Legal Breaks Lower Some Corporate Tax Rates

Dozens of America’s most profitable companies enjoyed tax-free years during the 1990s largely because of legal tax breaks, an independent study released Thursday found.

The report by the nonprofit Institute on Taxation and Economic Policy found that 250 companies paid an effective tax rate of 20.1% in 1998, down from 22.9% just two years before. The federal income tax rate for corporations is supposed to be 35%.

Of the 250 companies studied, 41 enjoyed at least one year of no income taxes or an actual rebate from the federal government, despite pretax profits of $25.8 billion from 1996 to 1998.

If all 250 companies had paid the full 35% on $735 billion in pretax profits, the study estimated the total income tax would have come to $257 billion. But tax breaks put into law by Congress lowered those companies’ tax bills by $98 billion over the three-year period.

Companies getting tax rebates in 1998 alone included Texaco Inc., Chevron Corp., PepsiCo Inc., J.P. Morgan & Co., Enron Corp. and General Motors Corp., the report found.

The study’s chief author, Robert S. McIntyre, said companies lower their taxes through such breaks as depreciation write-offs, tax credits for research and development and deductions they take when employees exercise stock options.

The report also found that the petroleum industry paid the lowest tax rate from 1996 to 1998, at 12.3%, followed by electronics at 13.1%, forest and paper products at 13.9% and transportation at 14%. At the other end of the spectrum, publishing and printing companies paid 31.6%, gas and electric utilities paid 28.1% and retail and wholesale trade companies paid 27.6%.