In performing a quick review of SEC filings of large corps with an SEC State Location Code in Indiana, I found 9 large corps with Total Consolidated Core Pretax Income of more than $3 bil each, for the most recent 12 years. My definition of Core Pretax Income excludes both large Asset Impairment Charges, as well as large Acquired In Process R&D Charges.
Below here is the effective state corporate income tax rates paid, which are computed by dividing the current state income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 9 large Indiana Corps. These 9 large Indiana Corps below had a weighted average state corporate effective income tax rate paid of only 1.58%, or a huge 81% discount to Indiana’s current state corporate income tax rate of 8.50%.
….……………………..........................Current………Core…….......State
….……………………............................State.....Consolidated..Effective
….……………………............................Tax………...Pretax……..Tax Rate
….……………………............................Paid……....Income……….Paid
….……………….…..............................(Millions of Dollars)
..9. Steel Dynamics…........................190*….......3,221……....5.90%
..8. Duke Energy Indiana / PSI..........161………...3,229……....4.99%
..7. Guidant(1998-2005)..................187...........5,466..........3.42%
..6. NiSource…..................................190…........5,668……….3.35%
..5. Mead Johnson Nutrition(05-09).101……......3,155……....3.20%
..4. Zimmer Holdings........................201……......8,084……....2.49%
..3. WellPoint....................................649……....29,665……....2.19%
..2. Cummins……………………...............68*……......5,566……….1.22%
..1. Eli Lilly......................................(15)...........45,671…….(0.03)%
Total all 9………............................1,732…......109,725……....1.58%
* Includes both Current State Income Tax Paid or Payable and Deferred State Income Tax Expense. Thus, Current State Income Tax Paid, as well as the effective state corporate income tax paid rates, should both be lower than the above amounts for these two Corps.
For the most recent year, the effective state corporate income taxes paid by these 9 large Indiana Corps was an even lower 0.96%.
Eli Lilly is one of only several very profitable Big Corps in the country, that instead of paying state corporate income taxes, has received state corporate income tax refunds in total for the last 12 years.
It is difficult for me to understand how a State like Indiana could be so mean-spirited to lay off all of these State Educators and other State Employees, and also cut State Medicaid Benefits, while at the same time, permit a large Corporation like Eli Lilly, that generated a massive $45.7 bil of core pretax income in the past 12 years, to not pay a dime of State Income Tax in total for those 12 years.
And the same point can be made about Health Insurance giant WellPoint, which paid a total State effective state income tax rate of only 2.19% on a massive $29.7 bil of core pretax income in the last 12 years. And, WellPoint generated 100% of these earnings in the US....Go figure! Whatever happened to fairness?
Clearly, this shows that it’s a broken Indiana State Government on fiscal matters. It's all about the effectiveness of State lobbying, and the State government being much more concerned about its two Giant State Corporations that dominate the Indiana landscape (Eli Lilly and WellPoint) than they are of regular citizens of the State of Indiana.
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 6 large Indiana Corps with total such state tax loopholes of at least $250 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 Indiana Corporate Income Tax Rate of 8.50% by the total Consolidated Core Pretax Income of each large Indiana Corp for the last twelve years. Then, I subtracted the actual total State Income Tax Paid by each of these Corps for the same twelve years.
……………………….........................IN…….....State……..Resultant
………………….........….............Corporate..Effective.......Higher
………………….........………….........Tax……..Tax Rate…...State Tax
………………..........…………...........Rate……....Paid…....Last 12 Years
…………………………………………………....................(Millions of dollars)
1.. Eli Lilly…………....................8.50%.......(0.03)%..........3,897
2.. WellPoint............................8.50%.........2.19%...........1,873
3.. Zimmer Holdings................8.50%.........2.49%..............486
4.. Cummins.............................8.50%.........1.22%..............405
5.. NiSource…..........................8.50%..........3.35%.............292
6.. Guidant...............................8.50%.........3.42%.............278
Total all 6…………………………………………7,230 (yeah, $7.2 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 6 large Indiana Corps, was $4.8 bil, as compared to $7.2 bil for the past twelve years.
And then here’s an updated list of the 6 Indiana Big Corps with Total Core Pretax Income of more than $5 bil for the most recent 12 years. This list is sorted by Pretax Income.
….…………………….....................Current……...Core…......State&Loc
….……………………...................State&Loc.Consolidated..Effective
….…………………….......................Tax………...Pretax……..Tax Rate
….…………………….......................Paid……....Income……….Paid
….……………….….........................(millions of dollars)
..1. Eli Lilly.................................(15)..........45,671……..(0.03)%
..2. WellPoint..............................649……....29,665……....2.19%
..3. Zimmer Holdings..................201……......8,084……....2.49%
..4. NiSource…............................190…........5,668………..3.35%
..5. Cummins……………………..........68..……....5,566………..1.22%
..6. Guidant(1998-2005)............187............5,466..........3.42%
Total all 6………........................1,280…......100,120……....1.28%
So just how does Indiana Big Corps’ low effective corporate income tax rate paid stack up against other large States? Well, Indiana is clearly the country’s State Corporate Income Tax Haven for Big Corps.
