A significant number of companies found by a new national study to be leaders in getting federal tax breaks are also in line for state subsidies from New Jersey.

Of the 275 profitable Fortune 500 companies examined by Washington-based Citizens for Tax Justice and the Institute on Taxation and Economic Policy, 28-more than 10 percent-have also been approved for grants from New Jersey's Business Employment Incentive Program. Those firms or their subsidiaries so far have received $28.3 million from the state. And they stand to receive a total of $379.3 million if they hire the number of workers they listed on their applications for the program.

And the nation's top 25 recipients of federal corporate tax breaks from 2001 to 2003, or their subsidiaries, include seven BEIP companies. Those companies have received $8.1 million from BEIP and could end up getting $152.1 million under terms of the agreements they signed with the state.

Under BEIP, firms that move to, or expand in, New Jersey and hire a certain number of people receive from the state a portion of the money that was withheld from their employees for state income taxes. The companies get between 10 and 80 percent of the withholdings.

The CTJ/ITEP study also lists 82 companies, nationwide, that paid no income tax in at least one of the three years studied and in most cases had a negative income tax rate because tax credits exceeded their taxes. Nine BEIP companies are among them.

One of the major findings of the report on corporate tax avoidance by CTJ/ITEP is that during the three-year period covered by the report, federal corporate tax collections fell to their lowest sustained level in six decades. The report covered 275 Fortune 500 corporations with total U.S. profits of $1.1 trillion over the three-year period. The analysis is based on federal tax information companies are required to disclose to the Securities and Exchange Commission. Had all the profits been reported to the IRS and taxed at the statutory rate of 35 percent, the 275 firms would have paid $370 billion in income tax over three years. Instead, they were able to report about half their profits and pay just $195 billion. Rather than a 35 percent tax rate, the companies over there years enjoyed an effective rate of 18.4 percent.

"The sharp increase in the number of tax-avoiding companies reflects the results of aggressive corporate lobbying and a White House and a Congress eager to do the lobbyists' bidding," said Robert S. McIntyre, director of CTJ and co-author of the report.

"At both the state and federal level, some companies are getting increasingly skilled at reducing their taxes and getting taxpayer-financed incentives," said Jon Shure, president of New Jersey Policy Perspective, which released the report's findings in conjunction with CTJ/ITEP and analyzed the New Jersey implications. "The double dippers-those first in line for state and federal breaks-are doing especially well, potentially at the expense of the public and other businesses."

The full text of the CTJ/ITEP study is available at http://www/ctj/org/corpfed04an.pdf

Among the report's key revelations about corporate tax avoidance are:

• Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in a least one year from 2001 to 2003. In those tax-free years, these 82 companies reported a total of $102 billion in pre-tax U.S. profits. But instead of paying $35.6 billion in federal income taxes at the statutory 35 percent corporate tax rate, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury, totaling $12.6 billion.
• These 82 "no-tax corporations" include five New Jersey-based firms: AT&T, Public Service Enterprise Group, Prudential Financial, Toys "R" Us and Englehard. AT&T paid negative taxes in two of those years, during which it reported over $5 billion in profits-and got a tax rebate of nearly $1.4 billion, for a negative tax rate of 12.6 percent in 2003 and 36 percent in 2002. Prudential Financial also paid negative taxes over two years. In 2002 it had $101 million in profits and $125 million in rebates for a negative tax rate of 124 percent and in 2001 reported $336 million in profits but received $1 billion in rebates, for a negative tax rate of 304 percent.
• Prudential Financial also was among 28 corporations in the U.S. that enjoyed negative federal income tax rates over the entire 2001-03 period.
• In 2003 alone, 46 companies paid zero or less in federal income taxes. These 46 companies, almost one out of six of the companies in the study, reported U.S. pre-tax profits in 2003 of $42.6 billion, yet received tax rebates totaling $5.4 billion. In 2002, almost as many companies, 42, paid no tax, reporting $43.5 billion in pre-tax profits, but $4.9 billion in tax rebates. From 2001 to 2003, the number of no-tax companies jumped from 33 to 46, an increase of 40 percent.
• After 2001, the average effective rate for all 275 companies dropped by a fifth, from 21.4 percent in 2001 to 17.2 percent in 2002, less than half the statutory 35 percent corporate tax rate that corporations ostensibly are supposed to pay.
• The CTJ/ITEP research also shows some New Jersey-based companies are paying federal taxes at a rate approaching the statutory 35 percent. They are Automatic Data Processing, Bed, Bath & Beyond, Campbell Soup, Johnson & Johnson and Merck.

FEDERAL INCOME TAX RATES OF NEW JERSEY-BASED COMPANIES

New Jersey Policy Perspective is a nonpartisan, nonprofit organization established in 1997 to conduct research and analysis on state issues. Our goal is a state where everyone can achieve to his or her full potential in an economy that offers a widely shared, rising standard of living.

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

© 2008 New Jersey Policy Perspective