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Bernie’s Big Spin

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PERSPECTIVE-As with many of you, my Facebook news feed is splattered with exaggerated, if not false, claims. There is almost always a partisan political motive behind these memes. 

The most common ones I encounter involve variations of the following: 

1)    Planes did not crash into the World Trade Towers on 9-11.

2)    President Obama is a Muslim

3)    Vladimir Putin is the Antichrist 

OK, the last one is probably true. 

The latest rage is a quote from Senator Bernie Sanders. (Photo) 

“One out of four corporations doesn’t pay a nickel in (federal income) taxes.” 

Is there some truth to this statement? 

It depends on how you slice and dice the stats, and the Senator is performing some surgical slicing. 

The data behind the seemingly stunning assertion include firms with legitimate losses; that is, after you subtract the cost of goods sold and overhead, such as salaries, office rent, professional services, etc, there was no profit to report. Understandably, when you have no profit, there is no tax. It works that way for small businesses as well. 

The ratio might be closer to 1 out of 16, but no worse than 1 out of 6, according to an analysis by PolitiFact.com 

But the complexity of the tax code makes any analysis, including the one underlying Sanders’ claim, sketchy. 

For one thing, too much weight is given to rules that defer taxes. For example, accelerated depreciation merely reduces taxes in the early life of an asset, but the benefit turns around in the later years and results in a lower deduction. I would hardly call that tax avoidance. 

The steady growth of S Corporations further muddies the waters as more corporate earnings are shifted to individuals. The S type became the most prevalent form of corporate entity in 1997. S corporations do not pay income taxes. Instead, the earnings from this corporate type are passed directly to the owners, who report them on their individual returns. 

S corporation owners must either be citizens or residents, so all income is within reach of the IRS. Owners cannot be corporations or partnerships. 

The impact of investment tax credits need special consideration. These credits are incentives for companies to reinvest in assets that improve productivity. They represent a permanent reduction to corporate taxes – the savings will never be reversed in subsequent years as deferred benefits are. 

Credits are allowed for certain types of equipment, solar energy installations and even film production. The government assumes an economic benefit will be derived from such investment. To at least some degree, that is true. When analyzing whether corporations are understating taxable income, these credits need to be considered and effectively added back as if they were not used. 


 

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Even those corporations that truly bypass the IRS by funneling income overseas cannot avoid entirely shielding their income from United States income taxes. The dividends they pay are taxable to the shareholders. 

The point I am making is that politicians can play it fast and loose with the numbers depending on the range of data they select, just as MSNBC and Fox dissect the news to support their opposing points of view. 

So please think twice before you share out of context “truths” you receive on Facebook. 

Remember, the more astonishing the assertion, the more likely it should be discounted.

 

(Paul Hatfield is a CPA and former NC Valley Village board member and treasurer.  He blogs at Village to Village and contributes to CityWatch. He can be reached at: [email protected])

–cw

 

 

 

CityWatch

Vol 12 Issue 77

Pub: Sep 23, 2014

 

 

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