Corporate Tax Avoidance in the First Year of the Trump Tax Law

ITEP’s examination of Fortune 500 companies’ financial filings identifies 379 companies that were profitable in 2018 and that provided enough information to calculate effective federal income tax rates, which is the share of 2018 pretax profits they paid in federal income taxes in that year. For most of these companies, their effective federal income tax rate was much lower than the statutory corporate tax rate of 21 percent. This is by design.

When drafting the tax law, lawmakers could have eliminated special breaks and loopholes in the corporate tax to offset the cost of reducing the statutory rate. Instead, the new law introduced many new breaks and loopholes, though it eliminated some old ones. The unsurprising result: Profitable American corporations in 2018 collectively paid an average effective federal income tax rate of 11.3 percent on their 2018 income, barely more than half the 21 percent statutory tax rate.

Key Findings:

The 379 profitable corporations identified in this study paid an effective federal income tax rate of 11.3 percent on their 2018 income, slightly more than half the statutory 21 percent tax

91 corporations did not pay federal income taxes on their 2018 U.S. income. These corporations include Amazon, Chevron, Halliburton and IBM. An ITEP study released in April 2019 examined 2018 Fortune 500 filings released to date and found 60 companies paid zero in federal income taxes. Now, all companies have released their 2018 financial filings, and this report reflects that.

Another 56 companies paid effective tax rates between 0 percent and 5 percent on their 2018 income. Their average effective tax rate was 2.2 percent.

Corporate Tax Avoidance in the First Year of the Trump Tax Law
ITEP, December 16, 2019

CEO to Worker Pay Ratio

How companies compensate their employees and executives matters. For the last decade, corporate profits have continually hit record levels, but aside from recent wage growth (that still has only modestly exceeded the rate of inflation, and may only be up temporarily due only to the tightened labor market), the benefits of economic growth have flowed mostly to executive suites. In other words, corporations haven’t invested in their rank-and-file workforces in a way that would create family-sustaining jobs and improve family economic security.

Executive Paywatch
American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)

Corporate Elite, Not Workers, Cash in on Tax Cuts

When the White House and GOP leaders passed the unpopular Tax Cuts and Jobs Act, they promised the 40 percent reduction in the corporate tax rate would benefit workers via higher wages and more corporate investment. Instead, the tax law has fueled stock buybacks and incentivized offshore tax havens.

Costly Corporate Tax Cuts Benefit Few Workers
Americans for Tax Fairness, March 13, 2019

RELATED: Americans for Tax Fairness, Corporate Taxes

Corporations Are Extracting Wealth From the Economy

This paper argues that public firms are increasingly extractive and unproductive, that shareholders and managers are reducing investments in the things that grow the economy, and that workers, consumers, and the government are being scammed. All of this hurts shared prosperity.

Rejecting the Theory of the Firm
Roosevelt Institute, Feb. 26, 2019

Putting Shareholder Profits Over Workers Hurts Workers

For decades, corporations have focused on the whims of shareholders, which has resulted in a focus on boosting shareholder profits above other uses of corporate resources. This has coincided with workers having less power due to deliberate weakening of private-sector unions. This paper explores how this precarious combination has lined the pockets of the elite at the expense of working people.

Ending Shareholder Primacy in Corporate Governance
Roosevelt Institute Working Paper, Feb. 8, 2019

How States Can Recoup $17 Billion Lost to Corporate Tax Havens

This report from Institute on Taxation and Economic Policy, U.S. PIRG, SalesFactor.org and American Sustainable Business Council provides a roadmap for states to collect $17 billion lost annually to corporations stashing profits in tax havens.

Report: A Simple Fix for a $17 Billion Loophole
Institute on Taxation and Economic Policy, Jan. 17, 2019

Surging Executive Compensation

From this EPI report: “Regardless of how it is measured, CEO pay continues to be very, very high and has grown far faster in recent decades than typical worker pay. Higher CEO pay does not reflect correspondingly higher output or better firm performance. Exorbitant CEO pay therefore means that the fruits of economic growth are not going to ordinary workers.”

CEO compensation surged in 2017
Economic Policy Institute, Aug. 16, 2018

Fact v. Myth

Lawmakers and an army of well-financed special interests have embarked on a campaign to convince the public that supply-side tax cuts will benefit the middle-class. But the American people know better: 24 percent of Americans think the wealthy are paying their fair share of taxes, and just 19 percent of Americans think corporations are paying their fair share of taxes (Source: Gallup). In this series, we challenge myths about the nation’s tax system.

MYTH: The corporate tax rate is too high

Data from the OECD show that U.S. corporate taxes as a percentage of GDP are 2.2 percent, which is substantially less than the 2.9 percent weighted average among the 34 other OECD countries for which data were available. For a full list of countries and their GDP, view this ITEP report.

A comprehensive study examined the average effective tax rate paid by profitable Fortune 500 companies over an eight-year period.  A substantial number of firms had years in which they were profitable but paid either nothing in federal taxes or single-digit tax rates. The average effective rate paid by profitable U.S. corporations from 2008 to 2015 was 21.4 percent. The 35 Percent Corporate Tax Myth has more detailed information.

Fortune 500 companies are collectively holding $2.6 trillion offshore and avoiding up to $767 billion in U.S. taxes. Many of these companies acknowledge paying tax rates of 10 percent or less on their offshore profits, indicating they likely are using accounting tricks to shift profits into tax haven countries to avoid U.S. taxes. Read more about corporations’ offshore profits.

Congressional hearings over the past few years have raised awareness of the offshore tax avoidance strategies of major technology corporations, but tech firms are not alone: hundreds of companies shift profits offshore to avoid U.S. taxes. Companies with the biggest offshore cash hoards include major household names such as Apple, Microsoft, GE and Pfizer. Read more

Corporate tax loopholes have allowed 18 profitable corporations to altogether avoid tax over multiple years. In fact, not only have these corporations not paid tax form 2008 to 2015, some of them received federal tax refunds. Read more