New tax plan boosts corporate theft

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Ronald Reagan, in his State of the Union address on Feb. 6, promised "to proceed toward... a Second American Revolution of hope and opportunity."

The focus of Mr. Reagan's "revolutionary" program is "an historic reform of tax simplification for fairness and growth."

The idea behind this plan, or so he would like us to believe, is that all taxpayers will be treated more fairly. Let's look at the facts.

The Federal Income Tax was established in 1913 and labeled a "progressive" tax because it was graduated upward in accordance with the ability to pay. The more one earned, the more one was taxed. In fact, it has never worked this way.

Still, Reagan has always been against the principle of the thing. In 1962 he declared, "We have received this progressive tax directly from Karl Marx, who designed it."

In 1978 Reagan promised to "lower the steeply progressive rates on the upper brackets."

In 1981 he cut taxes "evenly across the board" by 23%. The tax on unearned income was cut from 70% to 50%.

In an "across the board cut," progress works in reverse. The larger your income, the larger your tax cut. Thus, in dollars, the 1981 tax cut meant that a couple with taxable income of $15,000 a year received a cut of $474 by 1984, but a couple with taxable income of $200,000 received $25,632. In percentages, the richest received a tax cut of 3.5 times the cut for the poorest.

Tax simplification entails a "modified" flat tax. The modification for 1984 includes eliminating federal taxes on windfall oil profits, stock dividends and interest, and further reductions on business and investment profits. Ronnie Dugger reported in The New York Times that these measures will "present the rich with $80 billion more a year" (Oct. 4, 1984).

Under these tax simplification reforms, the "progressive" income tax has already been cut by 25%— shifting the burden dramatically further to the working poor.

The 1913 law has never, in fact, been in effect. Newsweek acknowledged this:

"In practice most upper-income Americans take advantage of the myriad tax preferences that have been written into the law over the years—and so today it is entirely possible for a wealthy taxpayer to pay little or no federal income tax at all" (Dec. 10, 1984).

Corporate contributions lowered

In the 1950s and 1960s corporate income tax generated 25% of all federal revenue. But by 1980 corporate tax was down to 14% of federal revenue, and by 1983 it had dropped to 6.2%.

Tax loopholes have virtually eliminated corporate taxation in America. In 1981 Accelerated Cost Recovery System (ACRS) was part of Reagan's tax bill. A system of super-accelerated tax write-offs for corporate investment in plant and equipment, ACRS combined with investment tax credits cost the federal government more in lost revenue than the cost of all federal social programs for the poor combined.

A study by Citizens for Tax Justice takes the top BOMBS AND CENTRAL AMERICAN GOVERNMENTS.

wOW e 10aa Tribuno Modia Sarcos, In6 All Rigala Racontad 250 non-financial corporations in the United States and shows that they paid but 14% on declared domestic profits of $291.4 billion. From 1981 to 1983 they saved $91 billion otherwise due to the federal government.

But if we look closely at these figures, the story is even more revealing. Seventeen of the leading companies with $14.9 billion in profit paid no federal income tax at all for each of the three years (1981 to 1983). Instead, they received tax rebates and benefits exceeding $1.2 billion. These rebates were earned before Reagan assumed office and were awarded by Carter.

Five of the top 17 paid zero or less taxes for each of the three years. They are all major Pentagon contractors with profits exceeding $10.5 billion. Boeing earned $1.53 billion in declared profits and had a negative tax obligation of $267 million-that is, rebate entitlement which was converted into further income.

General Dynamics had profits of $931 million and had a negative tax of $71 million. Lockheed earned over $1 billion and paid no taxes. Neither did General Electric or Grumman.

Of these, General Dynamics is the largest military contractor in the United States. It has paid no federal income tax since 1972, although it has reported profits of over $2 billion.

General Dynamics has been allowed to defer payment of more than $500 million in taxes from previous years. It has simultaneously "accumulated" over $3 billion in "tax losses" which can be carried forward on the books until 1998.

Tax avoidance

How is all this accomplished? The "legal" avoidance of taxes and the tax-exempt dividends are the result of a technique called "completed contract accounting."

This sleight of hand permits corporations with long-term contracts to deduct expenses immediately but to defer indefinitely reporting on any revenue or profits to the Internal Revenue Service. The Treasury dubs this subterfuge "interest-free loans."

They are never paid.

Thus, General Electric had $6.5 billion in profit over three years and claimed its tax rebate of $283 million, for an effective tax rate of minus 4.3%. Contrary to all the contentions of supply-side economists, these inducements produced no new investment. Why should they? It is more profitable to declare tax-free dividends. G.E. cut investment by 15% and increased dividends by 19.2%.

But defense contractors are not the only participants in this bonanza. Sixty-five corporations with $450 billion in pre-tax profits paid zero taxes or less over three years. They received outright tax subsidies, bringing their "after-tax" profits to $3.2 billion more than they made before taxes. They had a negative tax rate of minus 6.5%.

A further 128 corporations of the 250 largest paid zero or less taxes and claimed an additional $5.7 billion in tax benefits on top of the $57.1 billion in pretax profits earned during the years they paid no taxes.

Wherever one looks one finds the same pattern. Another 132 corporate giants paid fewer taxes than an average working family-while earning $130.9 billion in profits.

Individual tax loopholes are equally inventive. Tax shelters abound, allowing substantial deductions for otherwise taxable incomes. Shelters such as real estate or oil exploration permit immediate deductions of several times the cash investment itself.

The corporate rich earn fortunes from tax writeoffs alone. Chrysler Corp. earned $2.38 billion in 1984—triple its earnings in 1983. The big three auto makers had a combined profit of $9.18 billion. Huge bonuses were paid its executives, who sheltered their earnings. These exceeded $135 million.

Chrysler, of course, had been subšidized by $1.2 billion in government-guaranteed loans, while workers took pay cuts and pension funds were slashed.

Consequences for poor

David Stockman, Ronald Reagan's budget director, has decimated virtually every social program in the domestic budget. Yet during the next four years $1.11 trillion will be spent on military production.

What are the consequences for the working poor in America? With federal subsidies shut off, the building of low-or moderate-income housing at a standstill, and minimal șocial support systems slashed, ever-greater numbers of people will fall below the poverty line.

Twenty million are officially hungry. Thirty-five million are officially impoverished. And real income is steadily declining for working Americans. Since 1968, income rose 24% while inflation soared 189%.

Ronald Reagan has promised a Second American Revolution. What he means by this is clear: Take from the poor to give to the rich. But in so doing, his administration and the corporate ruling rich it serves are creating the conditions for another kind of revolution; one where the working poor will reclaim the wealth that they have created and that is rightfully theirs.

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HELLO, THIS IS YOUR GOVERNMENT SPEAKING, WE'RE GOING TO RETURN ALL OF YOUR TAX MONEY BECAUSE WE'RE GOING TO STOP BUYING GUNS,