Number of Tax-Free Firms Explodes

Just when you thought we could use more tax revenue comes word that a skyrocketing number of American companies are paying no taxes. That's zip, zero, zilch in federal income tax, and the group includes some publicly traded companies. The percentage of companies organized as tax-free operations has zoomed from about 24% in 1986 to close to 69% as of 2008, according to IRS data. As many as 60% of companies earning more than $1 million may be paying no tax—the highest in the developed world, reports the Wall Street Journal. So it's no surprise that federal corporate tax collections have plunged from 6.1% of GDP in 1952 to just 1.3% in 2010.

More and more companies are organizing themselves as pass-throughs, which means the firms pass along profits to investors, who pay taxes on that money through their individual returns. Millions of small businesses have organized this way, but so have some giants like the Blackstone Group, the construction firm Bechtel, and the pipeline company Kinder Morgan. Many Democrats and even some Republicans are considering changes to tax the biggest pass-throughs. Congress knew laws would encourage businesses to become pass-throughs, but even so, "there were a hell of a lot more pass-throughs created than I think we expected," said a former Reagan Treasury official. (More pass through stories.)