them choose a first-year tax equivalent 35% investment tax credit, in lieu of the first-year real property tax depreciation resulting from this initiative. And if a company chooses this 35% investment tax credit option, it would not be allowed any tax depreciation deduction in the first 10 years, and after reducing the tax basis of the real property, it would start tax depreciation in the 11th Year, on a very accelerated basis.
It wouldn’t just be the Rust Belt really helped by this initiative. All businesses throughout the country should be allowed to take advantage of it. Perhaps even businesses in all industries should get this very front-loaded accelerated tax depreciation initiative on building remodelings.
I’d even consider allowing the same real property highly accelerated tax depreciation scheme for all new Manufacturing Buildings and perhaps even all new Buildings in all industries. Again, there shouldn’t be any CBO-scored cost over the 10 year CBO scoring period, because you are just moving tax depreciation deductions around among years, with total tax depreciation not changing.
I can think of no tax incentive that would do a better job of quickly re-energizing the troubled US manufacturing industry than this real property massively accelerated tax depreciation scheme, particularly in combination with President Obama’s wise first-year 100% tax expensing of equipment and computer software initiative, particularly if both the real property and tangible personal property have first-year tax equivalent 35% investment tax credit options to help troubled companies in tax loss positions and also to help many smaller businesses.
Also, the very troubled construction industry will be helped immensely from all of these Manufacturing Building and perhaps even Other Building upgrades, which will occur all throughout the country under this tax initiative. I’d even consider giving some green energy tax credits here for the clearly Green Building improvements, but that would have a CBO scored cost, but it would be worth it to the country, desperately seeking energy independence.
When the Premier of China was recently interviewed, he said that China’s success in recovering so quickly from its recession was due to the country's wise focus on four initiatives in its economic stimulus plan.
…..Infrastructure Investments
…..Upgrading of Plants
…..Innovative Technology
…..Safety Net
The present tax deal struck between the Obama Administration and the US Congress addresses the fourth item…Safety Net, mainly with the 13 month extension of Unemployment Compensation Benefits, although frankly I think we are still way short here....everyone should do what I just recently did.....go to a local Food Bank and observe the incredibly long lines there just to get into the Building.....and I saw a line of 22 Cars extended over two blocks waiting to enter the parking lot of the Food Bank.....there is clearly something grossly wrong here in this country with the whole-scale abandonment of the country's unfortunate people, who are financially desperate to feed their families, through no fault of their own, in these very tough economic times. And the country is focusing all of its time on things like tweaking the Estate Tax. And worse yet, the US Senate is holding the country hostage by demanding that the rich get its tax breaks that it doesn't even need.....all of the US Senate Republicans should get into the real world and go to their local Food Banks.....and all CEOs of US large Corporations should do likewise....it's very eye-opening.
But the other three above successful China initiatives are way too absent from the US tax deal struck.
I think what would make sense in the negotiations now to very quickly seal the deal so that nearly everyone is on board is to change the Estate Tax Rate by a little bit and the Exemption Amount also by a little bit. Also, there should be nothing in the tax deal related to very wasteful Corn Ethanol subsidies. And then in exchange for these two items, and perhaps a few others, I would focus like a laser on the initiatives which maximize US real GDP growth and job creation, and paying close attention to how China did it so successfully.
On Innovative Technology, the US should simply add Computer Software to the 100% expensing mix right now. And then shortly down the road, the business research tax credit should be made permanent, and perhaps even enhanced. Also, the US should allow all foreign graduate students going to US universities to remain in the US after graduation.
On Plant Upgrades, there is clearly a start here with the 100% expensing of equipment in the US tax deal. But I think it can be substantially strengthened by inserting the 35% refundable investment tax credit option. And to strengthen it even further, substantially accelerating real property tax depreciation, as explained earlier, would be very wise.
On Infrastructure, there is not much of it in the US tax deal here. As you are going to see when I present my research study of Texas Big Corps…..we have a major problem here. The Big Oil and Gas Texas Corps have towered over everyone else in the generation of Earnings, particularly in the more recent years, all to the detriment of the rest of US businesses, as well as to the detriment of all US citizens. I think the substantial acceleration of building tax depreciation, both on building remodelings and on new buildings, would add a lot to the necessary US Infrastructure shortfall. And adding in an Energy Tax Credit incentive for wise Energy-Efficient Investments made by all businesses is smart. But clearly much more is needed here in the US Infrastructure Upgrade Arena, particularly so with a clearly Green focus; hopefully this will be done shortly down the road.
When I look at projecting US real GDP growth from this US tax deal, I am convinced that the item in the current US tax deal that will tower over all the others is the 100% Tax Expensing of Equipment. And just by adding the 35% investment tax credit option, to really help both smaller businesses and larger, troubled businesses, will yield an increase in US real GDP growth more than double what it will be, devoid of it. Adding Computer Software to the 100% Tax Expensing mix, with a 35% refundable investment tax credit option, will also add significantly to GDP growth. And lastly, adding the accelerated real property tax depreciation on both building remodelings and new building additions will also substantially bump up GDP growth.
I’ll stick my neck out and project US Real GDP growth percentage increases for 2011 caused by each of these initiatives.
..Due to 100% Expensing of Equipment…………………............+.7%
..Due to Adding Computer Software………………………............+.2%
..Due to Adding the 35% investment tax credit option……....+.8%
..Due to Adding Accelerated Tax Depreciation on Buildings.+.7%
..= Total US Real GDP growth increase in 2011………………...+2.4%
And then more to the point as it relates directly to the many unfortunate people in line at the local Food Bank, the overwhelming majority of the US job creation from the US tax deal will come from the latter two items above, and clearly not from 100% tax expensing of Equipment by very profitable, huge US Corps.
