If you think you wound up paying too much in taxes this year, maybe you ought to hire a lobbyist. Or two. Or 20. After all, it’s a strategy that seems to be working well for some of the nation’s biggest corporations.

As Americans prepare for tax day 2012, a new Sunlight analysis of lobbying and corporate tax rates finds that among 200 of the largest U.S. companies, the companies that spent the most on lobbying most effectively reduced their reported tax rates between 2007 and 2010.

On average, companies we examined reported paying a slightly lower overall tax rate in 2010 than in 2007 (average tax rate of 29.3 percent in 2010 as compared to 29.9 percent in 2007), with a decline in the median reported tax rate from 31.8 percent to 31.6 percent. Fifty-five percent of the companies paid a lower rate in 2010 than in 2007.

But of the eight companies that spent the most on federal lobbying between 2007 and 2009, seven decreased their overall tax rate between 2007 and 2010. And six of the Big Eight enjoyed a decrease of at least seven percentage points.

Table 1. Changes in reported tax rates

Combined, the Big Eight spent $540 million on lobbying between 2007 and 2009. In total, they filed 332 lobbying reports that mentioned taxes, naming 491 different tax bills over the three-year period we investigated (see table 2).

Table 2. Lobbying on tax bills

Compared to what their taxes would have been if their 2007 tax rates were applied to their 2010 income, we estimate that the seven companies that lowered their taxes saved a combined $11 billion on $120 billion in reported 2010 profits. If we assume that the entire reduction was due to their lobbying, the return on investment would be 2,069%.  Of course, this is probably not the case. Without a detailed analysis of these companies’ taxes, it would be impossible to tell why their rates fell. But we can observe that it is very unlikely that the eight companies that lobbied the most between 2007 and 2009 all would have seen such significant drops in their tax rates by random chance alone.

Statistically, the likelihood of that seven of eight firms that ran up the biggest lobbying tabs all lowering their reported tax rates by chance alone is about seven percent, which makes it highly unlikely but within the real of random possibility (assuming we take the overall probability of an individual company lowering its taxes at 55 percent). Moreover, only 19 of the nation’s 200 highest earning companies reduced their tax rate by more than seven percentage points. Within this universe of companies, the likelihood of six of the Big Eight lowering their rates by at least seven percentage points purely by random chance is less than 1 in 100,000.

Of course, the Big Eight were not unique in lobbying on taxes. More than two-thirds of the nation’s 200 largest companies lobbied on at least one tax bill in the last three years. Of the 182 large companies that reported at least some lobbying during the period, 73 percent lobbied on taxes. Combined, the 182 companies filed 2,405 unique reports mentioning tax lobbying, with a total of 3,600 unique tax bill mentions.

Companies lobby so much because Congress is constantly making changes to the tax code. Between 1987 and 2011, the number of pages in the CCH Standard Federal Tax Reporter (one measure of the growing complexity of the federal tax code) more than doubled, growing from 33,030 pages to 72,574 pages. More than half of those pages have been added since 2001.  In 2005, the President’s Advisory Panel on Tax Reform counted approximately 15,000 separate changes to the tax code since 1986 (more than two a day). “Each one of these changes had a sponsor,” wrote the panel in its report, “and each had a rationale to defend it. Each one was passed by Congress and signed into law.”

It’s not surprising then, that we recently found that a committee seat on the House Ways and Means Committee (which has jurisdiction over tax rates) is worth an estimated $258,000 in extra fundraising. After all, a substantial number of companies appear to be after highly-prized tax benefits. And PAC and employee contributions to committee members are generally an effective way of gaining access. 

Regression analysis

Taking the 200 companies as a whole, we estimate that for each additional $1 million that companies spent lobbying between 2007 and 2009, their 2010 tax rate fell by 7/100ths of a percent. While that might not sound like much, for a $2.5 billion company at the median in our sample of large companies, each $1 million spent on lobbying translates into an estimated annual tax savings of $1.8 million – almost double the original investment, with benefits likely to continue in the future. Table 3 reports the results of a OLS regression estimating companies’ 2010 tax rate as a function of their lobbying totals between 2007 and 2009, controlling for size, industry, and 2007 tax rate. The estimate of a decrease of 7/100ths of a percent is statistically significant, though just slightly.

Table 3. OLS regression results of effect of lobbying on tax rate

However, the result appears to be largely driven by the eight companies that lobby the most. If we remove those companies from the sample, the estimated effect of lobbying on tax reduction drops to 5/1000ths of a percent per $1 million spent on lobbying, with a 35.5% chance of being zero (the absolute minimum for statistical significance is a 10% chance of being zero).

