You paid taxes. These corporations didn’t
[Photo: Clipped from White House flyer on the Tax Cuts and Jobs Act]
By Kathryn Kranhold
Source: Center for Public Integrity
The balance of taxation has been shifting for quite a while. In 1952, corporations paid approximately 33% of total taxes, but steady tax revisions have driven it down to 9% pre-Trump tax reform (Jacobson, Politifact). However, it is not just the proportion of taxes paid, but whether they are paying taxes at all. In fact, almost 70% of corporations are paying no federal tax, and many are actually receiving “rebates” – money beyond any tax payments they have made – and “subsidies” – largely inducements and deals to attract and keep corporations. Both tables here are from the 2015 Not new – GAO report (or here) on corporate income taxes from 2006-2012 (Government Accountability Office). As of that report, the effective US corporate tax rate was slightly above 14% contrasted to global tax rates averaging slightly over 22%. The repeated claim that the U.S. has the highest corporate tax rate in the world is a fictive lie because is is the effective rate (what is actually paid) that counts. What Trump tax reform has done is to shift even more wealth to corporations and foisted greater proportion of taxes upon the lower 95% of individual tax payers.
Even more egregious is that there is massive amounts of money flowing in to corporations from all levels of government. While Republicons have consistently gone after the social safety net, they have also consistently been shifting the wealth of the nation in a massive transfer of wealth from the masses (us) to the rogue .1%. The primary benefactors of governmental largess are energy companies, military contractors, and the financial industry, but virtually all of the corporate “whales” do well – including Google, Amazon, and Intel. Not counted in this pot of gold are the massive purchases of the military and their ever increasing portion of the federal budget.
In thinking about how the Rogue Rich are speeding away from the rest of the population, it is important to remember that they are getting paid over and over again. They get paid from whatever they own or do; from corporate wealth; and from investments. Taxation is the fundamental way of encouraging behavior (i.e. large subsidies for gas makes gas cheap and more people driving), but also of distributing the wealth. The middle class in the United States and elsewhere was created by investment and tax laws. It doesn’t just happen. While the working class and poor have historically been ripe pickings in the transfer of wealth upwards, greed has driven the evisceration of the middle class. Shifting tax burdens, welfare for corporations in the form of subsidies and rebates, loosening legislation and controls on investment; bailouts of failing industries, retirement funds, and financial debacle; and elimination of controls like the estate tax – instituted to help ensure that there would not be “royal” families in the U.S. have all redounded to the Rogues at the expense of the people and the nation, our health and our overall standing. The nation is crumbling, literally, while the national wealth in resources is passed into private hands. While the Republicons have done a good job of waving the Bible over everything what they are doing is anything but holy. Sadly, the Democrats have done little to stem the theft, and have frankly been accomplices. I have no idea when people will wake up and make government work for us; certainly it won’t through putting Rogues into positions of public authority – including the Trump crime family and their gang Rogues.
Kathryn Kranhold
*This story was published in partnership with NBC News.
Introduction
Taxpayers are scrambling to make last-minute payments due to the Internal Revenue Service in just four days, but many of the country’s largest publicly-held corporations are doing better: They’ve reported they owe absolutely nothing on the billions of dollars in profits they earned last year.
At least 60 companies reported that their 2018 federal tax rates amounted to effectively zero, or even less than zero, on income earned on U.S. operations, according to an analysis released today by the Washington, D.C.-based think tank, the Institute on Taxation and Economic Policy. The number is more than twice as many as ITEP found roughly, per year, on average in an earlier, multi-year analysis before the new tax law went into effect.
Among them are household names like technology giant Amazon.com Inc. and entertainment streaming service Netflix Inc., in addition to global oil giant Chevron Corp., pharmaceutical manufacturer Eli Lilly & Co., and farming and commercial equipment manufacturer Deere & Co.
The identified companies were “able to zero out their federal income taxes on $79 billion in U.S. pretax income,” according to the ITEP report, which was released today. “Instead of paying $16.4 billion in taxes, as the new 21 percent corporate tax rate requires, these companies enjoyed a net corporate tax rebate of $4.3 billion, blowing a $20.7 billion hole in the federal budget last year.” To compile the list, ITEP analyzed the 2018 financial filings of the country’s largest 560 publicly-held companies.
