The Carnival Corp. wouldn't have much of a business without help from various branches of the government. The Coast Guard keeps the seas safe for Carnival's cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival's ships dock.
But Carnival's biggest government benefit may be the price it pays for many of those services. Over the past five years, the company has paid taxes equal to only 1.1 percent of its cumulative $11.3 billion in profit. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.
It's hardly the only company that pays far less than the much-quoted federal corporate tax rate of 35 percent. Of the 500 big companies in the Standard & Poor's stock index, 115 paid a total tax rate — both federal and otherwise — of less than 20 percent over the past five years, according to an analysis of company reports done for the New York Times by Capital IQ, a research firm. Thirty-nine companies paid a rate less than 10 percent.
A typical family, by comparison, pays a total tax rate of about 25 percent.
Arguably, the United States now has a corporate tax code that's the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.
Over the past five years, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. Yahoo paid 7 percent. And the list goes on: Prudential Financial, 7.6 percent; Time Warner, 11 percent; General Electric, 14.3 percent.
The average total tax rate for the 500 companies over the past five years was 32.8 percent. Among those paying more than the average were Exxon Mobil, FedEx, Goldman Sachs, JPMorgan Chase, Starbucks, Walmart and Walt Disney.
Economists have long pleaded for an overhaul of the corporate tax code, and both President Barack Obama and Republicans now say they favor one, too. But it won't be easy. Companies that use loopholes to avoid taxes don't mind the current system, of course, and they have more than a few lobbyists at their disposal.
Hard to change
The tax filings of companies, like those of individuals, are confidential. In their public reports to investors, however, companies are required to list something called "cash taxes paid" — the total amount of corporate income tax they paid that year, be it to foreign governments, the United States government or state and local governments.
In analyzing several years of numbers, some obvious patterns emerge. Companies that lost large amounts in previous years can subtract these losses from their initial profits and avoid taxes until they're turning a consistent profit. Yahoo falls into this category.
Other companies are able to avoid taxes by spending large sums on new equipment or buildings. Such spending can often be deducted. Southwest Airlines, for instance, has bought a lot of planes in the past five years.
A third group of companies simply seems to have become expert at avoiding taxes. General Electric is so good at it that some people consider its tax department to be the best in the world, even better than any law firm's.
Carnival pays so little tax partly because of a provision that lets some shipping companies legally incorporated overseas — Panama, in Carnival's case — avoid taxes. The fact that Carnival's executives are in Miami and or that many passengers board in Miami, New York, Baltimore, Seattle and Los Angeles doesn't matter.