In the first year of the law, the amount companies paid in federal taxes on their income – their “effective tax rate” – averaged 11.3 percent, possibly the lowest level in more than three decades, according to a report from the Institute for Taxation and Economic Policy, a left-wing think tank.
From 2008 to 2015, the effective tax rate of companies under previous tax legislation was around 21 percent, according to previous ITEP research.
The report also found that 91 Fortune 500 companies, many of which were worth billions of dollars, did not pay federal taxes over the past year.
The results come from an intense debate about whether the 2017 tax law has been pushed too far in the direction of expanding business benefits. Some of the benefits of the tax law for individuals and families will expire in a few years, but the cuts for businesses remain. Some Democratic presidential candidates have called for some of the corporate tax cuts to be scaled back, but the White House has not expressed support for change.
Those tax cuts, along with large spending increases, have caused the federal deficit to explode, which has soared to nearly $ 1 trillion this year. In October, the U.S. Treasury Department announced that the deficit had increased by $ 205 billion, or 26 percent, over the past year, which was unusual at a time of strong economic growth.
Corporate tax revenue fell significantly in the first year of the tax bill, according to federal data, from around $ 300 billion in 2017 to $ 204 billion in 2018, although it increased slightly from 2018 to 2019.
“When drafting the tax law, the legislature could have eliminated specific breaks and gaps in corporate tax to offset the cost of lowering the statutory tax rate,” the ITEP report said. “Instead, the new law introduced many new breaks and gaps, although it removed some old ones.”
Republicans and conservative tax experts claim that lowering corporate tax rates helped generate economic growth and stimulate corporate investment in the economy. Before the tax law went into effect, they cited statistics showing that the official corporate tax rate in the United States was significantly higher than in many other developed nations. Now they are pointing to low unemployment and high recruitment, as evidence that the tax cut has worked.
“Despite the tough global economy, the US labor market is stronger than ever,” said Rep. Kevin Brady (R-Tex.), Who helped draft the 2017 tax bill. “Wages for workers are rising, and there are more vacancies in our country than people looking for work.”
Democrats, meanwhile, claim the rate cut went too far and primarily helped enrich shareholders and business leaders. Many companies said a sharp drop in corporate tax rates would allow them to invest more in capital and equipment, but the surge in new investment appears to be short-lived. Much of the additional capital went into record share buybacks that add stock prices without the need for new investments or hiring.
The 91 profitable Fortune 500 companies that did not pay federal taxes in 2018 made a combined $ 101 billion last year.
Those who don’t pay federal taxes include many household names: online retailer Amazon, for example, received a $ 129 million discount on $ 10.8 billion in profits, largely due to its treatment of stock options sold in Salary packages are included. Amazon’s executive director is Jeff Bezos, the richest man in the world and owner of the Washington Post.
Video game maker Activision Blizzard made $ 447 million in profit but received a tax break of $ 243 million, resulting in an effective tax rate of -54.4 percent. The company cut 800 jobs in the first few weeks of 2019.
Amazon and Activision Blizzard spokespersons have not returned requests for comment.
Negative corporate tax rates can occur “because a company traces excess tax deductions and / or credits back to a previous year or years and receives a tax refund check from the US Treasury Department,” the report said.
Other tax breaks and loopholes businesses use to ease their tax burden include accelerated depreciation, which allows businesses to make larger upfront depreciations on the expected wear and tear of newly purchased equipment, as well as special deductions for the stock options included in executive compensation packages .
ITEP examined the 379 Fortune 500 companies that were profitable in 2018 and provided enough information to calculate their tax rates. Had they paid a 21 percent tax rate on their profits, they would have owed the federal government a total of an additional $ 73.9 billion, the report said.
According to Matt Gardner, an analyst at ITEP, researchers excluded taxes that companies incur as part of a one-time “repatriation tax” on money they brought back from overseas under tax law.
The statistic of 11.3 percent corresponds to the lowest effective corporate tax rate that the ITEP has determined since the analysis of these data began in 1984.
Countries around the world are struggling with corporate taxation as multinational companies are more and more effectively shifting their profits to foreign tax havens. A 2018 study found that the average corporate tax rate worldwide over the past three decades fell from around 49 percent in 1985 to 24 percent in 2018.
The result is that nations around the world have lowered their official tax rates in order to remain internationally competitive. In the United States, corporate taxes as a share of the federal budget have fallen dramatically from more than 4 percent to around 1 percent, putting a strain on other sources of income. Only two more times since 1980, corporate tax revenue has made up such a small portion of the federal budget, again during the Great Recession in 2009.
The ITEP report calls for various measures to ensure that companies do not pay such low effective tax rates, including a new minimum tax for all companies that act “as a setback” on their federal bills. The report also calls for limiting the ability of technology and other companies to classify executive stock options as a “cost” that enables them to lower their taxes.