Just Taxes Blog by ITEP

15 Companies Report an Average 10.4 Percentage Point Drop in Effective Tax Rates Since 2017

15 Companies Report an Average 10.4 Percentage Point Drop in Effective Tax Rates Since 2017

November 13, 2018

ITEP
ITEP Staff

In April, ITEP analyzed the change in worldwide effective income tax rates for corporations in the first quarter, and the two quarters of data that have become available since then confirm our finding: Corporations have received a hefty windfall at the expense of taxpayers.

Comparing the year’s first three quarterly filings of 2018 with those of 2017, we find that 15 of the largest Fortune 500 companies reported worldwide effective income tax rates declining by an average of 10.4 percentage points and by as much as 16 percentage points. In total these companies owed $22.3 billion less in taxes than they would have under their 2017 effective rates, saving an average of $1.5 billion each.

15 Companies Reporting Effective Tax Rate Reductions in the First Three Quarters of 2018
Company Tax Savings (millions) 3 Quarter ETR Change
Apple 4454.1 -9.7%
Bank of America 3055.3 -11.8%
Berkshire Hathaway 2988.7 -8.1%
AT&T 2347.1 -12.3%
JP Morgan 2072.6 -6.5%
Verizon 1809.9 -9.9%
Alphabet 1472.1 -5.9%
Citigroup 1317.2 -7.3%
Caterpillar 624.0 -9.7%
Lockheed 584.2 -13.4%
American Express 490.4 -7.8%
Waste Management 274.4 -16.0%
Abbott Labs 264.4 -13.7%
General Dynamics 259.0 -8.8%
Amgen 242.5 -3.3%
Average 1483.7 -10.4%
Total 22255.9

 

Alphabet, formerly Google, saws earnings before taxes rise from $19.2 billion in the first three quarters of 2017 to $24.8 billion in the first three quarters of 2018, while its income tax bill fell from $3.5 billion in 2017 to $3 billion in 2018. In other words, the company saw its effective tax rate diminish from 18.2 percent to 12.3 percent, amounting to a $1.5 billion windfall in tax savings.

Apple saw its pre-tax income rise from $39.9 billion in the first nine months of 2017 to $45.9 billion in the first nine months of 2018, while its income tax liability dropped from $9.5 billion to $6.4 billion, constituting a decline in effective tax rate from 23.7 percent to 14 percent. If the company had applied its 2017 effective rate to its 2018 income, it would owe an additional $4.5 billion in taxes.

AT&T reported pre-tax income of $19.1 billion in the first three quarters of 2018, up from $16.4 billion in the first three quarters 2017. Its tax burden, meanwhile, fell from $5.7 billion in 2017 to $4.3 billion in 2018, representing a decline in effective tax rate from 34.8 percent to 22.5 percent and a tax savings of $2.3 billion relative to what it would have owed had its rate remained constant.

Bank of America reported $7.2 billion in income tax on $23 billion in earnings in the first nine months of 2017 and only $5 billion in income tax on $25.9 billion of earnings in that period in 2018, a decrease in effective tax rate of more than a third, from 31.3 percent in 2017 to 19.5 percent in 2018. As a result, the company received $3 billion in tax savings over the first three quarters of 2018.

JP Morgan saw its earnings before income tax grow from $27.6 billion in the first nine months of 2017 to $31.9 billion the first nine months of 2018, while its effective tax rate fell from 26.9 percent in 2017 to 20.4 percent in 2018. If the company had applied its 2017 effective rate to its 2018 earnings, it would owe an additional $2.1 billion in income tax.

Lockheed reported an increase in pre-tax income from $3.7 billion in the first nine months of 2017 to $4.4 billion for that period in 2018, while the company’s effective tax rate decreased by more than half in that period, from 26.3 percent to 12.9 percent, creating a tax savings of $584.2 million.

Verizon saw its income increase from $17.7 billion in the first nine months of 2017 to $18.3 in the first nine months of 2018, while the company’s effective tax rate fell from 33.4 percent to 23.5 percent, generating a tax savings of $1.8 billion.

It should be noted that the figures given above do not necessarily reflect only changes from the 2017 tax act. Further, these data do not reflect a full year of activity under the new tax regime, and as such might include fluctuations in earnings that are not representative of the company’s overall profitability. Even so, the magnitude of tax savings accrued by these companies speaks volumes.

 

Company Tax Savings (millions) 3 Quarter ETR Change 2018 income 2018 tax 2017 income 2017 tax 2018 ETR 2017 ETR
Apple 4454.1 -9.7% 45,873 6,407 39,909 9,449 14.0% 23.7%
Bank of America 3055.3 -11.8% 25,892 5,041 23,032 7,202 19.5% 31.3%
Berkshire Hathaway 2988.7 -8.1% 36,722 7,009 7,009 4,750 19.1% 67.8%
AT&T 2347.1 -12.3% 19,128 4,305 16,422 5,711 22.5% 34.8%
JP Morgan 2072.6 -6.5% 31,923 6,515 27,646 7,437 20.4% 26.9%
Verizon 1809.9 -9.9% 18,256 4,282 17,660 5,893 23.5% 33.4%
Alphabet 1472.1 -5.9% 24,841 3,053 19,175 3,493 12.3% 18.2%
Citigroup 1317.2 -7.3% 18,139 4,356 17,662 5,524 24.0% 31.3%
Caterpillar 624.0 -9.7% 6,455 1,377 2,971 921 21.3% 31.0%
Lockheed 584.2 -13.4% 4,355 562 3,674 967 12.9% 26.3%
American Express 490.4 -7.8% 6,291 1,380 5,627 1,673 21.9% 29.7%
Waste Management 274.4 -16.0% 1,717 325 1,607 561 18.9% 34.9%
Abbott Labs 264.4 -13.7% 1,926 247 1,657 440 12.8% 26.6%
General Dynamics 259.0 -8.8% 2,953 504 3,069 793 17.1% 25.8%
Amgen 242.5 -3.3% 7,360 894 7,383 1,140 12.1% 15.4%
Average 1483.7 -10.4%
Total 22255.9

 

Data available for download