Corporate tax hits 40-year low

Thanks to "bonus depreciation," corporations have saved $55 billion in taxes on purchases of equipment and heavy machinery over the past couple years.

Despite the unbridled joy surrounding today’s January job numbers, the Pulse is flat on news the federal government collected less than half as much in corporate tax receipts in the fiscal year that ended Sept. 30, 2011, as they did just a few years prior. Corporations paid a mere 12.1 percent of profits in taxes last year. Compare that to the average corporate tax rate of 25.6 percent paid between 1987 and 2008.

So where did all that cash go?

The Wall Street Journal says the culprit here is a not-so-little tax break called “bonus depreciation.” It allowed corporations to write off investments in machinery and equipment in the year they’re bought instead of over time. This subsidy in the tax code saved corporations some $55 billion over the past 2 years.

According to the Journal: “Union Pacific Co. said the benefit lowered the railroad's taxes by $450 million last year compared with the year before. Energy company Dominion Resources Inc. has said the bonus depreciation provision will cut its income taxes by $1.2 billion to $2.1 billion in 2011 through 2013, even as the tax break shrinks. Shedding light on its 2011 taxes, Time Warner Cable Inc. said it expects to pay $700 million more in taxes this year, assuming capital expenditure is flat, now that the stimulus benefit is lower.”

In a day and age where everything has a political spin, you could easily paint this news with brush strokes of either positivity or negativity. Those tax breaks have helped get big companies spending on replacement equipment, but when you consider that those revenues are key to funding government programs, national security, and ultimately the total the U.S. owes its creditors, maybe it’s a good thing that the “bonus depreciation” loophole will eventually close in 2014.

About the author

Joel Patterson is the Associate Producer of Marketplace Money.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...