The following is a list of the country’s largest publicly-held profitable corporations that paid no federal income taxes in 2018 on billions in U.S. income, according to ITEP analysis of 560 companies. ITEP reports U.S. income before federal taxes, and takes into consideration paid state and local taxes, which could reduce or increase U.S. income. The report does not look at total tax provision, a number that could include foreign taxes and deferred taxes. All figures, except for tax rate, are in millions.
| Company | U.S. Income | Federal Tax | Effective Tax Rate |
| Amazon.com | $10,835 | –129 | –1% |
| Delta Air Lines | $5,073 | –187 | –4% |
| Chevron | $4,547 | –181 | –4% |
| General Motors | $4,320 | –104 | –2% |
| EOG Resources | $4,067 | –304 | –7% |
| Occidental Petroleum | $3,379 | –23 | –1% |
| Honeywell International | $2,830 | –21 | –1% |
| Deere | $2,152 | –268 | –12% |
| American Electric Power | $1,943 | –32 | –2% |
| Principal Financial | $1,641 | –49 | –3% |
| FirstEnergy | $1,495 | –16 | –1% |
| Prudential Financial | $1,440 | –346 | –24% |
| Xcel Energy | $1,434 | –34 | –2% |
| Devon Energy | $1,297 | –14 | –1% |
| DTE Energy | $1,215 | –17 | –1% |
| Halliburton | $1,082 | –19 | –2% |
| Netflix | $856 | –22 | –3% |
| Whirlpool | $717 | –70 | –10% |
| Eli Lilly | $598 | –54 | –9% |
| IBM | $500 | –342 | –68% |
| Goodyear Tire & Rubber | $440 | –15 | –3% |
| Penske Automotive Group | $393 | –16 | –4% |
| Aramark | $315 | –48 | –15% |
| AECOM Technology | $238 | –122 | –51% |
| Tech Data | $203 | –10 | –5% |
| Performance Food Group | $192 | –9 | –4% |
| Arrow Electronics | $167 | –12 | –7% |
| Source: Institute on Taxation and Economic Policy |
The controversial Tax Cuts and Jobs Act, signed by President Donald Trump in December 2017, lowered the corporate tax rate to 21 percent from 35 percent, among other cuts. That’s partly to blame for giving corporations an easier way out of paying taxes, said Matthew Gardner, an ITEP senior fellow and lead author of the report. The new corporate tax rate “lowers the bar for the amount of tax avoidance it takes to get you down to zero,” he said.
“The specter of big corporations avoiding all income taxes on billions in profits sends a strong and corrosive signal to Americans: that the tax system is stacked against them, in favor of corporations and the wealthiest Americans,” Gardner wrote in the report.
‘I don’t see that being fair’
The Moline, Illinois-based Deere, which was started in 1837 by blacksmith John Deere, who made farming plows, reported earning $2.15 billion in U.S. income before taxes. It owed no U.S. taxes in 2018 and reported that it was owed $268 million from the government, after taking into consideration various deductions and credits, according to its annual filing with the Securities and Exchange Commission. The company reported global profits of $2.37 billion.
Asked about the rebate, Brian Moens, one longtime Deere employee, was contemplative. “Everyone should pay their fair share whether it is an individual or a corporation,” he said. “If just the small individuals are paying it without large corporations doing their part, I don’t see that being fair.”
“However, if a corporation files an amended tax return, because it now decides that it paid too much in taxes in a prior year based on its revised treatment of an item of income or expense, it can certainly get a refund of all or a portion of the taxes paid in the earlier year,” Willens said.
We pay all required taxes
Studies show that many corporations rarely paid the 35 percent rate under the old tax code. Over the years, companies found many ways to cut their tax bills, from sheltering foreign earnings in low-tax countries and banking credits for money spent on research and development to deducting the expense of stock options for executives.
Gardner said the new tax law has left most of the old tax breaks intact while cutting the rate by almost half, resulting in a “continued decline in our already low corporate revenues.” Revenues from the corporate tax fell by 31 percent in 2018 to $204 billion from $297 billion. “This was a more precipitous decline than in any year of normal economic growth in U.S. history,” he wrote.
Tax Foundation chief economist Kyle Pomerleau said the U.S. corporate tax law was “in need of reform.” He said the new law reduced the U.S. rate to discourage companies from moving profits to countries with lower tax rates as well as allowing for certain deductions that encourage more immediate investment in factories and equipment.
