One Legacy of the Trump Tax Law: Big Tax Breaks for Big Corporations

Contact: Jon Whiten ([email protected])

The tax law signed by former President Trump in 2017 has slashed taxes for America’s largest, most profitable corporations, a new analysis by the Institute on Taxation and Economic Policy shows.

The study examines the taxpaying behavior of the 296 companies in the Fortune 500 and S&P 500 that were consistently profitable from 2013 to 2021, and for which U.S. profits and federal income taxes are disclosed, in two different four-year periods: 2013-2016 (before the Trump tax law) and 2018-2021 (after the Trump tax law).

It finds:

• America’s largest consistently profitable corporations saw their effective tax rates fall from an average of 22.0 percent to an average of 12.8 percent after the Trump tax law went into effect in 2018.
• The 296 large and consistently profitable U.S. corporations in this study paid $240 billion less in taxes from 2018 to 2021 than if they had continued to pay the effective rates they’d paid before the Trump tax law.
• While profits for these largest continuously profitable U.S. corporations rose by 44 percent after passage of the Trump tax law, their federal tax bills dropped by 16 percent.
• The number of these corporations paying tax rates of less than 10 percent increased from 56 to 95 after the Trump tax law went into effect.
• Many of the largest and most well-known corporations in the country – including Walmart, Verizon, Disney, and Meta – had the largest tax reductions after the Trump tax law went into effect.

“In 2017, Congress and President Trump had a chance to reform our corporate tax system,” said ITEP Senior Fellow and report co-author Matthew Gardner. “Instead, they just gutted it. The tax rates paid by the biggest and most profitable corporations fell by a third after the tax cut’s passage in 2017.”

The primary reasons these large corporations have seen tax cuts of this magnitude are clear. Most importantly, the 2017 tax law drastically cut the statutory corporate tax rate from 35 to 21 percent. It also expanded tax breaks for corporate expenses characterized as capital investment and expanded other ways to minimize U.S. tax liability. The law did reduce some tax avoidance mechanisms but on the whole, it increased these companies’ ability to take advantage of tax breaks.

“The signature legislative accomplishment of the Trump administration was the 2017 corporate tax cut,” said ITEP Senior Fellow and report co-author Michael Ettlinger. “This study shows that the largest of companies, from Verizon to Walmart, have been the biggest beneficiaries.”

Some of the tax avoidance allowed under the Trump tax law will be reduced by the Inflation Reduction Act’s 15 percent corporate minimum tax and 1 percent tax on stock buybacks. Both provisions went into effect in 2023 and we may soon have more information about their impact on corporations.

Looking ahead, Congress has several options to address corporate tax avoidance and reverse the effects of the 2017 law. For example, President Biden has proposed to partly reverse the reduction in the statutory corporate income tax rate, increase the corporate minimum tax that was originally enacted as part of the Inflation Reduction Act, bar corporations from deducting compensation paid to any individual beyond $1 million annually, and impose a strong minimum tax on offshore corporate profits, among other reforms.

 

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