How corporate tax loopholes defund the American Dream


Photo by Gary Dincher

Note: This is the first installment in our series on how corporate tax loopholes undermine the middle class—and what we can do about it. You can read the second article in the series here, and read the third article here. Sign our petition asking lawmakers to stand with the middle class by closing corporate tax loopholes.

By Amanda Litvinov and Dwight Holmes

As more middle class Americans than ever before wring their weary hands over whether to pay down their student loans or make their next mortgage payment, corporations are also experiencing a history-making moment. They’re sitting on record profits, and are taxed at historically low rates.

Between 2001 and 2010, corporate profits in America increased by 125%. Meanwhile, the median family income went down by 4.6% in the same time period.  How was such growth in corporate profits possible, given the economic meltdown that started in 2007? Here’s the quick and dirty answer: They stacked the deck.

For decades, some of the nation’s most successful companies and CEOs have financed and lobbied enough politicians to curry a shocking level of influence over how laws are written and which ones pass. They’ve molded a system in which they can keep an ever-increasing share of profits for themselves, stunting the paychecks of working Americans and putting more burden on small businesses.

See the sources for the information used in this graph.

On top of that, corporations are contributing less in taxes to the federal government and to the communities where they conduct their business, meaning less money for serving the public good through education and other services. (A recent report shows 30 of the most profitable Fortune 500 companies pay more to their lobbyists than they do in federal taxes.)

“The middle class is being harmed by the structure of the economy, the structure of the tax burden, and the erosion of social services, including education,” said Robert Kuttner, a co-founder of the Economic Policy Institute and distinguished senior fellow at the non-partisan public policy center Demos.

When corporations don’t pay their fair share in taxes, Kuttner said, there are only three alternatives: “You either cut the services, you add to the deficit, or you make someone else pay—in this case, the middle class.”

We’re not talking chump change here. The Institute on Taxation and Economic Policy estimates that in the past three years, the federal tax revenue lost through corporate tax loopholes is $222.7 billion, which represents a loss of as much as $9.8 billion to public schools. State tax revenue from just the 265 largest companies saw losses of $42.7 billion in three years, roughly $15.4 billion of which would likely go to public schools if the loopholes were closed (see source 1 below).

Our economy was once much more balanced. Between 1948 and 1973, as productivity increased, worker wages grew at the same pace—in other words, American workers got a fair share of the growth. Between that and programs like the G.I. Bill and Social Security, America’s thriving middle class and vibrant public education system astonished the world. Then things changed. It’s more accurate to say that things were changed, by small but powerful groups, including ALEC and other right-wing organizations, and business leaders who wanted to see their companies’ already healthy profits grow exponentially.

To be clear: The concentration of power now in the grips of corporate America and the resulting unprecedented economic inequality we see today is no accident. For the past 30 years, we’ve all been trudging down a path that was carefully plotted for us by those who bought political influence for the express purpose of putting business profits above the well-being of America’s middle class.

They promised us tax cuts would lead to more revenues, greater investment and more jobs. Instead we have unprecedented deficits, falling family incomes, and four job-seekers for every open position.

Americans’ optimism about their children’s futures has reached an all-time low for good reason. Working hard and playing by the rules just doesn’t pay off like it used to; in past eras, greater equity in the distribution of income made for an economy that worked better for everyone. Our best hope for restoring balance is to demand change from our elected leaders.

“We need adequate levels of public spending that are not financed by taxes that come out of the pockets of the middle class,” says Kuttner. “And there are two sources to get those revenues: From wealthy people in their role as individual tax payers … and corporate income taxes.”

Raising our collective voice is the only hope we have in countering the other voices lawmakers hear every day—those of corporate lobbyists and influential business execs who are asking for even more tax breaks. Do you think they have your sons’ and daughters’ educations in mind?

The National Education Association is working in collaboration with its state affiliates to help inform state legislatures and local communities about why closing corporate tax loopholes is critical to funding American public education. You can play a critical role by helping your friends and neighbors connect the dots:

  • Share our articles on social media.
  • Learn more about how tax loopholes undermine the prosperity of local communities and their education systems.
  • Sign up to receive a weekly email from EdVotes, and look for the next installment in this series next week.

CHART: NEA Research used the following data sources: Productivity data from Labor Productivity and Costs Databases; Family income data from Bureau of Census Race and Hispanic Origin of Householder–Families by Median and Mean Income; Income data for the top 1%, top 1/100%, and CEOs from Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates) ,” downloaded 2 March 2012.