Conclusion

When it comes to paying less in taxes, having an army of lobbyists appears to be helpful. Many companies lobby on taxes, but those who spend the most report the largest and most consistent declines in tax rates. Of the eight companies who spent the most money lobbying between 2007 and 2009 seven saw their 2010 tax rates decline from what they paid in 2007. While it is difficult to show causality, the likelihood of this happening by random chance is less than 1 in 100. And of those eight companies, six reduced their tax rates by at least seven percentage points. Given the larger patterns we’ve observed, the likelihood of this happening by random chance is less than 1 in 100,000. At the very least, we know that the companies that lobby the most are also the  companies who have figured out some way to pay millions less in taxes than they did just a few years ago.

Methodology and sample

Our set of 200 companies includes the largest 200 U.S. companies (ranked by 2010 pre-tax income) that met the following criteria: in both 2007 and 2010 they reported tax rates that ranged between -50% and 50% both years, and their income in 2007 was positive. We did this because we wanted to eliminate cases in which tax rates were likely to be driven by one-time events. This is admittedly not a perfect approach, but we wanted tax rates to be appropriately comparable between the two years and to eliminate outliers.

We calculated the base tax rate using Compustat data, and thus we rely on what companies reported in their financial statements as their pre-tax income and their income tax paid (in this, we follow the approach of Richter et al. 2009, who also find that companies that lobby more pay less in taxes). Our decision to look at the cumulative lobbying over three years is based on the assumption that tax lobbying takes place over multiple years and tax benefits do not always kick in immediately.

The list of companies and their tax and lobbying data can be found here.

Special thanks to Alison Rowland for her help in preparing this analysis.

Correction: Altria's tax rates were originally reported incorrectly. The post has been updated to reflect Altria's correct tax rates.

On Sunday CBS’ 60 Minutes ran an expose on new corporate tax havens. Leslie Stahl, reporting the story, interviewed Cisco Systems CEO John Chambers who stated that companies located offshore to avoid the thirty-five percent U.S. corporate tax rate wanted to repatriate their earnings at a lower rate. Chambers stated that the money was “trapped,” a term that Stahl echoed. Never mentioned in the story was that Chambers is leading a coalition of corporations and trade groups, including the powerful U.S. Chamber of Commerce, to lobby Congress and the Obama administration for a tax repatriation holiday.

The WIN America Coalition is a collection of seventeen corporations and four trade groups advocating for a one-time tax repatriation holiday. The coalition consists of some of the biggest corporate backers of the Obama Administration including Duke Energy, Google, Microsoft, and Pfizer.

The seventeen corporations spent over $50 million on lobbying in 2010 and employed some of the best tax lobbying firms in Washington. Cisco’s lobbying operation is heavily focused on taxes, with the firm Ernst & Young, which employs numerous former staffers of congressional tax writing committees, leading the way.

One of Ernst & Young’s lobbyists is Nick Giordano, former chief tax counsel to the Senate Finance Committee and legislative director for Finance Committee Chairman Max Baucus. He is one of forty-three former staffers of congressional tax writing committees that were hired by the WIN America companies in 2010.

According to data obtained from the Center for Responsive Politics, seventy-eight percent of the WIN America corporation lobbyists have previous government experience.

Twenty-six of those lobbyists previously worked on the Senate Finance Committee or for members of the committee; sixteen worked on the House Ways & Means Committee or for committee members; five worked at the Treasury Department; and one worked for the Joint Committee on Taxation.

The coalition also employed two former members of Congress as lobbyists in 2010. Former Sen. Tim Hutchinson and former Rep. Bob Livingston were both employed by Oracle America.

While the Obama administration has remained cool to the idea outside of a total overhaul of the corporate tax system, it may take notice as many of the WIN America companies are likely to be financial supporters of the president's reelection campaign.

Recently, President Obama reached out to the Silicon Valley community in a private sit-down with tech executives and the venture capitalists funding new projects. Those companies included WIN America members Apple, Cisco Systems, Google, and Oracle. These four combined to donate $1.3 million to the 2008 Obama campaign. Duke Energy, another WIN America member, is providing a $10 million line of credit to fund the Democratic National Convention in Charlotte, North Carolina next year.

