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The winners and losers of corporate tax reform

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But, still, these firms represent very different industries. Some make equipment. Others sell services. Some profit from patents and royalties, while others generate most of their earnings by lending money, and still others are retailers. Even though all make billions of dollars overseas, their foreign operations vary widely. It is no surprise that each is either punished or rewarded by a tax code that is elbow-deep in everything they do.

As a result, U.S. tax law is very, very good to some of these companies and much less generous to others. Courtesy of Marty Sullivan over at Tax Notes, here are the average effective rates that some of the firms represented at Geithner’s meeting reported paying over the past three years. Keep in mind the statutory tax rate in the U.S. is 35 percent, but companies can often lower their bill thanks to dozens of deductions and credits. At one end were the winners: Cisco reported an effective income tax rate of 19.8 percent, Johnson & Johnson 22 percent, and GE just 3.6 percent. At the other end: Wal-Mart paid 33.6 percent, and Disney paid 36.5 percent–more than the statutory rate.

This all happens mostly because some companies can shift nearly all of their profits to low-tax countries while others, due to the nature of their business, can’t. But whatever the cause, the effect is that the winners are very likely to fight like Tiger Moms to preserve their tax preferences even as they argue for lower rates. Those who get the short end of the tax stick today will use all of their influence to drive down rates and, if they can get away with it, convince Congress to add a beneficial tax break or two.

It would be silly to expect anything different. No CEO who likes his corner office is going to advocate for changes that will reduce his firm’s after-tax income. Such a step would make for a somewhat awkward shareholder’s meeting.

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