Corporate tax savings go deep and cost millions

As part of his response to the recent property tax crisis, Gov. Mitch Daniels has ordered a reassessment of all real property in Marion County.

According to the Governor’s Office, assessed value for nearly three-fourths (16,000 of 22,100) of commercial and industrial parcels in Marion County did not change at all over a six-year period.

Businesses have not been asked to shoulder the tax burden comparably to individuals in Indiana. For the past several decades and political administrations, tax breaks and outright eliminations for businesses have resulted in increasing incremental tax hikes for individuals.

Over the past 10 years, Indiana has seen an increase in every category of tax revenue except corporate income taxes. Nationally, America’s largest and most profitable corporations are finding more and more ways to pay substantially less in taxes at the same time they report increased profits.

Corporate taxes now account for about 7.5 percent of overall federal tax receipts, down from a high of 40 percent during World War II. Despite one of the highest ostensible corporate tax rates in the industrialized world, American companies are in fact among the least taxed.

From 2001 to 2003, more than half of all Fortune 500 companies obtained approximately $200 billion in tax savings, nearly double the amount of the previous three years. In addition, more than 25 percent of the 500 corporations paid no taxes at all during the period, despite having profits of nearly $45 billion.

Overall, the U.S. Commerce Department estimates that while pretax corporate profit rose 26 percent from 2001 to 2003, corporate tax payments fell 21 percent, totaling more than $12 billion in lost state tax revenue and $35 billion lost in federal tax revenue in 2001 alone.

But it isn’t just the federal government giving corporations the opportunity to pay less in taxes. Our state and local governments are doing it as well.

In 1999, for example, the state and city gave Lilly $214 million in tax abatements and incentives in exchange for creating 7,500 new jobs over a 10-year period. More than five years later, the company had added only half of those positions when it announced a hiring freeze and layoffs.

More recently, Indianapolis-based Simon Properties received nearly $4 million in property tax abatements for its new downtown headquarters in exchange for 40 new jobs. A few blocks away, the Hilton Corporation received more than $800 million in tax credits to build its Conrad Hotel and create 250 new jobs.

The cost of economic development

The logic is simple: Business generates business. A community may lose a certain amount of income to initially grow business, but it profits when the employees become taxpayers themselves and reimburse the state’s initial investment with income, sales, vehicle, gas, property and even inheritance taxes.

This is the same type of economic development philosophy that brought the United Airlines maintenance facility to Indianapolis and left the city and state nearly a half billion dollars poorer.

In 1991, Indiana taxpayers gave the airline more than $300 million in the form of tax subsidies and other assistance in return for the promise to create 7,500 jobs. By the time it closed in 2003, the facility employed approximately 2,500 workers — the majority of whom relocated from United’s maintenance operations in California.

Daniels came to office in large part because of his promise to put Indiana back on the right economic track. While he planned to continue the practice of giving tax incentives to new businesses, Daniels also vowed to give the benefits of state economic development policies to the small businesses, rather than large multinational companies.

In the past six months, however, the Indiana Economic Development Commission has given over $92 million in incentives to 47 companies with plans to build, move or increase their business in Indiana. The incentives are comprised of nearly $58 million in tax credits, $10 million in grants and loans and $24 million in property tax abatements.

Among the recipients of IEDC incentives are Chrysler ($12.65 million), Capital Group ($4.7 million), Nestle ($3.3 million), AT&T ($4.3 million) and Veolia Water ($1.3 million).

The Chrysler deal continues Indiana’s auto manufacturing increase. In June of 2006, Honda announced that it was building a 2,000-employee plant in Greensburg and adding 2,000 new jobs; in exchange, Indiana provided Honda with more than $80 million in state and local tax credits, tax abatements, grants and infrastructure upgrades. Three months earlier, Toyota announced it would add 1,000 workers at an existing Subaru plant in Lafayette, Ind., after local and state incentives totaling nearly $100 million were accepted.

The jobs at all three auto manufacturing plants pay an average of $23 per hour or $48k per year.  In total, the three auto companies received $192 million in exchange for 4,000 jobs; this equals approximately $48k per job.  In other words, Indiana taxpayers will essentially subsidize the first year’s salary for these new jobs at Chrysler, Honda, and Toyota.

Large automakers aren’t the only companies getting big savings in business, sales and property taxes in Indiana. The Indiana Economic Development Commission and the City of Indianapolis have also been generous to former Conseco head Steve Hilbert and his wife Tomisue.

In May of this year, the IEDC gave up to $420,000 in tax credits and $92,000 in training grants to New Sunshine LLC, a tanning company owned by Mrs. Hilbert. The company has plans to grow its “management, logistics and manufacturing workforce and bring upgrades to its production facilities and computer equipment” and add 55 new jobs, according to an IEDC press release. The City of Indianapolis offered the company property tax abatement worth more than $126,000.

On July 5, 2007, the IEDC announced that “Haverstick, a leading technology and business services firm, announced today it will expand its Indiana operations, creating 40 new jobs.” Haverstick is a consulting firm owned by Steve Hilbert. It will share office space with the tanning company in leased office space at 6270 Corporate Drive.

The Indiana Economic Development Corporation gave Hilbert’s firm up to $30,000 in training grants to encourage the expansion. The City of Indianapolis provided property tax abatement worth more than $68,000.