Biden Is Right: Corporate Tax Avoidance Has Big Problems That We Can Fix

This op-ed originally appeared in Newsweek

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President Joe Biden recently noted in his State of the Union address that in 2020, 55 profitable corporations paid no federal income tax. Not a dime. This is a common Biden talking point, and as many a fact-checker has noted, the president got that statistic from my organization, the Institute on Taxation and Economic Policy.

New data demonstrates that the situation has not improved at all since then.

For one, it’s actually not just 55 companies that are paying no tax. As our new study showed, in the first five years of the Trump tax law, 109 profitable corporations paid no tax in at least one year. And even worse, 23 paid no tax over the entire five-year span, despite being profitable in each year.

Take T-Mobile, for example. It posted $17.9 billion in profits over those five years, yet received $80 million in taxes back from all of us. In other words, it had an effective tax rate of -0.4 percent.

Or the energy giant Duke Energy. It had $15.6 billion in profits over that time, yet received a total tax bill of negative $1.2 billion, leaving it with an effective tax rate of -7.9 percent.

In all, the 342 profitable corporations we studied paid an effective tax rate of just 14.1 percent from 2018 through 2022. This is almost a third less than the statutory rate of 21 percent, and the difference equals a tax subsidy to these corporations of about $275 billion. That’s $275 billion that could have been used to pay for infrastructure and other critical needs, child care and other supports for families, or any of our other shared priorities.

How did we get here?

As you might imagine, the story isn’t all that straightforward, but here’s the simple version. At the behest of powerful lobbyists, Congress has created more and more special breaks that erode the tax system, while looking away as corporations concoct novel schemes to exploit even more loopholes in existing laws. That’s created a tax system that’s a shell of what it should be, which leads to the phenomenon we document in the study: profitable corporations paying a very low fraction of their profits in taxes.

In 2017, then-President Donald Trump and Republicans in Congress passed the Trump tax law, which slashed the corporate tax rate from 35 to 21 percent. In the years before this, some tax reform proponents believed that if we cut the tax rate and closed some loopholes, we’d see much greater corporate compliance, and overall, companies would be paying much closer to the listed rate.

But the Trump tax law was clearly not designed to do that. It did shut down some special tax breaks for companies, but it left many more on the books and even introduced new ones into law. Now profitable corporations are still paying significantly less than the statutory rate. The only difference is the statutory rate itself is 40 percent lower, meaning we’re collecting even less of what we need from corporations to help fund a strong country and a bright future.

The good news is that sensible reforms to the corporate tax system can help both crack down on corporate tax avoidance and ensure companies that are flourishing are paying their share for the public infrastructure that forms the building blocks of their success.

There is a dire need for substantial tax reform, of which the new corporate minimum tax that was signed into law by President Joe Biden in 2022 is a welcome first step. But other reforms must follow. At the top of the list would be the global minimum tax negotiated by the Biden administration but currently blocked by Republicans in Congress. Corporations would not generate profits if not for the transportation infrastructure used to move goods and people, the public education system that creates our productive workforce, the court system that enforces property rights, and many other public investments. Working people are already contributing to finance these investments, and corporations should as well.

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