By Sen. Carl Levin
Today millions of Americans take part in an annual ritual of filing their income taxes. The willingness of millions of families to plod through this ritual rests in part on the understanding that their burden is shared. Today, though, some of us are bearing a higher burden than ever, while others, particularly our most profitable corporations, sometimes pay no tax at all.
From 2008 to 2010, 30 of the most profitable large corporations paid no federal income tax. None. While the top federal income tax rate for corporations is a relatively high 35%, the effective tax rate for U.S. corporations -- the tax they actually pay -- is less than 15%. I suspect most of the families scrambling today to get their taxes done would love to get that kind of tax cut, let alone the pay nothing, as many large companies do.
This gap between the tax rate on paper and what corporations actually pay has helped drive a huge shift in the tax burden from corporations to American families. In 2011, individuals paid about $6 in income taxes for every dollar that corporations paid. In 1980, the ratio was less than 4-to-1.
How did this happen? There are a few reasons, but one is the fact that some companies have gotten very good at exploiting loopholes in the tax code. They use a variety of means -- often edging right up to the legal line -- and concoct increasingly complicated schemes to avoid paying their share. These gimmicks have helped shift the tax burden onto American families and small businesses, and have added billions of dollars to the budget deficit.
My subcommittee has spent more than a decade probing these schemes. We've shown how much of this tax avoidance happens when U.S. companies maneuver to shift some of their profits to offshore subsidiaries -- often shell companies with no employees and no physical presence other than a mailbox.
For example, last year, we showed how just three companies -- Apple, Microsoft and Google -- used such gimmicks to avoid taxes on more than $80 billion in income over a three-year period. We showed how Microsoft used loopholes to avoid paying U.S. taxes on 47% of its revenue from products developed, made and sold in the United States.
This is unfair to businesses that lack the opportunity or the willingness to avoid their tax burden. It's unfair to the families who have had to carry that additional burden. And at a time when budget cuts are damaging our national security and important domestic programs, we simply can't afford these unjustified loopholes any longer.
The good news is that there is increasing momentum in Washington for change. Most in Congress agree that tax reform to close loopholes is a necessity. But powerful interests are campaigning to make sure that such reform is "revenue neutral" -- that is, to make sure that corporations continue to bear a shrunken share of the tax burden. They want any revenue produced by closing loopholes to go to cutting corporate tax rates.
Keep in mind, profits for U.S. corporations have never been higher: $1.75 trillion last year, the biggest share of our economy ever. Meanwhile, the median American family's real income is smaller now than it was in 2000. Americans recognize that it's unfair to cut tax rates for big companies while reducing the deficit with budget cuts that hurt the middle class. In a January poll, 70% of voters, including 62% of Republicans, said revenue from tax reform should contribute to deficit reduction and public investments, and not lower corporate tax rates.
We need to close these tax loopholes, and the revenue that generates should go to reducing the deficit before we consider cutting corporate tax rates. Otherwise, American families will spend future Tax Days wondering why they continue to carry a larger and larger share of the tax burden.
Sen. Carl Levin, D-Mich., is the chairman of the Senate Permanent Subcommittee on Investigations.