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Verizon Shortchanges the Facts

May 29, 2012 ·

The telecommunications giant twisted the truth when it said it wanted to set the record straight in the Record-Journal

Verizon's corporate communications director published a guest column a few weeks ago in the Meriden, Connecticut Record-Journal that recently came to our attention.

Bob Varettoni's column responded to our Shortchanging America op-ed distributed via OtherWords, which the Record-Journal also published. In it, he invoked Sgt. Joe Friday, the Dragnet TV show character who always called for “just the facts.” But Varettoni skewed many of his own so-called facts to paint a picture that bears little resemblance to the concerns we raised.

Our op-ed raised three principal concerns about Verizon's lack of corporate responsibility. First, we argued that Verizon is so successful at avoiding federal corporate income taxes that it claimed refunds of $758 million over the last four years, despite reporting pre-tax profits of nearly $20 billion. Second, we said that Verizon has been a major job destroyer over the last four years. Finally, we asserted that Verizon has a contentious relationship with its primary labor union.

Federal Corporate Income Taxes

Varettoni met our challenge concerning Verizon’s lack of federal income tax payment with broad and largely unsubstantiated claims that last year Verizon paid $4 billion in total taxes. That number appears to include all the taxes Verizon paid in 2011. That would mean all U.S. foreign, state, property taxes, payroll taxes, even perhaps sales taxes on merchandise purchased. We don't know for sure, because he doesn't say. This is a common shift-the-focus corporate strategy, particularly among the several dozen firms like Verizon that have turned avoiding federal corporate income taxes into an art form.

We are addressing the fact that Verizon has successfully dodged its federal corporate income taxes. In the tax footnotes of its annual reports, Verizon reports it "current federal income taxes" as follows:

  • 2011:  $193 million
  • 2010: —$705 million
  • 2009:  —$611 million
  • 2008:  $365 million

Current income taxes represents the company’s best estimate of taxes due and payable in a given year. Companies also report "deferred taxes." These are taxes which may or may not be payable in future years, due to various loopholes in the corporate tax code. We, and most other observers, use current taxes as the best representation of taxes actually paid. Like most companies, Verizon prepares its annual reports in the spring, but doesn't file its federal tax forms until September. It's therefore possible that there are slight differences between the estimates in the annual report and the actual numbers reported to the IRS, but these differences are generally small and not material.

In our op-ed, we cite more detailed analysis performed by the non-partisan, widely respected research organization, Citizens for Tax Justice. It's frequently called to testify before Congress and is widely cited as a tax authority in mainstream media publications. This organization takes the current tax number presented by companies and performs additional adjustments to correct for the federal tax effect of state taxes paid and stock-based executive compensation. In its most recent analysis, Citizens for Tax Justice found that Verizon’s four-year federal effective tax rate was minus 3.8 percent.

Varettoni asserts that our calculation of $19.8 billion in profits is wildly overstated. Our $19.8 billion number is U.S. pre-tax profits as reported in the tax footnotes of Verizon’s Forms 10-K. Taxes are calculated off of this pre-tax number. Varettoni cites Verizon’s lower after-tax profits.

If Verizon had paid the full 35 percent federal tax rate on its $19.8 billion in reported U.S. pre-tax profits between 2008 and 2011, the Federal Treasury would have received a $6.93 billion check from Verizon, instead of returning $758 million to the company. This is a difference of nearly $7.7 billion. In his rebuttal, Varettoni points to Verizon's 2011 charitable contribution of $66 million to local communities. Does he really believe that Sgt. Friday, having caught a pickpocket who had lifted wallets containing thousands of dollars, would release said suspect upon learning that he had dropped five bucks in the church collection plate?

Those interested in learning more about Verizon's aggressive pursuit of taxpayer subsidies and avoidance of taxes at all level of government should read Unpaid Bills: How Verizon Shortchanges Government Through Tax Dodges and Subsidies. This report from Citizens for Tax Justice and Good Jobs First shows that Verizon is one of the country's most aggressive tax dodgers and documents Verizon’s behavior, which goes so far as to challenge local property taxes imposed on telephone poles.

Job Destruction

Varettoni argued that our claim of 40,000 jobs destroyed since 2004 is overstated. He points out that 9,000 of those jobs were shed when Verizon sold a piece of its business to Frontier Communication in 2010. We'll have to take his word for this, because the company makes no such disclosure in its 2010 annual report filed with the Securities and Exchange Commission (the very source that Mr. Varettoni suggests readers consult). Unlike many companies that include information about material transfers of employees involved in acquisitions or disposals in the "employee" section of their Form 10-K, Verizon makes no such mention. The company does include a five-paragraph description of its disposal of assets to Frontier (Note 3 of 2010 Form 10-K), which includes a sentence that mentions in passing some employees that were shifted from Verizon to Frontier, it doesn't however quantify the number of employees affected, nor provide the reader any sense that a large number of employees were involved.

Varettoni also tried to defend Verizon by pointing out that 12,000 jobs were cut as a result of voluntary buyouts of union workers. A job lost whether through involuntary layoff or voluntary buyout, is nonetheless a job not available to an American worker. If we accept Varettoni’s assertion that 9,000 employees were transferred as a part of the Frontier deal, Verizon still destroyed 31,000 jobs globally between 2004 and 2011.

Union Relations

The U.S. Bureau of Labor Statistics reports that the largest labor strike of 2011 involved 45,000 unionized Verizon employees. That work stoppage entailed 450,000 days of lost work.

The contentious relations between Verizon and its union can be seen at this Communications Workers of America union website which nicknames the corporation “Verigreedy.” This paints a very different picture than the one of two sides seeking to work things out Varettoni painted.

Varettoni asserts that 150 people were inside Verizon's annual meeting, but makes no mention of the hundreds more who assembled outside and marched through the streets of  Huntville, AL. Local media reports reveal the anger expressed within the meeting itself, noting that workers who protested their treatment by the company were escorted by police from the meeting hall. Photos of the outdoor protests can be viewed here.

Clarifications

Varettoni asserts that our report of Verizon's $106 billion in sales last year was incorrect. On this point he's correct. We used the Fortune 500 2011 listing which itself reported 2010 data. Verizon’s 2010 sales were $106 billion; its 2011 revenues were $111 billion, as he correctly states. Verizon currently ranks No. 15 on the Fortune 500 list.


Scott Klinger
Associate Fellow
Global Economy