Wholly Misleading Half-Truth: Tax Break for Executive Bonuses

Technically, this is probably true. The business pays 300m$ in bonuses, which are a business expense, so it has 300m$ less in earnings and therefore, with a corporate income tax rate of about a third, pays about 100m$ less in income taxes.

However, this ignores the second part of the equation. The bonus money does not disappear somehow. It goes into the income of the executives that receive it. It gets taxed at the highest marginal rate, 39.6%. In other words, the government gets an extra 4.6% of that money (39.6%-35%), or about 14m$.

Bad Comparison: Payments for Troops, Retirees, and Politicians

There are two issues with this meme:

1. The amounts don’t work out. Lets round up and say we have 600 politicians retiring in a four year period, and each gets a quarter of a million dollars a year (only the president gets more). Assume those politicians stay alive, on the average, twenty years after retirement. The savings from not paying them would be: 600*0.25*(20/4) = 750 million dollars a year. That sounds like a lot, but it isn’t.

   There are about sixty million people collection Social Security. So, if we stopped paying politicians pensions at all, we’d be able to give each one of them a whopping 12.5 $/year increase.

   The military is a much smaller population, about two millions (with the reserves). We’ll be able to give them a bit less than 400 $/year. Still very small.

2. The lobbying industry will be happy to hire as “consultants” politicians that gave them sweetheart deals while in office. So we’ll end up paying even more, through corruption. Probably this is already happening.

h/t Peter Budd and Scott Bascom

Edit: Fred Geisler claims this is also factually incorrect, and considering his track record on facts I trust him:

Bad Comparison: Hot Meals for Troops vs. Prisoners

First, troops aren’t being cut to two meals. They are being cut to two cooked meals and one meal of combat rations (MREs).

Second, cooking in Afghanistan is terribly expensive. If you hire Afghanis to do it for you, it is hard to be sure they won’t poison the food. If you hire contractors from a trustworthy country, they want a lot of money to be in a war zone. If you use troops, they are doing it instead of doing their real job. Cooking in prison, OTOH, is very cheap. You can buy food that is almost at the expiration date (because you have a good idea of how much you’ll need) at a discount and use practically free labor from prisoners. So being able to afford to provide hot food in prison doesn’t mean we can provide it in a combat zone.

Bad Accounting: Uncle Sam the Student Loan Shark

According to USA Today, this is when using special government loan accounting rules that reduce the risk. But people still default, even on loans that cannot be discharged by bankruptcy. For example, if you take a few classes in a community college for the rest of your life, you’ll never pay them back. When the risk is accounted for, the government only made $6 Billion.

For the next ten years, the CBO says that the student loan program can be expected to make $135 billion for the government under government accounting rules. But under fair-value rules, which probably account better for risk, the program will cost $88 billion.

Impossible to Verify Claim

How are we supposed to check a claim about “one out of four large corporations” when there is no definition of what is a large corporation? The meme might refer to this New York Times article, but if so it misrepresent it (“…the study concluded that a quarter of the 280 corporations owed less than 10 percent of profits in federal income taxes and 30 companies had no federal tax liability for the entire three-year period.”).

Also, what is the period of the record breaking profits, and what is the period of 25% of the large corporations not having to pay any tax? Were those corporations by any chance not those with record breaking profits? Or maybe they had carryover losses, which a lot of banks have these days because of bad mortgages?

BTW, if corporations don’t have a separate existence (“corporate personhood”), wouldn’t that mean that they shouldn’t be charged taxes, but funnel the income and associated costs (such as taxes) to the shareholders they represent?

h/t Courtney Ballard

False information (guest post by Fred Geisler)

Note: This was posted by Facebook by Fred Geisler. He graciously allowed me to copy it here.

MoveOn.org has a poster of corporations that allegedly don’t pay their income taxes up. If you’ve not seen it yet, here’s the link:

http://front.moveon.org/d-which-corporations-are-the-biggest-freeloaders/?rc=recirctest

Now, it turns out that most of those claims . . . aren’t quite what they’re claimed to be. How do I know this? Because I know how to look up the finances of publicly traded corporations, and I’ve known how to understand a balance sheet, income statement, and cash flow statement longer than I could legally drive.

Let’s start with the one that’s gotten the most buzz lately, GE. You see, GE Capital had so many market losses in 2009 that they’ll be carrying them forward for several more years. The fact that Bernie rolled five year’s combined profits into one number, and contrasted it with a single year, should be a hint that he’s not doing accounting.

I wish Bernie had mentioned what that “tax rebate” for Exxon is. Looking over Exxon’s SEC filing for 2009, I see them paying $78 billion in taxes that year. Even so, that rebate sounds like a return of 0.198% of that year’s tax payments.

Bernie overstated Bank of America’s TARP bailout by about 22 times, and BofA finished paying the money back on December 10, 2009. Bank of America received a tax refund for the same reason I did: They paid in more than they owed. (Mine was deliberate, but I suspect BofA’s was because their accountants miscalculated.) How do I know they paid in too much? Because they lost money in 2010, so paying any income tax at all was paying too much.

Chevron paid $12,919 million in income taxes last year; Bernie’s whining because they paid $19 million too much, and asked for that money back.

Likewise, Boeing paid $1,196 million in taxes, and Bernie’s whining because they overpaid by $124 million and asked for the money back.

Valero Energy is even more obvious. Bernie quoted their sales figure, not their profit. Why? Because they actually lost money the year that matches the sales figure he quoted. If they had the ability to claim any refund at all from the IRS that year, they paid too much.

Bernie did get Goldman right. What happens when companies are required by law to file taxes with one set of accounting rules, and report to Wall Street with a different set of accounting rules? The accountants figure out how to report high profits to Wall Street, but low profits to the IRS. If Bernie wants to Do Something, he should introduce legislation requiring that SEC and IRS reports use the same set of accounting rules.

Like with BofA, Bernie overstated Citigroup’s TARP money, although only by a factor of 8 this time. After Citi paid back $20 billion, the Treasury took the option to convert the rest into common stock; I suspect selling some of those shares is part of Geithner’s plan for raising cash if the Republican House refuses to raise the debt ceiling, or does something else equally stupid.

Bernie does seem to be right about ConocoPhillips. Will he introduce legislation to close that loophole?

Like Goldman, Carnival Cruise Lines appears to have built a business model around loopholes in the tax code. Will Bernie introduce legislation to plug some of them?