Procter & Gamble, the Cincinnati company behind Pampers diapers and Tide detergent, reported a federal tax burden in 1969 that was 40 percent of its total profits, a typical rate in those days.
More than four decades later, P&G is a very different company, with operations that span the globe. It also reports paying a very different portion of its profits in federal taxes: 15 percent.
The world’s biggest maker of consumer products isn’t the only one. Most of the 30 companies listed on the country’s most famous stock index, the Dow Jones industrial average, have seen a dramatically smaller percentage of their profits go to U.S. coffers over time, even as their share prices have driven the Dow to an all-time high.
A Washington Post analysis found that in the late 1960s and early 1970s, companies in the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits.
Now, most are reporting less than half that share.
The reason is not simply a few loopholes tucked deep in the tax code. It’s far bigger: the slow but steady transformation of the American multinational after years of globalization. Companies now have an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes.
Just the opposite, in fact. Experts say the U.S. code has encouraged companies to shift their income overseas where it is more lightly taxed. Many firms, in turn, have discovered that just as they can move their manufacturing to other parts of the world, so, too, can they shift their income to far-flung tax havens such as the Cayman Islands.
The result is lower revenue here that could pay for infrastructure, education and other services that support domestic growth – and that make life easier for U.S. firms.
As momentum builds for President Obama and Congress to overhaul the corporate tax code, this steep decline in tax expenses as a share of profits is a critical factor in the debate. And increased globalization has made the task of fixing the tax code much more difficult than the country’s last overhaul.
Company executives have complained for years that their firms face the highest tax burden in the world, citing the United States’ 35 percent top corporate tax rate as the highest among developed economies.
P&G chief executive Bob McDonald was among 20 business executives – including other leaders of Dow 30 companies such as General Electric’s Jeffrey Immelt and Wal-Mart’s Michael Duke – who met with Obama in November to discuss the country’s fiscal issues, including the tax code.
Many companies argue that fixing the tax code would help improve economic growth, but that calculus has become more complicated as the interests of U.S. multinationals appear less neatly tethered to the interests of this country.