How Much Tax Do the Most Profitable Companies Pay?

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IBM paid only 1 percent of their earnings to Uncle Sam in taxes last year. Apple paid only 11 percent. How can companies earning billions be in a lower tax bracket than you are?

President Obama and challenger Mitt Romney differ on taxes quite a bit, but they have two things in common.

First, neither offers much realistic detail about how to fix our budget problems. Earlier this month, US News and World Report studied what it called the “fantasy tax plans” of the two candidates and concluded, “They leave out lots of ugly details about future tax increases that most economists think are inevitable in order to keep Washington solvent.”

The other thing they have in common is they both favor lowering the top corporate tax rate, currently 35 percent. Obama wants it brought down to 28 percent, Romney to 25 percent. And both candidates say lowering the top rate will result in more money flowing into government coffers.

How can lower rates lead to higher tax revenue? The argument goes that if the U.S. rate is lower, multinational corporations wouldn’t reduce their tax bill by reporting profits in countries with lower rates. In other words, if they paid less here, they’d report more income here.

The problem is it’s hard to do a fair comparison of tax rates worldwide because there’s a vast difference between the stated rate – the rate they’re supposed to pay – and the effective rate – the rate they actually pay after using deductions, exemptions and other loopholes.

Many high-profit American companies don’t pay close to 25 percent, even when you combine what they paid both here and abroad. A recent study by NerdWallet found the Top 10 U.S. companies paid the United States an average of 9 percent. Check out some stats…

1. Exxon Mobil

  • Pre-tax earnings: $73.3 billion
  • U.S. taxes paid: $1.5 billion (2 percent)
  • Foreign taxes paid: $28.8 billion (39 percent)

2. Chevron

  • Pre-tax earnings: $47.6 billion
  • U.S. taxes paid: $1.9 billion (4 percent)
  • Foreign taxes paid: $16.5 billion (34 percent)

3. Apple

  • Pre-tax earnings: $34.2 billion
  • U.S. taxes paid: $3.9 billion (11 percent)
  • Foreign taxes paid: $769 million (2 percent)

4. Microsoft

  • Pre-tax earnings: $28.1 billion
  • U.S. taxes paid: $3.1 billion (11 percent)
  • Foreign taxes paid: $1.6 billion (5 percent)

5. JPMorgan Chase & Co.

  • Pre-tax earnings: $26.7 billion
  • U.S. taxes paid: $3.7 billion (14 percent)
  • Foreign taxes paid: $1.2 billion (4 percent)

6. Walmart

  • Pre-tax earnings: $24.4 billion
  • U.S. taxes paid: $4.6 billion (19 percent)
  • Foreign taxes paid: $1.4 billion (6 percent)

7. Wells Fargo & Co.

  • Pre-tax earnings: $23.7 billion
  • U.S. taxes paid: $3.4 billion (14 percent)
  • Foreign taxes paid: $52 million (Less than 1 percent)

8. ConocoPhillips

  • Pre-tax earnings: $23.0 billion
  • U.S. taxes paid: $1.9 billion (8 percent)
  • Foreign taxes paid: $7.1 billion (31 percent)

9. IBM

  • Pre-tax earnings: $21.0 billion
  • U.S. taxes paid: $268 million (1 percent)
  • Foreign taxes paid: $3.2 billion (15 percent)

10. General Electric

  • Pre-tax earnings: $20.1 billion
  • U.S. taxes paid: $1.0 billion (5 percent)
  • Foreign taxes paid: $4.7 billion (23 percent)

NerdWallet explains how it’s legally possible for a company like IBM to pay 1 percent.  The short version is that it comes down to big tax breaks that effectively shrink the rate businesses pay, plus a few accounting tricks. Curious about other megacorps’ tax rates? NerdWallet’s Tax Rate Transparency Tool will let you look up what any of America’s largest 500 companies pay – and pairs it with what the CEO and their average employees earn.

Stacy Johnson

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