Just Taxes Blog by ITEP

GOP Leaders Tout Corporate Tax Cuts at Boeing and AT&T, Companies that Already Have Single-Digit Tax Rates

GOP Leaders Tout Corporate Tax Cuts at Boeing and AT&T, Companies that Already Have Single-Digit Tax Rates

August 23, 2017

Matthew Gardner
Matthew Gardner
Senior Fellow

House Speaker Paul Ryan plans to visit a Boeing factory in Washington State Thursday to promote the GOP’s ideas for tax reform, which include a deep cut in the corporate tax rate, while House Ways and Means Chairman Kevin Brady is bringing the same message today to employees of AT&T in Dallas. What is unclear is how much lower taxes for these companies can possibly go. ITEP’s recent report on the profitable Fortune 500 corporations found that over the past 8 years, Boeing has paid an effective federal income tax rate of just 5.4 percent while AT&T’s effective rate was just 8.1 percent.

In other words, Boeing paid just 5.4 percent of its profits in federal income taxes from 2008 through 2015, while AT&T paid just 8.1 percent. President Trump has claimed that “American companies are taxed at one of the highest rates anywhere in the world” because the statutory corporate tax rate is 35 percent, and he has proposed cutting it to 15 percent. The House GOP tax plan released last summer would cut it to 20 percent. But as ITEP’s report documents, most American corporations pay far less than the statutory tax rate because of the many breaks and loopholes they enjoy.

In fact, one key question has been whether Trump, Ryan, Brady and other Republican leaders would agree to eliminate these loopholes and breaks as a way to offset the cost of any cut in the statutory rate. A sensible fear is that lacking any meaningful requirement to balance the federal budget, Congress will avoid the hard questions of corporate loophole closing and will instead focus on the easy question of how far to cut the corporate tax rate.

Ryan’s choice of venue lends support for this view. Over the last decade, Boeing has earned almost $51 billion in U.S. profits and has paid just $4.5 billion in federal income taxes, for a 10-year tax rate of 8.8 percent. In five of the past 10 years, the company received a tax refund. Boeing cut its federal taxes by $542 million using the special domestic manufacturing tax break, and it enjoyed $1.8 billion in tax cuts from the research and development tax credit. Perhaps most importantly, Boeing used accelerated depreciation tax breaks to cut its federal taxes by billions of dollars over the past decade. This is all in addition to being the recipient of the largest state tax subsidy in U.S. history.

Ryan is also bringing the GOP’s tax reform road show to Intel this week. While Intel’s effective tax rate is not as low as Boeing’s, it has still proven adept at negotiating the federal tax code, enjoying almost $4.3 billion in tax cuts from the research credit and the manufacturing deduction over the past decade. A special tax break for executive stock options shaved another $850 million of Intel’s tax bill over this period.

Meanwhile Brady, whose committee is the starting place for any tax legislation, seems to be sending an equally strong message with the location of his events to promote tax reform. Besides visiting AT&T today, he already met with UPS employees in Kentucky yesterday.

The choice of these companies as venues for the Ryan/Brady road show could reflect the likelihood that emerging legislation will include a special lower tax rate on profits that corporations are currently holding offshore. Boeing, Intel and UPS collectively disclose holding $52 billion of profits in undisclosed offshore locations, and each of them refuses to disclose whether they’ve paid even a dime of tax on these profits. If these companies are intentionally holding their profits in tax havens with the goal of avoiding U.S. taxes, the proposed tax holiday could offer them a staggering tax windfall.

We have argued that true corporate tax reform should, far from cutting our already-low taxes, increase federal revenue over time. But Congress and President Trump cannot achieve that with a steep cut in the corporate tax rate and no real effort to pare back or repeal expensive and ineffective tax breaks such as the research credit, the manufacturing deduction, the stock option tax break, and the deferral loophole.

The decision to solicit the support of two of the companies that feed most heavily at the corporate-subsidy trough strongly suggests that Republican leaders will forego closing these loopholes, and will instead simply cut the corporate rate. It’s the approach preferred by Boeing and AT&T’s leaders but wildly unpopular among the people who elected members of Congress to serve.