Lawmakers almost never know a company's full tax picture when they sign away corporate tax credits. That's unlikely to change any time soon.
Critics and supporters of Donald Trump’s deal that kept Carrier Corp. from exporting hundreds of jobs from Indiana to Mexico have spent much of the past week arguing about how many jobs the deal actually saved.
But what the public will likely never know is how much the deal helps the air conditioning company’s annual state tax bill. It's information that's typically not released but can reveal whether a tax incentive has the potential to bring a business' state tax burden down to zero.
Last week, President-elect Trump and Vice President-elect Mike Pence, who is still serving as governor of Indiana, announced a deal with Carrier that they say will keep 1,100 jobs in the state in exchange for $7 million in tax breaks over a decade. Since the announcement, unions have refuted the jobs number and said it’s closer to 800 since Carrier still plans to export 500 jobs to Mexico.
While it’s likely that Trump, Pence and others involved in the negotiation know what Carrier pays in Indiana taxes, lawmakers who have to sign off on the state budget typically don’t have all the information.
That’s standard practice, said Washington state Sen. Reuven Carlyle, who has been a leading force in his state for more transparency about corporate tax incentives.
"Every state deals with a torrent of lobbyists arguing for a tax break, but what those same state legislators don't always have is the contextual data," said Carlyle. "To say how much overall $7 million is compared to [Carrier's] net tax burden -- that would be transformational in a public dialogue about state tax breaks and these deals.”
Thomas Cafcas, a research analyst for Good Jobs First, an organization that advocates for tax transparency, agrees.
“The idea that these tax breaks can effectively wipe out what these companies pay in state taxes can be critical."
When lawmakers approve tax credits, they are told the money is a vital incentive. But they don't know what that really means to the company or even if the company really needs it. Perhaps the taxpayer money would have been put to better use elsewhere.
In Illinois, companies as a whole routinely claim just a fraction of the state's Growing Economy program tax credits -- leading Cafcas to ponder if it's because some companies don't have any more taxes in the state to offset.
What is public information is a company's federal tax liability. Carrier's parent company, United Technologies, paid about $1 billion in 2015, and its total state and local taxes were about $70 million. This information is published in the company’s annual earnings statement filed with the Securities and Exchange Commission. But the data doesn’t break down into state-by-state tax payments.
When it comes to releasing state or local tax payments, most companies say doing so would violate privacy rules or reveal proprietary information. But it’s not an argument tax transparency advocates readily believe, given that a small number of places do publish this information.
Wisconsin, for instance, will release a state-based company’s annual tax payment if it's receiving a state subsidy -- but it only gives the information to Wisconsin residents, said Cafcas. The unique statewide disclosure is the reason it's known that Wisconsin-based SC Johnson, the cleaning supplies company, didn’t pay state income taxes for more than a decade.
What’s more common is that a company’s tax benefits are disclosed on a deal-by-deal basis. Some places have attempted to make companies’ state tax liabilities part of the tax incentive disclosure process, but that has proved difficult. Efforts to do so in Oregon and Washington state in recent years have been stymied.
In the meantime, when it comes to deals like the Carrier one, taxpayers and lawmakers are simply left to wonder. Casting a cloud of doubt over deals like this one is the fact that its parent company has been repeatedly identified by another transparency group, Citizens for Tax Justice (CTJ), as a corporate tax dodger. According to CTJ’s latest data, United Technologies’ average effective tax rate is just 11 percent, while its total state tax rate has been as low as 2 percent in some years.
At a time when state tax revenues are slowing, said Good Jobs First Executive Director Greg LeRoy, putting these deals in context is imperative.
“If we’re going to have an honest debate about austerity and sharing the burden,” he said, “this is part of it because then we can decide if things are fair.”