Looking into Loopholes

Searching hard for an issue to hit headon, Edmund Muskie last week accused a list of big corporations of loop-holing their way out of all federal income taxes. Speaking in New Castle, Pa., Muskie named "eight giant corporations" that "paid no federal income taxes in one of the last two years." They were: Aluminum Co. of America, Allied Chemical, Bethlehem Steel, National Steel, Republic Steel, Standard Oil of Ohio, U.S. Steel and Westvaco Corp. Officers of the firms disputed Muskie's charges, and it was hard to tell who was right. Under current tax-reporting requirements, outsiders--even presidential candidates--simply cannot find out how much a corporation actually pays in federal income taxes during a given year.

For example, although U.S. Steel reported earnings of $154 million and paid $97 million in dividends for last year, its annual report declares that "no provision for taxes on incomes is required for 1971." After that statement was repeated on the House floor by Ohio's Charles Vanik, the company made an elaboration. It stated that, although for accounting reasons no provision for income taxes had to be reported to stockholders, U.S. Steel had indeed paid some federal income tax in 1971. These payments may have involved using tax credits built up in prior years, and the company may still owe deferred taxes on its 1971 income. Corporations are not required to report such arrangements, and U.S. Steel declined to expand on its claim.

Biggest Break. Muskie promised, if elected, to eliminate three corporate tax breaks--accelerated depreciation, investment tax credits and intangible mineral drilling cost deductions--and to "cut down" the oil and mineral depletion allowance. Actually, the first two became effective part way through last year; thus they had little effect on 1971 taxes and none at all on those for 1970. The other two, while highly profitable to oil companies and mineral firms, are not the main reason for their low tax rates. Their biggest break is the dollar-for-dollar write-off allowed on royalties paid to foreign governments.

Each of these tax procedures has either been passed by Congress or otherwise approved by the Government, and valuable incentives for economic growth may be endangered if some of them become prime political targets. But given the rising populist mood, much more will be heard about corporate tax reform during the election campaign--and about some candidates' demands that every company reporting a profit should pay at least some tax.

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