How Much Tax Do Large Public Corporations Pay?: Estimating the Effective Tax Rates of the S&P 500

Three recent phenomena - the corporate governance scandals, continuing concern about corporate tax shelters, and the Bush administration's proposal to exempt dividends from income - have generated renewed interest in the amount of taxes paid by public corporations on the profits they report to...

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Bibliographic Details
Published in:Virginia law review 2003-12, Vol.89 (8), p.1793-1856
Main Author: Yin, George K.
Format: Article
Language:English
Subjects:
Business structures
Corporate income tax
Corporate income taxes
Corporate taxes
Corporations
Effective income tax rates
Effective tax rate
Estimated taxes
Income estimates
Income taxes
Statistical analysis
Stock options
Studies
Tax benefits
Tax law
Tax rates
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Summary:Three recent phenomena - the corporate governance scandals, continuing concern about corporate tax shelters, and the Bush administration's proposal to exempt dividends from income - have generated renewed interest in the amount of taxes paid by public corporations on the profits they report to their investors. This article evaluates these concerns by estimating the effective (or average) tax rates (ETR) from 1995 to 2000 of the corporations included in the Standard & Poor's 500 stock index. The ETRs of the sampled corporations fell almost steadily throughout the six-year period, from 28.85% to 24.20%. Part of the reason for the decline was the inconsistent treatment of stock options for tax and accounting purposes. When the ETRs of the sample were redetermined after controlling for the inconsistent tax and accounting treatment of stock options by conforming their treatment, there remained a notable but less dramatic decline in ETRs over the six-year period.
ISSN:0042-6601
1942-9967
DOI:10.2307/3202367