Economy: Earned Income Tax Credit for Corporations The Earned Income Tax Rate (EITC) is essentially a negative income tax designed to encourage work among poor and low-income Americans. According to the Economic Policy Institute (EPI):

The Earned Income Tax Credit (EITC) is a credit against federal personal income tax liability. Unlike most other tax credits, the EITC is refundable, that is, if the credit exceeds tax liability, the taxpayer receives the difference in cash from the Internal Revenue Service.

The credit is available only to the employed, with benefits varying with the number of dependent children in a household. The credit amount rises with earnings according to a fixed percentage for an initial range of income called the phase-in range. The effect is the same as a wage subsidy - for every dollar earned, the credit adds 8, 34, or 40 cents depending on whether the family has zero, one, or two children.

Once a taxpayer's wages push the benefit up to the legal maximum, the benefit stays constant for an additional range of income. We call this range the 'plateau' of the credit. Finally, at a certain point, the credit begins to decrease with additional income. This is called the "phase-out" range, with phase-out rates varying depending on the number of children.

According to a new report by the Institute on Taxation and Economic Policy, in the last three years 82 of the top Fortune 500 companies have experienced zero or negative tax rates. In addition, 28 corporations received tax rebates all three years 2001-2003.

Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in at least one year from 2001 to 2003. In the years they paid no income tax, these companies earned $102 billion in pretax U.S. profits. But instead of paying $35.6 billion in income taxes as the statutory 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury, totaling $12.6 billion. These companies’ “negative tax rates” meant that they made more after taxes than before taxes in those no-tax years.

Twenty-eight corporations enjoyed negative federal income tax rates over the entire 2001-03 period. These companies, whose pretax U.S. profits totaled $44.9 billion over the three years, included, among others: Pepco Holdings (–59.6% tax rate), Prudential Financial (–46.2%), ITT Industries (–22.3%), Boeing (–18.8%), Unisys (–16.0%), Fluor (–9.2%) and CSX (–7.5%), the company previously headed by our current Secretary of the Treasury.

full report (PDF)

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