Just Taxes Blog by ITEP

$4.3 Billion in Rebates, Zero-Tax Bill for 60 Profitable Corps Directly Related to Loopholes

$4.3 Billion in Rebates, Zero-Tax Bill for 60 Profitable Corps Directly Related to Loopholes

April 12, 2019

Matthew Gardner
Matthew Gardner
Senior Fellow

Meet the new corporate tax system, same as the old corporate tax system.

That’s the inescapable conclusion of a new ITEP report assessing the taxpaying behavior of America’s most profitable corporations. The report, Corporate Tax Avoidance Remains Rampant Under New Law, released earlier this week, finds that 60 Fortune 500 corporations disclose paying zero in federal income taxes in 2018 despite enjoying large profits. As a group, these companies enjoyed $79 billion of U.S. income and collectively enjoyed a federal income tax rebate of $4.3 billion. That’s an average income tax rate of negative 5.5 percent.

60 profitable Fortune 500 companies avoided all federal income taxes in 2018. How did they do it? Got a Minute:30? Matthew Gardner explains.

The report is the latest in a decades-long series of carefully researched investigations by ITEP, which examines annual corporate financial filings to disclose whether and how much corporations are paying in taxes. As a rule, many profitable corporations manage to zero out their taxes every year, and a substantial number pay significantly less than the statutory rate. But this year was supposed to be different: 2018 was the first year that the Tax Cuts and Jobs Act was in effect after Congress and the Trump administration hurriedly pushed it through in December of 2017. The new law slashed the statutory corporate tax rate from 35 percent to 21 percent.

The conceit behind this change was, in part, that the old 35 percent tax rate stifled innovation and encouraged tax avoidance, and that dropping the rate would curb tax dodging while unleashing a wave of hiring and capital investments. Oh, and the corporate tax cut was also going to pay for itself.

Even before most Fortune 500 corporations published their 2018 annual financial reports over the past couple of months, it was already clear that most of these claims were utter baloney. The Treasury Department reported last fall that fiscal year 2018 corporate tax collections fell 31 percent over 2017, the single biggest year-over-year corporate tax decline in U.S. history outside a recession. And despite claims made by corporate leaders in the wake of the new law’s passage, the main use of corporate tax cuts so far has been a $1 trillion wave of stock buybacks, rather than the hiring and capital investment spree we all hoped for.

And now that most Fortune 500 corporations have disclosed their 2018 profits and taxes, it’s clear that the new law has done precisely nothing to end corporate tax avoidance. ITEP’s new report shows that of the Fortune 500 corporations that turned a profit in 2018, roughly one in five paid not a dime of federal income tax on those profits. These companies span the industry spectrum, from beermaker Molson Coors to IBM, from the retail giant Amazon to oil behemoths such as Chevron and Halliburton.

For any American taxpayers who might feel a bit disgruntled at paying more than General Motors, Eli Lilly and Deere put together, the path to ending this high-profile tax avoidance is crystal clear. It’s the path that Congress and President Trump chose not to follow in 2017: critically examining each of the dozens of expensive tax giveaways in the corporate tax law, reforming those that might serve a function and repealing the rest. It won’t be the easiest path to travel. The companies outlined in ITEP’s new report will lobby intensively to keep their slice of the tax avoidance pie.  But it’s the only way for lawmakers who want to achieve a sustainable corporate tax system and care about fairness.