The corporate tax rates in the United States are regulated by strict laws that are supposed to establish a disciplined system. However, the giant corporations manage to avoid paying the taxes they are responsible to cover. In the period between 2008 and 2010, the multinational financial services company Wells Fargo spent $11 million on lobbying. The investment was productive, since the company did not pay any taxes during those years. The U.S. tax code has serious loopholes that enable giant companies to avoid paying any taxes through deferral of overseas income, LIFO accounting, and accelerated depreciation deduction.
Multinational companies that make profits overseas are not required to report them for tax purposes until the money is transferred to a bank account in the USA. This policy enables a great number of corporations to bypass taxes by leaving the profits on accounts in Switzerland, Ireland, Luxembourg, Belize, and other tax havens. General Electric, Google, the Bank of America and many other corporations have used this technique to avoid paying great amounts in taxes.
The Last-In, First-Out method is one of the most common techniques implemented in accounting with the purpose of avoiding taxes. In theory, it is assumed that the goods added to the inventory first are sold before the ones acquired later. According to the LIFO method, the goods that were obtained early are sold last. This is how the loophole is abused: a company acquires goods for $40 per piece, and purchases more items for $55 per piece later in the year. When the goods that were obtained for $40 are sold later with a more expensive price (justified with the current expenses), the additional profit is not taxed.
Another way of avoiding paying 35% of the profits in taxes is accelerated depreciation deduction, which is done by deducting for equipment’s depreciation prior to its actual depreciation. This simple technique works well in practice: companies borrow money for new equipment and then accelerate the deduction to claim lower profits than the ones they have obtained. As a result, big corporations avoid paying the full 35% in taxes during profitable years.
When giant companies avoid paying their fair share in taxes, the burden is carried by individual citizens, since the budget deficit has to be covered in one way or another. Corporations invest in campaign donation operatives, certified public accountants, political lobbyists, and tax attorneys in order to benefit from the gaps in the low. They have many chances to decrease the amount or avoid paying any taxes without bearing legal consequences.