The companies involved in the coalition are part of a growing trend of companies shifting profits and earnings overseas to avoid paying taxes at the thirty-five percent rate. Google’s tax rate is around two percent; Pfizer’s has dropped to well below the thirty-five percent rate; Oracle’s tax rate is remarkably low, as it has shifted profits offshore.

The firms involved in the WIN America Coalition frame their case for a one-time tax holiday in one way, as Oracle President Safra Catz said, “it will create jobs.”

According to a Congressional Research Service report, the already existing evidence does not support this conclusion. In 2004 the government enacted a tax repatriation holiday as part of a short-term stimulus bill, the American Jobs Creation Act. The CRS Report shows that the holiday increased repatriation of earnings at a lower tax rate, but did not create jobs. In fact, the companies taking most advantage of the holiday cut jobs in the United States after repatriating earnings rather than created jobs.

The report also shows that the majority of the repatriated earnings came from the pharmaceutical and computer/electronic industries. These industries are currently the biggest supporters of the WIN America Coalition.

There is an op-ed in The Hill today by lobbyist Thomas Spulak arguing that the interests that hire lobbyists are the real power-wielders in Washington, not the lobbyists. Fair enough. And Spulak states that lobbyists should consider supporting increased disclosure requirements--of the kind that Sunlight advocates for--to help remove the stain from their profession. That's well and good. But, in this case, I feel like Spulak could have set an example by being a bit more candid in his writing. For example, this part of the op-ed stood out to me:

A recent front-page headline in The Washington Post exclaimed, “The Lobbyists Win by Killing Tax on Liquor.” Another article quoted a senator who was unhappy with the direction of the healthcare debate as saying, “[T]he lobbyists are winning.” From the sound of it, lobbyists must be the most powerful people in Washington.

Although a few lobbyists have been known to beat their chests, they are not nearly as powerful as critics would have one believe. It is the interests that lobbyists represent that have the power. When someone complains that lobbyists are winning, they may be acknowledging the lobbyists are representing differing constituency interests so compelling that they cannot be ignored.

Before anyone blames corporations, it is not necessarily business that wields the influence. Often it is average Americans for whose interests corporations and other groups mobilize. Take, for example, the headline about the liquor tax. It wasn’t the lobbyists and their clients who killed the tax increase. It was probably concerns that legislators had about the reaction of the millions of consumers who enjoy the occasional drink and who did not want to have to pay more for the pleasure. Those individuals, mostly middle- and lower-income Americans, are a powerful voting bloc.

(As an aside, I have also been unable to find the Washington Post article that Mr. Spulak cites on the Post site, in Google or in Nexis. I don't get or read the dead tree version of the paper, but I'm under the impression that they don't exclude articles printed in ink from being posted online.)

There's a reason why lobbying has boomed so much over the last decade. The potential return on investment is just too lucrative to pass up. Some things are easy to quantify, a contract, an earmark, or a direct payment for services. But other things, like tax breaks, can take a little bit more time to figure out (at least for now). For example, a University of Kansas study, to be released today, will show that firms pushing for a "tax holiday" in 2004 received a 22,000% return on their lobbying investment. I'll write that number again: 22,000%. From the AP:

The report details efforts by hundreds of companies in 2003 and 2004 to push through a one-time tax "holiday" that lowered for a year the tax rate they paid on profits earned abroad. All told, U.S. companies saved about $100 billion in taxes, with pharmaceutical behemoths Pfizer and Merck & Co., technology giants IBM and Hewlett Packard, and health products maker Johnson & Johnson among the top beneficiaries.

The study zeros in on 93 firms that spent as much as $282.7 million lobbying on the issue during that period, and ultimately saved a total of $62.5 billion through the tax change. Researchers used publicly available lobbying disclosures filed with Congress and financial statements submitted to the Securities and Exchange Commission to compare the amount each company saved with its lobbying expenditures.

"It calls into question what Congress did in 2004," said Stephen Mazza, who conducted the study with Raquel Alexander and Susan Scholz. "It clearly is a very lucrative field for lobbyists. Congress wanted to create jobs, and what they probably did was create jobs for the lobbyists."

Another way more transparency could help us all in this area--and particularly acamedia--is the disclosure of key data in a structured format. The above mentioned study used lobbying disclosure data and SEC data to show how the lobbying of the examined firms expanded their worth. We already know that the SEC now requires top firms to submit their SEC disclosures in XBRL. If lobbying disclosures, particularly if they became real time, could be posted in a similar format, this kind of study could be created on a web site, providing near real time results of lobbying return on investment.