1 The $222.7 billion figure is from Citizens for Tax Justice & the Institute on Taxation and Economic Policy (November 2011), “Corporate Taxpayers & Corporate Tax Dodgers 2008-2010”; $42.7 billion figure is from Institute on Taxation & Economic Policy (December 2011) “Corporate Tax Dodging in the Fifty States, 2008-2010”; $9.8 billion and $15.4 billion figures are from NEA estimates of impact on K-12 education utilizing percentages of federal and state general fund revenues that go to K-12 education.

Reader Comments

  1. No website–son is a teacher, and has one. I have been trying to tell my Republican friends these points for years now–all I get is inaccurate mail (outright lies pushed by RL, GB, and others) from them as to how “horrible” the Liberals are. Well, I tell them that Jesus was a Liberal. Be saying Liberals they mean Democrats. I was a Democrat for 40+ years –until I saw how BOTH parties have reaped the personal rewards offered by the lobbyists. I am now an Independent.
    Instead of my words to them, this time I am sending your published notices above–maybe that will do the trick!! Thank you!

  2. It would be a start in the right direction if we return to the tax policies of the 50s. Nationalize by making it a priority to get our jobs back (similar to the 19% tariff Germany is leveling on imports to protect their industrial base). Penalize outsourcing of jobs by marginalizing outsourcers’ tax rates, and/or tariff the cheap imports they would like to flood into our ports. Give tax relief to companies who hire USA workers by reducing their tax rate in proportion to the pay scale they use for their work force; the higher the pay scale, the lower their corporate tax. This would give the assessment of Local, State, and Federal tax revenues a broader base as a result of a greater number of people gainfully employed. Tariff China’s dumping their gigantic product inventory into our nation to undersell Made in USA.
    End corporate subsidizing. Putting an end to corporate welfare for US corporations that have evolved into “multi-nationals” in this “global economy,” tapping into the economies of “emerging markets” around the world, while they record $billions dollar profits each quarter is a no brainer. These corporations make vast fortunes from the USA, one of the world’s biggest markets, get $billions in subsidies, then park their vast wealth in off-shore accounts to avoid contributing ANYTHING to the USA.
    Any obligation our politicians have been under to appease the plutocrats (who have contributed to their campaigns, lobby incessantly for favor in the halls of congress, and who are making record profits as they outsource jobs to by-pass the middle class work force) should be considered paid in full by a declining USA. It is way past time for them to shoulder some of the load.
    Restructure the tax code that has been shifted away from plutocrats and their old money drawing long term capital gains and onto the working stiffs and their payroll tax and newer investments, back onto the plutocrats who have seen their incomes sky-rocket over working-class America by over 300% compared to what they were just 30 years ago, while workers wages have remained stagnant.
    Reinstall the Glass Steagall Act. Impose a $.001 tax on Wall Street risky, speculative transactions that have been pocketed when they win, but have been bailed out with tax dollars with impunity when they lose (e.g. $4.7 Trillion in the 2008 meltdown).
    That would be a start toward solvency…

  3. So, why do we keep voting these people into office? We need to find a way to really get this message into the public consciousness. People need to hear the facts, and they need to hear it every single day – until the right wing extremists can no longer deny what they are doing, until everyone in America fully understands what is being done to them.

    TV commercials, viral activity on the Internet, magazine – let’s bombard this message – only then can we finally bring about a better America.

    List all the politicians, Republican and Democrat, who have done this and get rid of them. Only vote for those who agree with policies that will bring about the right type of change.

    We still have the vote – let’s do this before they take it away.

    1. Large media firms who are responsible for getting the message out cannot be depended on to address this because they too, are part of the plutocracy. You are right! This message is THE issue of our times, yet few will go there. Things that make you go hmmm!

  4. How many states have American Legislative Exchange Council (ALEC) templated legislation to give corporations tax breaks for contributing to education? This is a NEW loophole created by ALEC trained state legislators such as the law recently passed in Virginia. For more information about ALEC, research the Internet or read this article in The Nation:

  5. We the People need to form a more perfect union and take back our country of, by and for the people. Citizens united is part of the super rich to take complete political control of our country. They no longer want an educated citizenry because we can stand up to them in numbers. Modern media makes is possible for us to join as never before if we will just do it. This election year is more crucial than even 4 years ago. The Right Wing bigots want total control and are willing to use our own military against us when they get power again. Just look at the laws they are proposing in Congress if you do not believe this. The so called Patriot Act is a name to shame us into giving up our privacy and freedom from reasonable search and seizure. Been through a security checkpoint in an Airport lately. It is getting worse and we slowly give in to being regimented by the far right. It is no longer about safety in the air, there are better ways to do that job but it does not find into the regimentation program they are pushing.

Leave a Reply

Your email address will not be published. Required fields are marked *