Do Most Companies Really Pay No Taxes?

According to the Associated Press's interpretation of a new Government Accountability Office report, "Two thirds of U.S. corporations paid no federal income taxes between 1998 and 2005." Really, the guys over at the Tax Foundation beg to differ. They note that the actual report tells a different story.

In fact, what the report shows is that only 25% of large U.S. corporations paid no corporate income tax in 2005. In 85% of those cases, the large corporation paid no income tax because it had zero or negative net income for 2005. No income, no income tax. For example, in a "clever tax dodge," American Airlines avoided income tax for 2005 by losing $862 million. General Motors lost $10.5 billion in 2005; I bet those greedy fat cats didn't pay any corporate income tax, either.

At least the AP story did manage to quote Chris Edwards of the Cato Institute, who offered this additional explanation:

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.

"Half of all business income in the United States now ends up going through the individual tax code," Edwards said.

Me: This isn't even a conservative/liberal issue, really. Plenty of folks on the left, at least economists, understand that U.S. companies have too high a tax rate and think it should be lowered for competitiveness reasons.