Just to drill the point home: 22,000% return on lobbying investment. Yet another case that lobbying needs to be made more transparent.

Congress is like the Beltway. Sometimes it's impassible gridlock; so slow that nothing seems to move at all. Other times it moves so fast you barely knew you were on it. Right now, we're going the too-fast-to-pay-attention speed.

With outrage boiling over about millions of dollars worth of retroactive bonuses awarded to AIG executives, the House voted today 328 to 93 to get most of the cash back by taxing the recipients for 90 percent of what they received. (Here's the text of the bill.) Maybe this is a good way around the argument that the government must pay the bonuses because they're obligated contractually.

But why such a rush? The bill, introduced by Rep. Charlie Rangel (D-NY), yesterday, was available less than a day before lawmakers voted on it. Shouldn't Congress--and the public--get more time to read the bill?  After all, it was because Congress was in a hurry before that it got itself into such a mess in the first place.

Unfortunately, just like the Beltway, it keeps going round-and-round-and-round. To end this cycle, go to ReadTheBill.org and sign the Read the Bill petition calling for all bills to be placed online for 72 hours prior to consideration.

Back in July, the New York Times and the New York Post appeared in competition for which publication could roll out the most damaging story about House Ways and Means Committee Chairman Charles Rangel. Four months later and they're back at it.

Yesterday, the Post reported the Rangel receives a tax benefit on his home in D.C. that is intended for home owners and residents of the District of Columbia. Unfortunately for Rangel, he also receives perks in his Harlem home district, where he owns multiple rent-stabilized apartments. Both benefits require that the resident operate their home as a "primary residence." So, where is it that you live congressman? Harlem? Or Washington? (FYI, we don't have congressional representation here. So, if it was Washington, you'd be out of a job.)

The Times adds the pile-on today, with a much more serious story. Rangel, a long time opponent of off shore tax shelters, has, in recent years, sought to protect the tax shelter status of an oil-drilling company whose chief executive promised $200,000 to help fund the creation of the Charles Rangel School of Public Service at C.C.N.Y.:

Congressional records and interviews show that Mr. Rangel was instrumental in preserving a lucrative tax loophole that benefited an oil-drilling company last year, while at the same time its chief executive was pledging $1 million to the project, the Charles B. Rangel School of Public Service at C.C.N.Y.

The company, Nabors Industries, was one of four corporations based in the United States that were widely criticized in 2002 and 2003 for opening offices in the Caribbean to reduce their federal tax payments. Mr. Rangel was among dozens of representatives from both parties who bitterly opposed those offshore moves and, in 2004, pushed unsuccessfully for legislation to make the companies pay more tax.

But in 2007, when the United States Senate tried to crack down on the companies, Mr. Rangel, who had recently been sworn in as House Ways and Means chairman, fought to protect them. The tax shelter for the four companies was preserved, saving Nabors an estimated tens of millions of dollars annually and depriving the federal treasury of $1.1 billion in revenues over a decade, according to a Congressional analysis by the nonpartisan Joint Committee on Taxation.

Back to the allegations in the Times article. Members of Congress and private interests have long stated that contributions by the latter to charitable interests connected to the former are nothing but simple good will. The understanding, as evidenced by the Times' reporting, that these contributions constitute an unregulated form of influence seeking led Congress to finally establish some disclosure requirements.

The biannual lobbyist contribution forms mandated under the Honest Leadership and Open Government Act require the disclosure of contributions to entities if they are named after, in recognition of, established, maintained, or controlled by an elected representative. If that is the case, then the Rangel School has not received any contributions so far this year. Unless, of course, some groups are skirting the disclosure requirements.

Earlier this month, The Washington Post reported how targets of a Senate investigation have showered Washington with campaign contributions, in an apparent attempt to buy some love and avoid sanctions. In July, the Senate Permanent Subcommittee on Investigations issued a report alleging that two European-based banks, USB of Switzerland and LGT of Liechtenstein, served as tax havens for wealthy Americans, costing the federal treasury up to $100 billion a year.

The Post article states that officials with the banks have given more than $2 million this year, $98,000 in June alone, to congressional and presidential campaigns. USB spends close to $1 million a year on lobbying and is traditionally a big campaign giver. But so far this cycle the Swiss bank's contributions have surpassed what it gave in the whole 2006 election cycle. The Post quotes a bank spokesperson as saying the bank's giving is in no way related to the Senate investigation. The article didn't say, however, whether it was said with a straight face.