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Large firms often
pay feds no tax WASHINGTON -- Many large corporations paid no federal corporate income taxes during at least one of the last three years. Many others -- including two of Indiana's largest companies -- were able to reduce their tax rate significantly, according to a report released Wednesday. Using legal tax deductions, drugmaker Eli Lilly and Co. cut its tax rate from the maximum 35 percent to 12.2 percent from 2001 through 2003, according to the report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Lilly and other companies said the report's figures were incorrect. And they noted that any savings realized from tax breaks went into research and job creation. Lilly said its tax rate was around 21 percent in those years. Another Indianapolis-based company, health insurance giant Anthem Inc., cut its rate to 23.9 percent, according to the report. Anthem spokesman Jim Kappel said the company could not comment because it did not have time to review the report. The report's authors are critical of the tax breaks available to corporations. "It didn't happen by accident," said co-author Robert S. McIntyre, director of Citizens for Tax Justice, a nonprofit group supported in part by labor unions. "It happened because companies lobbied to get the laws changed." Lilly is leading a coalition of companies pushing for a "tax holiday" that would let them bring billions of dollars in foreign profits back into the United States at a reduced tax rate for a limited time. Lawmakers hope to approve the tax break as part of a package of business tax reductions before Congress adjourns for the year. Earlier this year, the Government Accountability Office, the investigative arm of Congress, found that most U.S. corporations didn't pay any income taxes from 1996 to 2000. That report, based on a sample of corporate tax returns,did not identify individual corporations. Rep. Lloyd Doggett, D-Texas, a member of the House tax-writing committee, said the report ought to outrage individual taxpayers and small businesses that do pay taxes. "These multinational companies have got the best friends in Congress that money can buy," Doggett said. But Lilly spokesman Ed Sagebiel said the groups overstated Lilly's tax breaks. The researchers did not believe Lilly's U.S. profits were as low as the company reported. But Sagebiel pointed out Lilly lost sales after the antidepressant Prozac lost its patent protection. The approximately 21 percent tax rate Lilly says it's paying is still lower than the maximum. Sagebiel says the company primarily puts its tax savings toward developing new drugs. Lilly spent $2.4 billion in research and development last year, he said, or 19 percent of the company's sales. McIntyre used public filings to determine the profits made and taxes paid by 275 of the nation's largest corporations during the last three years. Eighty-two of the 275 companies examined by the report paid no income taxes or even got money back from the government in at least one year from 2001 to 2003. Among those identified by the groups as paying "zero tax" were Time Warner, Cendant, Walt Disney, 3M, General Electric, SBC Communications and Pfizer. If all the companies examined had paid the full 35 percent tax rate on their combined $1.1 trillion in pretax U.S. profits, they would have given the federal government $370 billion over the last three years. Instead, they sheltered more than half their profits from taxes, reducing the tax rate from 35 percent to 18.4 percent, according to the report. General Electric enjoyed the largest tax reduction of the companies studied, nearly $9.5 billion, or 74 percent. SBC Communications, which is based in Texas but operates in Indiana and other states, received the second-largest tax break during the last three years, according to the group. SBC cut its taxes by $9 billion, an 85 percent reduction, according to the report. The Institute on Taxation and Economic Policy is a Washington-based research and education group focused on tax and spending issues. Citizens for Tax Justice is a Washington-based research and advocacy group funded partly by unions. "Clearly their study is politically motivated," said Angeline Protogere, a spokeswoman for Ohio-based Cinergy. Protogere said Cinergy's tax rate was 25 percent to 36 percent in the years studied, not the 9.4 percent the group reported. She said the tax breaks the company gets "go toward helping to create the possibility for more jobs and more capital investment." The tax breaks used included those that allow companies to write off investments in buildings and equipment faster than they wear out, deductions for stock options exercised by employees, tax credits for activities such as research, and offshore tax shelters. Although Congress in 1986 established an alternative minimum tax to make sure profitable companies did not avoid taxes altogether, critics say the law has been eroded.
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