By Sharon Ward

General Electric is the nation's largest corporation, with worldwide profits topping $14 billion in 2010, including more than $5 billion earned in the U.S. With profits that large, you would expect the company to have a pretty sizable tax bill, right? Think again.

GE owed Uncle Sam nothing in federal taxes. In fact, the company got $3.2 billion back in tax benefits. At a time when Washington is cutting a wide array of critical services; from food for nursing women and infants to heating assistance for seniors, policymakers continue to look the other way when it comes to tax loopholes.

These loopholes allow corporations to shift foreign profits into accounts in Ireland, the Netherlands and Bermuda to avoid U.S. corporate taxes. These gimmicks are so well known they have nicknames, the Double Irish and the Dutch Sandwich, and they have a huge cost, as much as $90 billion a year.

The giveaways are alive and well in Pennsylvania's antiquated tax system, too.

If your family earns more than $33,000 a year, congratulations. You pay more in income taxes than 85 percent of Pennsylvania corporations. Seventy-four percent of Pennsylvania corporations don't pay one dime in income taxes.

Large multistate and multinational corporations such as Wal-Mart and Home Depot are employing high-priced accountants to game Pennsylvania's tax system. Tax loopholes allow them to shift income earned here to tax-haven states like Delaware, leaving little or no income on the books in Pennsylvania.

There is one modest-looking building in downtown Wilmington, Del., that is home to 14,000 shell corporations. They consist of little more than a post office box, but it's enough to funnel profits through. You and I don't have the luxury of hiding away our income in other states.

The Delaware Loophole costs Pennsylvania taxpayers $500 million to $600 million a year. Secretary of Revenue Dan Meuser says the Corbett administration is committed to investigating companies that aren't paying taxes rightfully owed to Pennsylvania. This is a good start, but accountants can always find more loopholes.

Instead of playing catch-up, Pennsylvania should get ahead of the game. For starters, policymakers should do what 23 other states have done and enact a law known as combined reporting. This would require a corporation and all its subsidiaries to report combined earnings and pay taxes on income earned in Pennsylvania from all related businesses. Ninety-seven percent of Pennsylvania's largest corporations already operate in states with combined reporting.

Pennsylvania's tax problems go well beyond corporate tax loopholes. The state also gives generous tax breaks to the tobacco and natural gas industries. Pennsylvania is the only major gas-producing state without a drilling tax, and we're the only state without an excise tax on smokeless and other tobacco products.

Pennsylvanians support ending these multimillion-dollar tax breaks by large margins, and even the gas industry has agreed to the drilling tax.

Gas drillers already enjoy a favorable tax climate in Pennsylvania. Generous federal tax incentives for energy production significantly reduce their state and federal income tax bills. Range Resources, Pennsylvania's No. 2 Marcellus Shale well driller, had an average federal income tax rate of 0.4 percent from 2005 to 2008, due in large part to these giveaways.

Altogether, we have identified $1.8 billion in state tax loopholes, special tax breaks and other giveaways that should be eliminated before cutting as much from schools, colleges, homeless shelters and supports for people with disabilities.

Pennsylvania's sales tax, riddled with exemptions that make little sense, is another candidate for reform. Do we really need to exempt helicopters or horse-shoeing from the sales tax?

At a concession stand, popcorn and soda are taxed, but candy and gum are exempt. Deodorant and antiperspirants are taxed; toothpaste is not. Tax is collected on a book purchased at Barnes and Noble, but not one sold on Amazon.com.

For too long, lawmakers have looked the other way while other states have closed these types of loopholes, making their tax systems fairer. We can no longer afford to ignore this problem.

Lawmakers have a choice. If they choose to keep costly loopholes for the well-connected, the rest of us will pay more in higher property taxes, higher college tuition and a weakened economy.

We pay our taxes, and so should the GEs and Range Resources of the world.

It's time to send a message to our lawmakers: Before cutting schools, ending full-day kindergarten or reducing rape crisis services, we need to make sure everyone is paying their fair share. We will all be better off for it.



Sharon Ward is director of the Pennsylvania Budget and Policy Center.



