When it Comes to Corporate Taxes, it’s Always Christmas

As we all know, the largest US corporations and their chief executives were the main beneficiaries of Trump’s so-called tax reform in 2017. A new report from the Institute of Taxation and Economic Policy (ITEP), based on the records of 379 of the Fortune 500 corporations, tells us just how much they benefited. Some highlights:

• 91 companies paid effective [i.e., actual] tax rates of zero or less on their 2018 U.S. income. Their average effective tax rate was negative 5.9 percent. A negative tax rate means a corporation receives a refund from the IRS. [Among the familiar names in this category are DowDuPont, IBM, Century Link, Levi Strauss, Duke Energy, Chevron, Amazon, and Netflix.]

• 56 companies paid effective tax rates between zero and 5 percent in 2018. Their average effective tax rate was 2.2 percent.

• Fully half of the companies in our sample, 195 out of 379, paid effective tax rates that were less than half the new statutory rate [of 21 percent. Note that from 2008 to 2015, the statutory or official tax rate was 35 percent.]

• At the other end of the spectrum, 57 companies (roughly one-sixth of the companies in this report), paid effective tax rates of more than 21 percent in 2018, often because they repaid taxes that were deferred from prior years. Their average effective tax rate was 26.9 percent.

Corporations could get away with paying so little by using the usual tax loopholes, starting with a wide array of allowable deductions, shifting production to low-tax countries, and some fanciful accounting maneuvers. As has long been true, corporations that benefit from tax breaks use them for stock buybacks, shareholder dividends, and increased executive pay, and not (as they usually promise) to invest in employees or new equipment. The result? While you and I pay our taxes, the giant corporations pocket their profits, contributing to the $1 trillion deficit in Trump’s current budget. As the ITEP report states:

In 2018, the 379 companies earned $765 billion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 21 percent corporate tax rate, the 379 companies would have paid almost $161 billion in income taxes in 2018.

Apart from increasing the tax rate on corporations, ITEP offers these other proposals for tax fairness:

• Repeal the full expensing provision . . . and then take the next step and repeal the rest of accelerated depreciation, too.

• Limit the ability of tech and other companies to use executive stock options to reduce their taxes by generating “costs” that far exceed what companies actually incur.

• Impose a worldwide tax system on American corporations, so that they pay the same tax rate on profits regardless of whether they report earning those profits in the U.S. or offshore, while continuing to allow a credit for taxes paid to foreign governments.

• Reinstate a strong corporate Alternative Minimum Tax.

• Increase transparency by requiring country-by-country public disclosure of company financial information, through filings to the Securities and Exchange Commission.

Corporate taxes now account for just one percent of the federal budget, compared with four percent in recent years. Yet only two candidates—Elizabeth Warren and Bernie Sanders—dare to talk about closing tax loopholes for giant corporations or imposing a “wealth tax” on billionaires. And look what Congress just agreed to on a tax bill: special treatment for distillers, horseracing owners, and assorted other interests with good lobbyists, but not a single tax break to benefit ordinary citizens, and of course no action on corporate tax loopholes. Such bipartisanship!

Democrats should be challenged to pledge real tax reform, starting with corporate tax avoidance. It is a theft from human-interest programs that Democrats supposedly support: health care for all, jobs with dignity, meaningful responses to climate change, and major improvements in public education.

Mel Gurtov is Professor Emeritus of Political Science at Portland State University, Editor-in-Chief of Asian Perspective, an international affairs quarterly and blogs at In the Human Interest.