Robert McIntyre, of Citizen's for Tax Justice, has an interesting op-ed titled "Transparently Dishonest", American Prospect Online (Aug. 30, 2006), highlighted in today's Tax Digest. He notes that PricewaterhouseCoopers has a new project, called the "Total Tax Contribution framework" that is claimed to "enhance transparency in corporate tax reporting" but actually is an effort to obfuscate by puffing claims of corporate taxpaying with the "taxes they don't pay, such as those paid by their customers, workers, suppliers, and so forth." Id. (emphasis in original). McIntyre provides an example of this TTCf project at work: ExxonMobil's claim, in a Washington Post ad, that its "total U.S. tax bill was $57 billion, exceeding our total U.S. earnings [over the past five years] by $22 billion." Similarly, McIntyre notes, the ad claimd that "ExxonMobil earned about $36 billion, but incurred $99 billion in taxes worldwide." Id.
If the ad (and the PwC approach) were truthful, it would be a cause for grave concern for American businesses, especially the extractive industries like ExxonMobil. It would mean their profits are swallowed in whole by their tax obligations, resulting in losing businesses that portend ill for the American economy. But this would be very strange in light of the recent coverage of the windfall profits experienced by companies like ExxonMobil with Katrina and other forces causing gas prices to skyrocket across the country. See, for example, this Oct. 28, 2005 CNN article, Oil Industry Under Fire, about the talk of a windfall profits tax, and this New York Daily News Aug. 31, 2006 report, Pay's a Gusher, about the huge compensation windfalls for oil company CEOs. Note in particular the report about (former) CEO Raymond of Exxon Mobil, the U.S.'s most profitable company in 2005.
Indeed, McIntyre reviewed ExxonMobil's annual report for 2005, available here, and found that the figures in the ad were simply misrepresented. Those $36 billion in worldwide "earn[ings"? Actually, that's only the after-tax profits. "The company's pretax profit ... was $59 billion." Transparently Dishonest. That $99 billion paid in taxes? Actually, that includes about $75 billion paid by its customers in gasoline taxes and other foreign levies and not paid out of its profits. Id. McIntyre notes that ExxonMobil's actual taxes paid in the U.S. were considerably higher than in recent history, because its "recent windfall profits from high oil prices have been so big that the company simply ran out of loopholes to shelter them." Id. McIntyre ends with a comment about PwC's increasing lack of credibility in light of these misleading PR strategies, on top of its tax-shelter work over the last decade.
I second McIntyre's concern about the creditiblity of PwC in light of this TTC "framework." I think the framework and the ExxonMobil ad are worth noting for two other issues, as well.
First, big corporations (and their allies) are constantly engaged in lobbying Congress for tax policies that favor their businesses. An ever-present piece of the campaign is the claim that high U.S. taxes, often emphasizing the statutory rates, make U.S. corporations uncompetitive. But few U.S. corporations pay effective taxes at the 35% statutory rate. In fact, during the 1990s many corporations had developed extensive tax shelters so that they paid no income taxes. See, e.g., this Center for American Progress report on the Corporate Tax Dodge (April 2004) and this Boston Globe article titled "Most U.S. Firms Paid No Income Taxes in '90s" (April 2004) covering a recent GAO report. The article states:
The report by the General Accounting Office raises questions about whether the corporate income tax burden is too light and distributed unequally. It could undermine arguments that US companies are overtaxed and provide ammunition to politicians and activists who claim companies are using loopholes to avoid paying their fair share.
The United States is generally at the lower--rather than the higher--taxed end of the tax scale among OECD nations, and corporations in the U.S. generally pay a smaller share of the U.S. tax burden now than they did in the past, even though corporate tax payments did increase in 2005 beyond the exceptionally low rates to which they had declined in recent years. See, e.g., Citizens for Tax Justice International Tax Comparison 1965-2003 (April 2005) and this New York Times July 9, 2006 article by Edmund Andrews.
Ads like ExxonMobil's therefore will require extra vigilance by ordinary citizens to ensure that Congress sees these ads' tax statistics for what they are--an attempt to create an unrealistically dire picture of the tax burden on major U.S. corporations.
Second, Sarbanes-Oxley (S-OX) was passed after a high-profile spate of accounting scandals at major corporations, including WorldCom and Enron. Among other things, it resulted in a stronger focus on the accountability of audit firms, including restrictions of tax services. See my article about the accounting scandals and need for restrictions of tax services, and the SEC's approval of new PCAOB rules restricting tax services.
Some commentators now urge that S-OX should be relaxed. See, e.g., Larry Ribstein's article evaluating Sarbanes-Oxley after three years (suggesting that S-OX was passed in a fit of "sudden acute regulatory syndrome" and that markets can effectively self-regulate, perhaps even in areas of fraud). In contrast, I believe that PwC's promotion of the TTC framework suggests a need for continued vigilance of regulatory agencies dealing with audit firms, in particular. When audit firms are actively marketing PR schemes that misleadingly report important information, it suggests that there may also be a lax approach to the various discretionary decisions that they may make as auditors of public reporting companies. The S-OX rules imposing greater oversight of auditor indepedence continue to be important.
(In the interest of full disclosure, I should state that I am now associated with Wayne State University, where Robert McIntyre's brother Michael McIntyre is a member of the tax faculty.)