December 16, 2019

Fortune 500 Companies Avoided $73.9 Billion in Tax Under First Year of Trump Tax Law

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91 Companies Paid Zero on U.S. income in 2018
WASHINGTON, D.C. —  A comprehensive examination of Fortune 500 companies’ financial filings in 2018, the first year of the Tax Cuts and Jobs Act, finds that the law did nothing to curb corporate tax avoidance, with 91 companies paying $0 in taxes on U.S. income in 2018 and profitable companies overall paying a collective effective tax rate of 11.3 percent, which is barely more than half the 21 percent rate established by the tax law, the Institute on Taxation and Economic Policy (ITEP) said today.

The study, Corporate Tax Avoidance in the First Year of the Trump Tax Law, includes financial filings by 379 Fortune 500 companies that were profitable in 2018; it excludes companies that reported a loss. The report builds on a previous ITEP analysis released in April 2019, which reviewed corporate filings available as of that date.

“The 2017 tax law was destined to fail to live up to its grand promises,” said Matthew Gardner, a senior fellow at ITEP and lead author of the study. “Proponents of the law claimed it would boost federal corporate tax revenue, but that is nearly impossible since the law not only reduced the corporate tax rate, it also left some of the
most egregious loopholes intact. The 2017 tax law was a clear giveaway to corporations and their shareholders.”

Among the study’s key findings:

  • 11.3 percent is the collective average effective tax rate paid by the 379 companies included in the study.
  • 91 corporations did not pay federal income taxes on their 2018 U.S. income. These corporations include Amazon, Chevron, Halliburton and IBM.
  • Another 56 companies paid effective tax rates between 0 percent and 5 percent in 2018. Their average effective tax rate was 2.2 percent.
  • In 2018, the 379 companies collectively earned $765 billion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 21 percent corporate tax rate, the 379 companies would have paid almost $161 billion in income taxes in 2018. Instead, the companies as a group paid just more than 54 percent of that amount, or $86.8 billion.
  • The tax breaks identified in this report are highly concentrated among a few very large corporations. Just 25 companies claimed $37.1 billion in tax breaks in 2018. That’s almost exactly half the $73.9 billion in tax subsidies claimed by all 379 companies in our study.
  • Just five companies—Bank of America, J.P. Morgan Chase, Wells Fargo, Amazon, and Verizon—collectively enjoyed more than $16 billion in tax breaks in 2018.

The difference in tax rates between companies, even within the same industry, demonstrates how loopholes in our tax code can create huge economic distortions by giving some companies a tax advantage over their competitors.

Treasury data show that corporate tax revenue is near historic lows as a share of GDP. The only other times in the last 40 years that tax collections have been 1 percent of GDP was during the era of Reagan’s dramatic tax cuts and in 2009 during the economic recession. By providing a roadmap to how the 2017 Trump-GOP tax law as well as existing tax breaks and loopholes that the law failed to address substantially reduced corporate tax payments, this new ITEP report provides a significant contribution to public discourse. It not only reveals corporations’ effective tax rates, it also highlights provisions in the tax code that allow corporations to substantially reduce or eliminate their tax obligation. Full expensing of deductions immediately rather than over time, tax breaks for issuing stock options, industry-specific tax breaks, a weakened corporate alternative minimum tax (AMT), and allowing corporations to forego taxes on offshore profits (thereby incentivizing offshore tax shenanigans) are among the loopholes that allow corporations to substantially reduce their tax rates.

“The key takeaway from this study is that the 2017 tax law is working out well for profitable corporations, which are paying some of the lowest tax rates that ITEP has recorded in the nearly 40 years it has been examining corporate taxes,” Gardner said.

Just after the 2017 tax law passed, GOP leaders began discussing slashing spending on Social Security, Medicare, Medicaid, food stamps, education and other critical programs. Most recently, the Trump Administration approved a new rule that is estimated to cut 700,000 people from food stamps. The nation’s ability to fund critical priorities is clearly connected to tax revenue.

“By enacting a law that dramatically reduced corporate tax collections, lawmakers weakened the nation’s ability to adequately fund critical priorities,” Gardner said. “Lawmakers will have to stop kowtowing to special interests and pretending that raising revenue doesn’t matter.”

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