The 50-year swindle - corporate income tax

The Enron scandal is simply a case of the big guys making it easier to dramatize the bag of tricks that hundreds of members of the Fortune 500 dip into all the time. As far as mainstream media were concerned, these, by and large, were arcane matters of international trade and finance--nothing to worry the citizenry about. But when reports surfaced that Enron did not pay corporate income taxes in four of the last five years, suddenly The New York Times managed to put on page one a story noting that a "growing percentage of large companies pay no income taxes."

If Secretary of the Treasury Paul O'Neill has his way, that percentage will grow to 100 percent, since he favors abolishing corporate income taxes. What would this mean for average American taxpayers? Simple, he says. The ordinary taxpayers would make the usual payments. On top of that, they would pay what would have been the corporations' taxes. Continuing to tax corporations, O'Neill told the Financial Times, is "an abomination."

O'Neill's candor is almost touching. "Abolishing the corporate tax would inevitably lead to higher personal income tax," the Financial Times of London reported on May 20, 2001, after interviewing him, "but Mr. O'Neill believes such a move would reduce the overall tax burden and promote economic growth."

His absolutist vision sounds radical, but it really isn't. It is merely the logical last step in a fifty-year process of successful corporate lobbying. Year by year during the last half of the twentieth century, Congress and the Internal Revenue Service have shifted the national tax burden away from corporations and onto the backs of individuals and families.

The numbers are painfully simple. After World War II, corporations and individuals carried the tax burden together. Year by year, this has been altered until the corporate-individual split is now closer to 20-to-80--and guess who pays the 80 percent?

In 1953, if you count only income taxes, not various other excises, sales taxes, and special duties, individuals and families paid 59 percent of federal revenues and corporations 41 percent, according to The Statistical Abstract of the United States. By the latest confirmed figures in the Abstract, the corporate share has dropped from 41 to 20 percent, while that of individuals has increased from 59 to 80 percent.

Part of the fifty-year stealth attack has been the compression of the progressive income tax brackets. Today there is the smallest difference in our income tax history between the rates paid by unrich individuals and those paid by corporations and the wealthy. Until the Reagan Administration, the top rate had been 70 percent. Reagan got the official top rate down to 50 percent. The top rate is now 39.6 percent, but like the top bracket historically, those individuals and corporations rich enough to be in that bracket seldom pay that rate because they can afford the most skilled accountants to avoid taxes. Bus drivers and store clerks, like millions of other ordinary taxpayers, seldom own subsidiaries in the Cayman Islands or have the huge deductions of "foreign tax credits."

The income tax history in our time has, with the silence of most of the news media, shifted the burden regressively to sales taxes, which hit the disposable income of ordinary families the hardest. As local sales and property taxes have grown to carry the national burden, it has caused state and local tax rebellions. The most notorious was Proposition 13 in California, which froze property taxes and created havoc with the California civic system. For example, the state's student achievements that, pre-Proposition 13, were among the highest in the country are now among the lowest.

The problem is not just in California. It is national. The corporate tax con game required shifts to sales taxes in a growing number of states and in ever-higher percentages. The shifts have created immeasurable local and state hardships all over the country, starved our local educational systems, and left a permanent crisis in the economics of American cities and counties.

On the flip side, it has made corporations steadily larger and more powerful. This has led to the "legal corruption" of huge campaign contributions that accelerated the ability of corporations to avoid more and more of their responsibility for keeping the country's civic system in decent economic health.

The half-century of stealth attacks have had the insidious effect of conditioning most of the public to accept seemingly unconnected annual changes that, with time, look like acts of God or some force of economics beyond human intervention.

Throughout our history, taxes have been the favorite whipping boy of editorial cartoons and political stump speeches. It's a safe subject for candidates because few people really love to pay taxes. But by treating taxes generically as a sin with simplistic sound bites, politicians undercut the importance of providing the federal funds for services needed by the country's communities and families.