Why did Raytheon pay only $456 in state taxes in 2000, while the average taxpayer paid $2,795? Raytheon shareholders are asking for answers to this question in a resolution to be presented at the company’s annual meeting April 23.
In 1995, Raytheon lobbied for a single sales formula tax cut for manufacturers, and in exchange promised to maintain 90 percent of its payroll, an enticing offer from the largest industrial employer in Massachusetts. As a result, Raytheon’s tax rate has fallen below 10%, considerably lower than the average rate 21.7 percent paid by other large companies. Since then, Raytheon has closed down facilities in the state, laying off thousands, prompting State Senator Susan Fargo to call the tax break “payoffs for layoffs.”
Raytheon kept their promise of a 90 percent payroll cost, however, by increasing the salaries of its upper management and engineers. CEO Daniel Burnham, for example, got a 39% raise up to $8.9 million in 2002, while the median income for defense contractors was $3.7 million.
Last year Raytheon’s sales rose to $16.9 billion, a 4.6 percent rise. “It’s just not fair that the institution that earns the most from Massachusetts returns the least back in taxes” says Pat Rabby of Responsible Wealth, a Lexington resident and the Raytheon shareholder who filed the resolution.
With the pressing state budget crisis, Governor Mitt Romney has acted to close some corporate tax loopholes, which deprived the government of over $300 million in 2002 alone. A bill filed by Representative Jim Marzilli would repeal the manufacturing tax break. However, in the State House budget plan, to be released on April 23, no proposal to close corporate tax breaks is expected. While closing loopholes might hurt Raytheon’s earnings, it would prevent cuts in some public services.
“We need to make a choice between giving tax breaks for special interest corporations like Raytheon, and cutting down on essential services like public education, health care, police and fire departments. Further, tax breaks for the biggest corporations shift the burden of cost for services to workers and families, and smaller local businesses” says Steve Collins, Executive Director of the Massachusetts Human Services Coalition.
Raytheon’s success in the past year could not have happened without government support. The federal government was their biggest customer, and it provided loans, basic research which ends up being used in Raytheon’s products, and intellectual property rights, as well as corporate tax breaks.
“We believe corporate wealth, like individual wealth, grows from the investments made by society in economic development, and like an individual, a corporation needs to give something back” says Scott Klinger, co-director of Responsible Wealth.
Now that the state government may crack down on corporate tax loopholes, shareholders are demanding corporate transparency. Raytheon keeps two accounting books, one for the IRS, which would confirm their low tax rate, and another made public for shareholders claiming their rate to be 35%. The discrepancy is accounted for by schemes that are all legal. Keeping shareholders in the dark this way could mean unexpected losses to their stock if Raytheon is forced to pay its true obligation in corporate taxes.
If the proposed shareholder resolution were to pass, Raytheon’s tax payment records would have greater transparency. Shareholders and the public would be able to understand the extent to which tax loopholes have benefited Raytheon, which evidently has not kept to the spirit of the bargain they promised.
Responsible Wealth has filed shareholder resolutions related to executive compensation at seven companies: Disney, Household International, Coca-Cola, Citigroup, EMC Corporation, General Electric, Bristol Myers Squibb as well as Raytheon. The resolutions can be seen on www.responsiblewealth.org. The Disney resolution won 14 percent of the vote last month even though the annual meeting was snowed out. Responsible Wealth also filed resolutions with Raytheon in 2000 and 2001 concerning their CEO pay practices.
ACTION: At the Raytheon stockholder’s annual meeting, shareholder Pat Rabby of Responsible Wealth will present a resolution to ask Raytheon to report on each of its corporate tax breaks that exceed $5 million. The meeting is on Wednesday, April 23 at 141 Spring Street in Lexington. Supporters of Responsible Wealth are asked to stand on the street outside the Raytheon property and hold signs urging stockholders to approve the resolution. Meet at 8:30am on Wednesday on the corner of Woodcliffe Road and Spring Street in Lexington. For more information, contact David Martin, United for a Fair Economy 617-423-2148 ext. 19.