Do federal and state tax laws favor wealthy individuals and companies? According to the Institute on Taxation and Economic Policy, there were 55 profitable Fortune 500 companies in 2020 that did not pay federal income taxes. Their pre-tax earnings were $ 40.5 billion, according to their required annual financial reports.
The Republican Tax Cut and Jobs Act of 2017 lowered the corporate tax rate from 35% to 21%. Neither the Republican corporate tax cut nor the 2020 Cares Act closed the web of loopholes that allow businesses to evade taxes in a profitable year. The law also failed to pay a minimum tax on all profitable businesses. At the proposed minimum tax rate of 15% all 55 profitable companies would have to pay, the US government’s tax revenue would have been $ 6.07 billion.
FedEx, a $ 79 billion global transportation, services, technology, and logistics company serving 220 countries and territories, was one of the 55 companies. Headquartered in Memphis, FedEx paid no tax on US $ 1.219 billion in net income in 2020. The company received a tax rebate of $ 230 million. The net tax rate for FedEx was minus 18.9%. Yes, a minus tax rate because of the tax reduction. FedEx operates for a fiscal year from July 1 to June 30 of the next year.
From fiscal years 2015 through 2020, FedEx returned over $ 9.8 billion to shareholders through share buybacks and dividends, including an 8% reduction in shares outstanding and more than tripling the company’s quarterly dividend.
The company approved a share buyback program of up to 25 million shares in January 2016. Since then, the company has repurchased 18.7 million common shares for $ 5.6 billion. Approximately 6.3 million shares remain under the same authorization.
FedEx’s response to paying federal income tax of zero was that the money that is not legally paid under the tax law will be used to invest in the company that could create more jobs. Those who take the new jobs must pay income tax on their income. We all know that the demand for services drives employment, not extra cash in the cash register or any reduction in tax debts.
FedEx did not take the “free” money offered in the Cares Act, but borrowed money through normal financial channels that require future repayment of the money with interest. FedEx supports users of our infrastructure to pay for the improvements our country needs. FedEx opposes any corporate tax increase. Why should you worry you are already paying zero tax even if the rate has been lowered?
Due to the Tax Cut and Jobs Act of 2017, FedEx has enjoyed federal income tax from zero to $ 6.9 billion of US net income for the past three years. The current annual compensation for the founder, chairman and CEO of FedEx Frederick Smith is $ 11,125,800 plus perks. He is ranked # 446 on Forbes’ world’s richest list this year and his net worth more than doubled as of 2020.
As of April 15, Mr. Smith owns 14,595,728 units of FedEx stock. Recently, the share price was $ 315.59 for a share, an all-time high. The CEO’s stock is valued at more than $ 4.6 billion. Its asset growth has accelerated as the value of a stock rises as the company pays no federal income tax, repurchases its stock, and increases its dividend payout. Such movements are a testament to the company’s solid financial condition and instill confidence in the stock among investors, thereby driving the price of the stock higher.
As FedEx’s shares are repurchased by the company, the number of shares outstanding decreases, resulting in an increase in earnings per share, most of which leads to an increase in the price per share in the open market, thereby increasing the fortunes of the improving group’s owners . FedEx isn’t the only one buying back shares in the company and not paying income taxes.
With an annual dividend rate of $ 2.60 per share of FedEx, Mr. Smith made more than $ 37.9 million in FedEx dividends last year. The company paid no federal income tax, which allows FedEx stockholders including the CEO a higher dividend rate.
Mr. Smith does not pay state income tax on his income in Tennessee because the state does not have an income tax law. Do you think he has any objection to paying 9.75% sales tax (Tennessee sales tax of 7% and Memphis sales tax of 2.75%) on taxable items he purchases during the year?
For example, let’s say he spent $ 200,000 of his personal income of more than $ 48 million on purchases that require Tennessee sales tax. The tax amount would be $ 19,500. What other state can you make over $ 48 million in income and only pay about $ 20,000 in state sales taxes and no state income tax?
The Republican legislature under Governor Haslam cut the Hall income tax rate from 6 percent to 5 percent in 2016. In the years that followed, Republican lawmakers continued to lower the tax rate annually, eventually eliminating the Hall Income Tax, which was phased out over the final three-year period ending in December 2020.
The tax rate for wealthy individuals who own dividend stocks is now zero. For 2020 (due in 2021) the rate was one percent. Mr. Smith will not pay the state of Tennessee any tax on his dividend income for this year, a saving of more than $ 1.13 million at the 3 percent rate on FedEx shares currently owned.
The repeal of the Hall Income Tax made the Tennessee tax system more regressive than it already was, as it benefited the top 5% of the wealthiest taxpayers the most while the majority of Tennessee residents received no benefits at all.
So you’re saying I don’t own any stocks, so it doesn’t hurt me. However, it has harmed you because 37.5% of the income from the hall tax collected in a municipality (city / municipality) was repaid to that municipality. Johnson City and Washington County lost a source of income from the Hall Income Tax. The loss of major cities and counties in Tennessee was substantial. When a city or county loses a source of income, leaders must either cut community services or raise other taxes to make up for the lost income.
The answer to the question at the beginning of this article now has an answer thanks to the Republican legislature. Tennessee leads the nation with the highest combined average state and local sales tax in the country. Tennessee is one of only 13 states that tax groceries outside of restaurants. The tax burden for the poorest 20 percent of Tennessee’s taxpayers is the 14th highest of any state.