Here is a summary of the effective State Corporate Income Tax Rates Paid by Big Corps in all 18 US States where their Big Corps generated more than $100 bil of Total Core Pretax Income over the most recent 12 years:
.....................................Most Recent Twelve Years
.............................#....State&Local.......................Effective
............................of......Corporate........Core......State&Local
............................Big.......Income.........Pretax......Tax Rate
.......State............Corps....Tax Paid.......Income........Paid
..........................................(Millions of Dollars)
Indiana...................6..........1,280.........100,120......1.28%
Connecticut.............9.........4,958.........354,085......1.40%
Texas....................44........19,743......1,377,291......1.43%
Nebraska................4...........2,209.........152,159......1.45%
Michigan.................7..........1,752.........106,479......1.65%
Washington.............9..........6,168.........324,385......1.90%
Pennsylvania.........17..........4,159.........209,556......1.98%
Illinois..................24........10,960.........491,682......2.23%
Ohio......................17.........7,321..........321,950......2.27%
New Jersey...........18........12,217.........534,077......2.29%
Virginia..................9..........3,422.........132,009......2.59%
Georgia.................10..........8,543.........323,370......2.64%
New York..............45........42,291.......1,583,149......2.67%
California..............41.........31,961......1,175,517......2.72%
Minnesota.............14..........8,555.........309,056......2.77%
Arkansas.................4..........5,896.........208,554......2.83%
North Carolina.......13........12,355.........395,255......3.13%
Missouri..................8..........3,303........101,428.......3.26%
Of the above 18 States, three of them (Texas, Washington and Ohio) don’t have State Corporate Income Taxes. Thus, more to the point, here are the Percentage Discounts that the Effective State Corporate Income Tax Rates Paid are to the Statutory State Corporate Income Tax Rate at the beginning of 2011 of the Big Corps in the remaining 15 large States:
..............................Effective.......State........State
...........................State&Local..Corporate.....Tax
...............................Income.....Income....Loophole
..............................Tax Rate........Tax......Percentage
................................Paid...........Rate.......Discount
.1. Indiana................1.28%........8.50%........85%
.2. Nebraska.............1.45%........7.81%.........81%
.3. Connecticut.........1.40%........7.50%........81%
.4. Pennsylvania.......1.98%........9.99%........80%
.5. New Jersey..........2.29%........9.00%.......75%
.6. Michigan..............1.65%........6.04%.......73%
.7. Minnesota...........2.77%........9.80%.......72%
.8. Illinois................2.23%.........7.30%.......69%
.9. California............2.72%........8.84%........69%
10. New York...........2.67%........7.10%*......62%
11. Virginia..............2.59%........6.00%........57%
12. Arkansas............2.83%........6.50%........56%
13. Georgia..............2.64%........6.00%........56%
14. North Carolina....3.13%........6.90%........55%
15. Missouri.............3.26%........6.25%........48%
* It should be pointed out that City and County Statutory Income Tax Rates are not included above, even though these income taxes paid are included in the above Effective State and Local Income Tax Rates Paid. Thus the above Percentage Discounts should be much higher than that shown above for States, like New York, that have a significant City or County Income Tax Rate.
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, drastically cutting Medicaid and Unemployment Benefits, or by substantially increasing college tuition at state universities. And particularly in Indiana’s case, I think a wisely targeted, very healthy refundable investment tax credit would be very helpful to prop up the troubled manufacturing sector.
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, and computer software investments, they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit.
The reason a refundable investment tax credit works much better than 100% expensing for many small and medium-sized manufacturing companies is that in this very troubled economy, many of these manufacturers can't realize the tax benefit of 100% expensing, since they have tax losses. A 35% first-year refundable tax credit option, gives these manufacturers an equivalent first-year tax benefit. And then to yield no CBO-scored cost to the US government over the next ten years, no tax depreciation should be allowed related to this equipment purchase.
US Big Oil has really hurt Indiana businesses and Indiana residents. And at the same time, US Big Oil’s pretax core earnings increased by 712% in the past decade. Whew!
And these US Big Oil Corps got all of these massive tax incentives to generate these windfall profits, including a huge annual Domestic Production Tax Deduction, when at the same time, they were applying all of this Energy Cost pressure on US Manufacturers, which ended up reducing these Manufacturing Companies Domestic Production Tax Deduction….that’s just crazy.
And then US Big Oil got Percentage Depletion Deductions, which means they are able to tax deduct in total more than the actual costs they incurred….Again, that’s just crazy.
And then there’s LIFO Inventory on their Oil Inventory, which let’s them cost out their Inventory at the very low oil prices of decades ago, with the resultant huge tax sheltering of their income….again, this is just crazy.
And there are other tax loopholes that US Big Oil enjoys….it’s all about the incredible power they have over many in the US Congress, scared to death of the power of US Big Oil.
Thus, as a first step, I think the Obama Administration’s proposal for a very healthy energy tax credit incentive to all businesses that do Commercial Building Green Energy Retrofit Upgrades is a very prescient one. I think the whole country could get behind this wise initiative. And it is fairly paid for, on a very conservative CBO-scored basis, by closing some of the US Big Oil tax loopholes. I think it’s a great strategy….. Clean Energy Tax Incentives paid for by closing Dirty Energy Tax Loopholes.
It’s a ten-fer:
.....higher US real GDP growth
.....lower US unemployment
.....lower US underemployment
.....higher US median wages
.....lower portion of take-home pay needed to fund energy costs
.....higher after-tax corporate profits for more than 95% of US businesses
.....significant reduction in the US deficit
.....better State government coffers
.....more competitive US firms
.....and a huge step toward US becoming energy independent
