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Berkshire Hathaway
Most Companies Avoid Tax?

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By EliasFardo
August 14, 2008

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In that I was a full time tax manager for a decent sized manufacturing corporation for 17 years, I actually have some burden of knowledge in this discussion. We paid federal income taxes. Every year. And they represented a significant percentage of our income. If there were legitimate ways of escaping these federal and state income taxes, I should have been promptly fired in year one for not taking advantage of them. Additionally, the public accounting firm that reviewed these returns for me should also have been promptly dismissed. My employer should have realized the popular myth that it could both continue to produce economic profits and escape the tax man. My question is this: if it is so easy to avoid corporate income taxes on real economic income, why isn't every corporation doing so? And if it so easy, why doesn't congress change the law? And if it so easy, why didn't anyone every tell me how in my 5 years of public accounting, or my 17 years as a tax manager?

Now, this may just be my story, unless this experience was repeated by every other tax professional I met. None of us knew how to avoid federal income taxes on income, and none of us knew of anyone who did. How can any tax avoidance scheme exist that is both so widely used, yet so secretly held? Anyone who actually burdens himself with knowledge in this area knows that it is just not credible to claim that a large percentage of US based companies have both economic income and no federal income tax liabilities.

The fact is, we really don't know who ultimately pays the taxes assessed on corporations. I think that it is only logical to assume that they are distributed among shareholders, employees, customers and suppliers. And, it is only logical to assume that such distribution varies depending upon various competitive conditions in the industry. It may be that some companies are able to shift their tax burdens on to outside parties. Other companies may be forced to place the burden on shareholders and employees. Who knows? There is no one-size-fits all for tax distribution any more than there is any one-size-fits all for manufacturing, marketing, or information systems.