These U.S. Companies Made Billions in Profits – And Received a Federal Tax Refund!

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If you weren't already irritated by the exorbitant paychecks U.S. CEOs routinely pull down, or the fact that U.S. corporations aren't bearing their share of the tax burden, wait until you get a load of this fun fact when those two issues are combined: D espite earning billions in profits, no less than 25 major U.S. firms paid less in federal income taxes last year than they paid their CEO.

And get this – most of those companies actually received tax refunds!

What makes this revelation particularly painful is that so many U.S. companies are minimizing their tax payouts just as this country more than ever needs to boost its revenue, nearly 97% of which comes from taxes of all types. It needs the revenue because of spiraling deficits, and a debt burden so large that it contributed to the United States losing its pristine AAA credit rating for the first time in more than 50 years.

Here's what's really galling: So many U.S. firms are paying so little in taxes because they're taking advantage of a perfectly legal loophole in American tax law. According to that law, a U.S. -dom iciled company doesn't have to pay any taxes on money it earns overseas until that money is repatriated back to this country. So U.S. firms leave their foreign earnings overseas, and report huge bottom-line profits as a result.

Even as you read this, U.S. companies have more than $1.2 trillion worth of untaxed profits stashed in overseas accounts.

Many of these firms are household names, including Verizon Communications Inc. (NYSE: VZ), The Bank of New York Mellon Corp. (NYSE: BK), International Paper Co. (NYSE: IP), Prudential Financial (NYSE: PRU), eBay Inc. (Nasdaq: EBAY), and General Electric Co. (NYSE: GE).

GE may be the most egregious example of the situation we're describing. CEO Jeffrey Immelt made $15.2 million in 2010, when GE's profit was $75.49 billion.

And GE received a $3.3 billion tax refund.

Now a report by the Institute for Policy Studies (IPS) has revealed that GE was not alone.

If you're interested in the lowdown on some of these low-down offenders, take a look at some of the examples contained in the IPS report:

  • Verizon made a total profit of $62.42 billion in 2010, and received a tax refund of $705 million. CEO Ivan Seidenberg earned $18.1 million.
  • Prudential Financial brought in a total of $18.69 billion in profit in 2010. It got a $722 million tax refund from the federal government, while paying CEO John Strangfeld $16.2 million.
  • eBay made a $6.59 billion profit last year, and got a $131 million tax refund. CEO John Donahoe received $12.4 million.
  • Bank of New York Mellon made a profit of $9.42 billion in 2010, and received a $670 million tax refund. CEO Robert Kelly made $19.4 million.
  • International Paper Co. had a profit of $6.70 billion last year, and got a $249 million tax refund. CEO John Faraci received $12.3 million.

Although several of the companies have disputed the report – "GE pays what it owes" was typical of the reactions – how fair is it that entities making billions in profits are getting a tax refund from a desperate and debt-laden government instead of paying their fair share?

"Corporations don't dodge taxes. The people who run corporations do," the IPS said in its report. "And these people – America's CEOs – are reaping awesomely lavish rewards for the tax dodging they have their corporations do."

[Editor's Note: Feeling outraged? If you'd like to chime in on this topic, we'd love to hear from you. Just send us a note at mailbag@moneymappress.com. Put "tax-dodgers story" in the subject line so we'll know what story you're responding to. We'll publish reader comments in an upcoming story.]

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  1. Harold Jones | September 2, 2011

    I am sure Money morning looks for ways to pay more taxes. We don't try to see how much more taxes we could pay. I find it hard to believe 465 representives have spent several times the forseen national output. I believe a flat tax and a balanced budget amendment would be more likely to slow this down. I know a lad who at the age of 24 went thru 3.5 million in about six months. I believe even people with little experience can spend money faster than experienced people can honestly produce products and services to provide it.
    Government spending needs to be adjusted to income and production.How much real production do you see coming from government provided jobs? Harold

  2. DaveR | September 2, 2011

    The article explains that USA corporations do not repatriate their overseas profits because doing so would increase their total tax load, thereby reducing money available for further growth and further increase in their per share prices. Rather than criticize or condemn corporations that leave their profits overseas to avoid USA taxes, this information should be recognized as the strongest evidence possible in support of a need to reduce USA tax rates so that repatriation of such foreign profits is not discouraged. Attempts to penalize such USA corporations will encourage expatriation of those corporations or dissolution of them and formation of foreign-based corporations resulting in less employment in USA and more imports into USA.

  3. JR | September 2, 2011

    The fault is not with the corporations. It is with the tax code. The corporations are simply acting rationally when they pay the least amount of taxes they legally owe.
    It is the same with immigration policy. The fault is not with the immigrants, but with the welfare laws that allow people to take advantage. Get the government out of the business of taking from some and giving to others and the problem goes away.

  4. John K. Patterson | September 2, 2011

    Two suggestions to help the labor market and the federal deficit: extend Social Security and Medicare taxes to compensation paid overseas, and levy a tax of, say, 50% on political contributions.

  5. Richard Kondrat | September 2, 2011

    You make the claim the country needs to boost its revenues now more than ever due to spiraling deficits and increased debt burdens. Those revenues will come from taxes of one kind or another.
    Can you tell me how often in this country's history tax revenues have been used to pay down the nations debt? How often are those revenues used to simply find another government spending program?

  6. Ventureshadow | September 2, 2011

    This is theft. The US Congress is responsible for allowing it. Congress more than allowed it–because the members took contributions from the guilty, they brokered it. Our system of corrupt business practices has caused a corrupt government, which permits more corrupt business practices.

