What, me pay taxes?

Cerberus knows a tax dodger when it buys one. According to a comprehensive 2004 study on corporate tax avoidance, ACS reportedly paid an effective tax rate of 14.2% over the three year period between 2001 and 2003 instead of the statutory income tax rate of 35%. While certainly not the only company to benefit from Bush’s corporate tax breaks, ACS enjoyed the cut rate despite earning over $1 billion in profits during that period.

Recall that ACS is a major government contractor, deriving 41% of its revenues from government work. So while ACS was paying less than its fair share of income taxes, it was also raking in taxpayer dollars – twice over fattening its bottom line at the expense of the tax system.

Who lost out? According to Citizens for Tax Justice and the Institute on Taxation and Economic Policy:

· The general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens.
· Relatively disadvantaged industries and companies that will find it harder to compete for investment capital with tax-favored corporations.
· The U.S. economy, which is harmed by the distortions that corporate subsidies produce.
· State governments and state taxpayers, which see their corporate tax systems erode along with the federal system.
· The integrity and sustainability of the tax system as a whole.

Surely Cerberus can appreciate a kindred spirit. After all, Cerberus too is benefiting at the expense of taxpayers since the carried interest management earns from the firm’s funds is taxed only at the capital gains rate of 15%.

Led by Republican Sen. Charles Grassley (Iowa), proponents of legislation that would raise private equity managers’ tax rates from the 15% capital gains rate to 35% income rate are making similar arguments about who is losing in the current system. Even defenders of the Bush tax cuts can’t argue that taxing private equity firms at cut rates has any trickle-down benefits.