Cost of Corporate Tax Breaks Overstated

August 17, 2010 Taxation in USA

Tax LOOpholes!!!Contrary to public opinion and political claims, tax breaks available to US corporations are not nearly as generous or fiscally draining as believed. In fact, the budgetary costs associated with providing tax preferences to individuals far outweigh those given to businesses.

For the 2011 year the US Government budgeted an approximate USD 102 billion to cover national corporate tax break expenditures. However, according to a report Putting Corporate Tax ‘Loopholes’ In Perspective, published by the Tax Foundation, the figure is overshadowed by the sheer scale of tax preferences provided to individuals. In the 2011 fiscal year the budgetary cost of pension and 401(k) exclusions to individual taxpayers will amount to USD 142 billion. Additionally the Government’s expenditure on endowing private taxpayers with exclusions on health insurance will be approximately USD 177 billion, while charitable deductions and mortgage interest deductions will be USD 51 billion and USD 104 billion respectively.

According to figures released by the US Government, after taking into account tax breaks, US corporations are faced with an average cumulative tax rate of approximately 27 percent, which the Tax Foundation deems acceptably close to the headline corporate rate of 35 percent. In comparison, by optimizing their tax strategy, high earning individuals could face a total rate of only 23 percent.

In the face of the political turmoil surrounding taxation of the oil and gas industry, the Government’s own estimates show that the sector is set to receive only USD 2.8 billion in targeted tax breaks. Conversely, the renewable energy sector, receives $11.3 billion. According to the Tax Foundation, the discrepancy points to strong political motivations in the discussion of oil sector taxation. In fact, the entirety of US targeted tax breaks fall below incentives provided to social groups and local Governments.

Commenting on the apparent unjustified perception of general and targeted corporate tax breaks Scott Hodge, president of the Tax Foundation, said, “If lawmakers perceive that there is a problem with corporate tax expenditures, then the right way to consider them is within the broader context of corporate tax reform, not in a politically charged, piecemeal fashion.”

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