Obama’s Corporate Tax Proposal: Which Companies Will Take A Hit?

By Kapitall | February 24, 2012 AAA





Written by Rebecca Lipman

President Obama has proposed corporate tax cuts that will lower corporate income taxes from 35% to 28%, and even lower for manufacturers. In exchange for lower tax rates he intends to close off a number of loopholes, exemptions and subsidies that have allowed companies to dodge the taxes for decades.

Loopholes
Corporate income taxes are quite fascinating in the sheer amount of loopholes available to the corporations savvy enough to use them.

So much so that many multi-million and billion dollar corporations often end up paying negative taxes, meaning they received money back from the government. In several cases, corporations have owed less on income taxes than what their CEO earns in a year.

Indeed, Obama is working to close the gap between the statuary tax rate (the rate on the books) and the effective tax rate (what is actually paid after all loopholes, deductions and subsidies are accounted for). As an example, he will try to impose a minimum rate on foreign earnings to discourage the use of tax shelters.

Revenue Neutral

But will the plan to overhaul the corporate tax system work? Some critics are arguing that, although it may be a good idea in theory, it won't do much good in practice. In fact, as far as economic sense goes, it's actually a revenue neutral change.

Mark Thoma, columnist for The Fiscal Times, explains: "To accomplish revenue neutrality, the cut in the tax rate will be accompanied be closing loopholes, i.e. a broadening of the base. Thus, every company receiving a tax break will be matched somewhere else by companies experiencing a tax increase. Thus, while some firms will benefit, others will get hit harder by these taxes and the net effect overall should be roughly a wash."

Interactive Chart: Press Play to compare changes in market cap over the last two years for the first nine stocks mentioned below.







Business Section: Investing Ideas
If Obama's tax proposal is passed, and the laws are strict enough to close the gap between the statutory and effective tax rate, some companies are going to be in for a nasty shock.

Specifically, we considered the companies that have paid essentially nothing, or even received money from the government. To do so we look backed at a list of 25 CEOs who earned more than their company paid in income taxes in 2010. You can probably assume that 2011 income taxes will be filed with similar results. The list was originally compiled by the Institute for Policy Studies.

Here are the 25 major corporations that paid their CEO more than they paid in federal income taxes. What kind of hit do you think they will take if their loopholes and discounts are closed off? (Click here to access free, interactive tools to analyze these ideas.)

1. Stanley Black & Decker (NYSE: SWK): CEO John Lundgren received executive compensation in 2010 of $32,570,596. In the same year, Stanley Black & Decker came out ahead, collecting $183 million in tax refunds from the IRS.

2. Ford (NYSE: F): CEO Alan Mulally received executive compensation in 2010 of $26,520,515. In the same year, Ford came out ahead, collecting $69 million in tax refunds from the IRS.

3. Chesapeake Energy (NYSE: CHK): CEO Aubrey McClendon received executive compensation in 2010 of $21,044,952. In the same year, Chesapeake Energy paid $0 in income taxes.

4. AON (NYSE: AON): CEO Gregory Case received executive compensation in 2010 of $20,783,301. In the same year, AON paid $16 million in income taxes.

5. Bank of New York Mellon (NYSE: BK): CEO Robert Kelly received executive compensation in 2010 of $19,379,257. In the same year, Bank of New York Mellon came out ahead, collecting $670 million in tax refunds from the IRS.

6. Coca-Cola (NYSE: KO): CEO John F. Brock received executive compensation in 2010 of $19,114,318. In the same year, Coca-Cola paid $8 million in income taxes.

7. Verizon (NYSE: VZ): CEO Ivan Seidenberg received executive compensation in 2010 of $18,126,854. In the same year, Verizon came out ahead, collecting $705 million in tax refunds from the IRS.

8. Dow Chemical (NYSE: DOW): CEO Andrew Liveris received executive compensation in 2010 of $17,739,490. In the same year, Dow Chemical came out ahead, collecting $576 million in tax refunds from the IRS.

9. Prudential Financial (NYSE: PRU): CEO John Strangfeld received executive compensation in 2010 of $17,187,028. In the same year, Prudential Financial came out ahead, collecting $722 million in tax refunds from the IRS.

10. ameriprise (NYSE: AMP): CEO James Cracchiolo received executive compensation in 2010 of $16,252,851. In the same year, ameriprise came out ahead, collecting $224 million in tax refunds from the IRS.

11. Honeywell (NYSE: HON): CEO David Cote received executive compensation in 2010 of $15,216,953. In the same year, Honeywell came out ahead, collecting $471 million in tax refunds from the IRS.

12. General Electric (NYSE: GE): CEO Jeff Immelt received executive compensation in 2010 of $15,199,762. In the same year, general electric came out ahead, collecting $3.2 billion in tax refunds from the IRS.

13. Allegheny Technologies (Nasdaq: ALGY): CEO Patrick Hassey received executive compensation in 2010 of $14,978,587. In the same year, Allegheny Technologies came out ahead, collecting $47 million in tax refunds from the IRS.

14. Mylan Laboratories (NYSE: MYL): CEO Robert Coury received executive compensation in 2010 of $14,975,235. In the same year, mylan laboratories came out ahead, collecting $73 million in tax refunds from the IRS.

15. Wynn Resorts Ltd (Nasdaq: WYNN): CEO Steve Wynn received executive compensation in 2010 of $14,615,779. In the same year, Wynn Resorts Ltd paid $0 in income taxes.

16. Capital One Financial (NYSE: COF): CEO Richard Fairbank received executive compensation in 2010 of $14,850,675. In the same year, Capital One Financial came out ahead, collecting $152 million in tax refunds from the IRS.

17. Marsh & McLennan (NYSE: MMC): CEO Brian Duperreault received executive compensation in 2010 of $14,038,187. In the same year, Marsh & McLennan came out ahead, collecting $90 million in tax refunds from the IRS.

18. Boeing (NYSE: BA): CEO Jim McNerney received executive compensation in 2010 of $13,768,019. In the same year, Boeing paid $13 million in income taxes.

19. Motorola Systems (NYSE: MSI): CEO Gregory Q. Brown received executive compensation in 2010 of $13,732,802. In the same year, Motorola Systems paid $7 million in income taxes.

20. Nabors Industries (NYSE: NBR): CEO Eugene Isenberg received executive compensation in 2010 of $13,537,486. In the same year, Nabors Industries came out ahead, collecting $138 million in tax refunds from the IRS.

21. Qwest Communications (NYSE: CTL): CEO Edward Mueller received executive compensation in 2010 of $13,446,399. In the same year, Qwest Communications came out ahead, collecting $14 million in tax refunds from the IRS.

22. Cablevision Systems (NYSE: CVC): CEO James Dolan received executive compensation in 2010 of $13,320,691. In the same year, Cablevision Systems came out ahead, collecting $3 million in tax refunds from the IRS.

23. Motorola Mobility (NYSE: MMI): CEO Sanjay Jha received executive compensation in 2010 of $13,016,126. In the same year, Motorola Mobility paid $12 million in income taxes.

24. eBay (Nasdaq: EBAY): CEO John J. Donahoe received executive compensation in 2010 of $12,382,486. In the same year, eBay came out ahead, collecting $131 million in tax refunds from the IRS.

25. International Paper (NYSE: IP): CEO John Faraci received executive compensation in 2010 of $12,303,423. In the same year, International Paper came out ahead, collecting $249 million in tax refunds from the IRS.

Author owns shares of GE.

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