Who would argue taxes with H&R Block? Matt Gardner would, but only a little.
Gardner was the lead author of a recent study by the Institute on Taxation and Economic Policy titled “The 35 Percent Corporate Tax Myth.”
The study’s conclusion was that many big, profitable companies already pay far less than the 35 percent federal corporate income tax rate that President Donald Trump says he wants to cut.
The institute checked 258 companies and found they paid on average about 21 percent of their U.S. earnings in current federal taxes over the eight years studied. It said 100 of them paid no current federal income tax in at least one of those eight years, with 18 having paid no current federal income taxes throughout the study’s eight-year horizon.
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“It reveals that many of the big corporations that are lobbying for a lower corporate tax rate to be more ‘competitive’ already pay substantially less than the 35 percent statutory rate,” an announcement of the study said.
Among the companies studied was H&R Block, the only Kansas City-area based company the institute calculated current federal tax rates for.
H&R Block’s CEO Bill Cobb said last week in comments to analysts that the tax preparation business would benefit greatly from a cut in the federal corporate income tax rate.
Gardner agreed. He said that H&R Block pays relatively high federal taxes.
“Some big corporations are paying nothing, and others are paying pretty close to their full freight. I would put Block in the latter category,” Gardner said.
The point of the study, Gardner said, wasn’t to say some big companies get big tax breaks at the expense of individual taxpayers. They also get them at the expense of other big companies.
“If you were going to make a list of companies that ought to feel aggrieved about how the system works, Block might well be on that list,” he said.
H&R Block gets little benefit from what Gardner calls the “most expensive” corporate tax breaks. These allow deductions for spending on equipment and research and development. They favor manufacturers and they reward newer technology companies like Facebook and Apple that, early on, paid employees mostly with stock options.
They’re legit, Congress-approved tax breaks, just like the standard deduction, the home mortgage interest deduction and other itemized deductions individuals can claim on their federal taxes.
Deductions reduce a taxpayer’s income to a smaller amount on IRS forms called taxable income. Corporations are taxed 35 percent on their taxable income.
In the study, Gardner and others compared the taxes that companies paid on their income before any tax breaks and came up with what they called the companies’ effective tax rates.
“If that corporate rate goes down, then our effective rate goes down,” said Gene King, an H&R Block spokesman.
Businesses that the study highlighted as having very low effective tax rates generally claimed a lot of those tax breaks. H&R Block and other retail-oriented businesses typically don’t have much to claim from those breaks and had higher effective tax rates.
“That’s why you see Home Depot and Wal-Mart clustered near the top. They’re close to 35 percent,” Gardner said.
The study pegged their effective federal income tax rates at 33.2 percent and 31.1 percent, respectively, over the eight years it covered. It said H&R Block’s was 28.7 percent.
Here’s where H&R Block disagrees. It regularly reports its effective tax rate to shareholders, and the totals are different than what the study showed. Sometimes Block’s number was higher and sometimes it was lower.
The difference has to do with the study’s narrower focus. It counted only federal taxes and only those paid during the current fiscal year for the company. It excluded state and foreign taxes and all taxes that the companies were able to defer and pay in a later year.
Strip away those differences, and the study and H&R Block were working with the same numbers.
Gardner called the study’s differences with Block’s numbers “trival,” but he said the study produced a better measure of what companies actually paid in federal taxes each year.
H&R Block said its calculations are prescribed by securities disclosure requirements, governed by generally accepted accounting principles and verified by the company’s independent auditing firm Deloitte & Touche LLP.
Calculating H&R Block’s effective tax rate
Only a “trivial” difference separated H&R Block’s publicly reported effective tax rate and an alternative rate calculated differently in a study of 258 companies.
Sources: H&R Block, Institute on Taxation and Economic Policy