OK, they've inflated profits, padded their paychecks, and stiffed the Treasury by labeling a mail drop in an offshore tax haven as a company's home. So now we're supposed to give corporations a pass on paying income tax? When even the upright among corporate chieftains are under suspicion, that's a request for "more" that even Oliver Twist might think twice about.

But it's not that far fetched. There's a lot of quiet Republican support for the idea, and though the issue is on the back burner for now, both Treasury Secretary Paul O'Neill and Council of Economic Advisers Chairman R. Glenn Hubbard are opponents of the corporate income tax. The political barriers to handing out a new break to business on top of this year's stimulus package and shrinking government revenue are admittedly high, especially when executives are being led off in handcuffs. Democrats are lambasting President Bush for being too cozy with business; Rep. Charles Rangel of New York says demonizing the corporate tax encourages companies to try to avoid it. But a drumbeat of proselytizing by economists and academics is nevertheless pushing the idea that the corporate levy just isn't working. "The rules are arcane, archaic, and nonsensical," says Ernest Christian, a Washington attorney and Ford administration tax official.

Such talk makes Robert McIntyre, director of the liberal Citizens for Tax Justice, see red--and red ink for the government. "If you're going to tax income at all, you have to include corporate income," he says. "Otherwise, large amounts of income would escape any tax."

But that is already happening. The corporate levy--which raised $151 billion last year, down from $207 billion in 2000 when profits were easier to come by--may be an endangered species in its current form. Last year's take was the lowest since 1994 and accounted for only 7.6 percent of federal revenue, down from 26.5 percent in 1950. Individuals, meanwhile, are picking up a bigger share of the income tax burden. In 1950, corporations kicked in 39.9 percent of the total collected, while individuals ponied up 60.1 percent. Last year, corporations paid 13.2 percent, while individuals forked over the remaining 86.8 percent.

Tax trimming. The official corporate tax rate tops out at 35 percent. But many firms legally skirt a large share of their liability--and sometimes all of it--through tax breaks and accounting maneuvers. A Citizens for Tax Justice analysis of 250 large corporations found that in the late 1990s the average tax paid was less than 22 percent of pretax U.S. profit. The watchdog group's recent sampling of 10 large firms found that for 1999 and 2000, the take was below 6 percent. The analysis concluded that Microsoft in 2000 had pretax U.S. profit of $9.6 billion but paid out only 12.2 percent of that in tax, while General Motors, with 2000 pretax profits of $2.95 billion, used various deductions and credits to pay no tax. A General Motors spokesman disputes CTJ's methodology and says the firm did pay an undisclosed amount of tax. "It's easy to oversimplify our situation," he says.

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