Poor, Poor, Pitiful Me

Trey Smith

I have written in the past about corporations dodging taxes, but this latest story out of Washington takes the cake. Susan Ford, an executive with Corning, Inc. testified recently at a House Ways and Means committee meeting and made the following claim. “American manufacturers are at a distinct disadvantage to competitors headquartered in other countries. Specifically, foreign manufacturers uniformly face a lower corporate tax rate than U.S. manufacturers, and virtually all operate under territorial systems which encourage investment both abroad and at home.” That is a very strong statement coming from Ms. Ford. What is really interesting is that her claim that foreign companies face a lower corporate tax rate would be important issue, if it only was true!

“In fact, according to Citizens For Tax Justice, the company received a $4 million refund from 2008 to 2010. The truth is that Corning, Inc. is one of at least 26 companies that paid zero Federal taxes on their profits. ”

According to the Citizens for Tax Justice, Corning actually paid an effective tax rate of -0.2 percent for 2011! Now, as many on this blog can attest to, I am no math whiz, but a negative tax rate is a good thing, isn’t it? The truth that Ms. Ford and many other Corporate executives don’t want you to know is that the United States, while it does have one of the highest marginal tax rates, its effective tax rate is lower than most. In fact, according to Think Progress, the effective rate in 2011 was the lowest it has been in 40 years!
~ from Corporate Liars and the Lies They Tell by Lawrence Rafferty ~

It has been said that, if you repeat a lie often enough, it starts to sound like the truth! Corporate America has taken this maxim to heart and made it their number one strategy.

As Rafferty makes clear, the wealthy elite love to talk about the marginal tax rate because it makes it sound as if they are shelling out money hand over fist in the form of taxes. It's a great selling point for them. But they are loath even to mention the effective tax rate because it belies the reality of their situation. It torpedoes their selling point to the point the whole ship would sink!

The sad part of this situation is that average folks don't understand the difference between the marginal rate and the effective rate. The reason the average person doesn't understand the distinction is that the elites -- in conjunction with the corporate media -- make the whole thing sound so complicated that most folks simply throw up their hands and go with whatever definition is supplied FOR them BY the elites.

So, as a public service, I'm going to provide an easy to understand distinction, one that you should file away in your noggin. The marginal tax rate is the rate indicated BEFORE a corporation begins the process of including a whole host of exemptions and deductions. The effective tax rate is what it actually paid AFTER all those exemptions and deductions are added up and then subtracted from the tax bill due.

The marginal rate always will be a higher rate than the effective tax rate. Consequently, the marginal rate isn't all that important. What you should pay attention to is the effective rate. That's the one that matters. And it is for this reason alone that most corporations talk about the former, not the latter!