  7. Michael Milne | September 4, 2011

    What you are leaving out of your shocking, if true, revelations of such huge tax refunds is what total taxes they did pay before they received such outrageous refunds! The slant of this story is that they paid NO taxes, and still got a refund. If that's true, then the idiots in Washington (all of them) should be tossed into jail.

  8. Pat Henry | September 10, 2011

    If the part about U.S. firms being exempt from paying taxes on profits left overseas is true then I would like to know why I, as a U.S. citizen living in Germany have to pay taxes on the small amount of interest I earn from my German savings account and will not take it back to the states?

  9. Steve W | September 21, 2011

    This article begs the question: does author David Zeiler really believe this drivel (which would indicate he knows virtually nothing about how business works, which is surprising considering Money Morning is ultimately about understanding business), or does he believe we are so stupid that we will un-questioningly consume this class warfare rhetoric?

    Mr. Zeiler, do you even understand what a “tax refund” is? Do you know that just like an individual, a federal tax refund to a business is totally unrelated to how much is owed, how much you pay or how much is "your fair share" (presumably defined by the government)? From your article, I have to assume not. Here’s how it works: just like an individual, business gives the federal government an interest free loan for the year in the form of “estimated” payments. In most individual’s case, this is done by withholding a percentage of their pay check. In the case of a business, they must send in payments on ESTIMATED yearly tax liability. Depending on the amount involved, this is done quarterly or monthly. The one and only thing a refund means is that the business sent in more that it actually wound up owing at the end of the year. It has no relationship what so ever to the amount that the company owed, or paid. I wonder if Mr. Zeiler is confusing (or trying to lead us to believe) that a refund is some sort of grant or handout from the government? Mr. Zeiler, did you get a tax refund last year? If so, should we believe that you are an evil person, or should we just understand the truth, which is that you simply had more withheld from your paycheck than you wound up owing (after the complex paper work is done)?
    Mr. Zeiler's point that we should be outraged that the CEO's of the listed companies are receiving more in compensation than the company paid in taxes is also overly simplistic, and assumes his readers are too. Any individual with even basic critical thinking skills (something often lacking in extremists) would realize that all of the companies listed are global companies. As such, they pay taxes in every country they do business in, which in some cases number in the hundreds. THEREFORE, the taxes they pay in the U.S. are a fraction of the total they pay globally. This fraction varies by business, depending on where they carry out the majority of their business. We also add into the equation that the U.S. economy is very weak right now, so in many cases the "fraction" from the U.S. is smaller than it has been in the past. So Mr. Zeiler, explain to me how the fraction of total taxes that the company pays in U.S. federal taxes has any relationship to a global company that has income of, as you note in your article: "GE's profit was $75.49 billion". Additionally, who died and made you the ego maniac who gets to decide how much compensation is too much? Oh, you think the "majority" should decide…isn't that tyranny, or bullying? I thought we were against bullying?
    Yet another ridicules point the author makes is that there is $1.2 trillion sitting off shore which hasn't been repatriated into this country (actually a small amount of money considering how much total is involved by all global companies). Why in the world would any company pay taxes on profits in one country, them move that money into another, simply so it could be taxed again? And, why would they move it into the highest taxed country in the world (namely the U.S.)? Seriously, would you?
    The author also makes the point that these companies are withholding tax payments when the U.S. needs them the most, as if it’s these companies (which are ultimately just individual investors, many in the form of retirement funds) fault that the U.S. government has irresponsibly spent more than it has, that our politicians have used the public kitty to buy votes since the great depression, or that is has promised more than it can ever deliver? How is this massive mismanagement the fault of the investors of these companies? Please explain to me Mr. Zeiler why the retired middle class of the U.S. should have their dividend payments reduced, or that the lower and middle classes should pay even more for goods and services because of our idiot politicians?
    This articles pathetic sensationalism is more suited to a grocery store rag found on the checkout isle. You are a hack Mr. Zeiler, for writing a political op-ed piece and trying to pass it off as journalism, and the fact that Money Morning hasn’t fired you for your inaccuracy and obvious complete lack of understanding of business tells me that they are hacks too. I will not be reading your drivel any further.

  10. Gerald Conaboy | September 25, 2011

    The letter from Steve W was one of the best and clearest I have ever seen. It encapsulated the facts of the spurious debate that has been going on in both America, Canada and Europe re corporation taxes. US companies have to pay taxes in countries in which they do business. Often the tax payments are corrected due to tax treaties as a result of quarterly payment, etc. The US gets its money back in the form of management , engineering, indirect and assembly jobs, etc ,as a result of the foreign sales.
    Many retired people in the US (and Canada for that matter) are losing dividends as a consequence of the stupid, political drivel coming from people like your Mr. Zeiler and President Obama and a host of the public. No one seems to question the poor use and application of tax money resulting in higher program spending than it should be. The article by your writer was purposly misleading and I would expect that as Steve W suggests he would be fired.

    Gerry C.

  11. tom | September 25, 2011

    well said Steve.

  12. CH | October 10, 2012

    I have a simple fix to simplify the tax code… "Any Corperation that has a profit of over $1Million dollars is NOT eligable for a refund" this will eliminate this would eliminate $5.772 Billion in SPENDING every year just in these top 5 Free Loaders. Our tax dollars should not be supporting Corperate wellfare.

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