Today’s ITEP report is partly a follow-up to a multi-year analysis of profitable U.S. corporations that showed many paid zero taxes. The institute reviewed the financial filings of more than 600 corporations ranked on the Fortune 500 list between the years 2008 and 2015. On average, about 30 companies each year reported zero U.S. taxes or less. ITEP identified more than twice as many companies claiming they owed no U.S. taxes in 2018.
“The specter of big corporations avoiding all income taxes on billions in profits sends a strong and corrosive signal to Americans: that the tax system is stacked against them, in favor of corporations and the wealthiest Americans.”
Matthew Gardner, ITEP senior fellow and lead author of the report
One new significant provision expanded companies’ ability to write off certain investments in equipment and factories as well as intellectual property, allowing a full expensing or a 100 percent write off immediately. The rule is in effect until 2022, but gradually phases out by the end of 2026.
Jeffrey Hoopes, an accounting professor at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, said the government typically provides such tax breaks during an economic recession “to get companies to invest more” — not when the “economy is doing well.” The U.S. economy grew 2.9 percent in 2018, as fast as or faster than any year since 2005.
Amazon reduced its tax bill partly through accelerated depreciation deductions primarily on equipment, according to its federal filing. In addition, Amazon stated that it has tax benefits related to excess stock-based compensation. ITEP found that Amazon reduced its tax bill by $1 billion through deductions for expenses related to stock-based compensation, one common means for reducing tax bills.
The Seattle-based retail and technology behemoth reported a federal tax rebate of $129 million on $10.8 billion in U.S. income before taxes.
An Amazon spokesman said the company “pays all the taxes we are required to pay in the U.S. and every country where we operate.”
The spokesman said Amazon has paid $2.6 billion in taxes over the last three years but declined to specify whether those taxes were paid in the U.S. or overseas.
Profits: Half a billion. Refund: $342M
Pharmaceutical and technology companies have long been criticized for leaving profits overseas in countries with little or no corporate taxes, or tax havens like the Cayman Islands, Luxembourg and the Netherlands. The 2017 tax law looked to address those issues by changing the way the profits from foreign subsidiaries are taxed in the United States. As part of the shift to a new tax regime, U.S. corporations were assessed a one-time tax on foreign profits; the tax can be paid over eight years.
A number of companies accounted for the foreign profits payment in 2017 and 2018, resulting in significant tax bills.
Under the new law, a company’s income is only taxed in the country in which it is earned. The U.S. no longer taxes new foreign profits unless they reach a certain threshold, at which point the income is taxed at 10.5 percent, half that of the U.S. effective rate.
Take for example the giant technology hardware and services company IBM Corp., which consistently ranks among the biggest U.S. companies. The company had revenues of $79.6 billion, more than 60 percent of which came from outside the United States. To that end, IBM made a $2 billion tax payment on future foreign profits in 2018, according to its financial filings. Tax advisor Willens noted IBM elected to make the $2 billion tax payment on future overseas earnings in 2018 instead of down the road in the period it occurs as many companies will do.
Meantime, in the United States, IBM reported getting a federal refund of $342 million on its U.S. income before taxes of $500 million, according to ITEP and the company’s annual filing. That computes to an effective U.S. tax rate of negative 68 percent. Its worldwide profits were $8.7 billion – and its total tax provision was $2.6 billion including the foreign tax payment.
IBM did not return requests for comment. On a January conference call with investors, IBM Chief Financial Officer Jim Kavanaugh said it anticipated “an all-in rate of at least 11 percent to 12 percent” in 2019, but he did not elaborate.
Certain tax rules did not change under the 2017 law, such as the ability of companies to offset taxes with business losses from previous years. Prior to filing for bankruptcy in September 2005, Delta Airlines compiled massive losses that it carries forward, allowing the company to forego paying taxes for years.
At the end of 2010, Delta had $17.1 billion of federal pre-tax net losses, according to its financial filing; those offsets have dwindled over the years. ITEP states that Delta also was among the companies that used accelerated depreciation of presumably flight equipment to “dramatically reduce their tax rates.” Delta had a rebate of $187 million on $5 billion in U.S. income before federal taxes. Delta did not respond to requests for comment.
Delta’s tax-free days may be coming to an end — soon. In a conference call with investors in December, Delta Chief Financial Officer Paul Jacobson acknowledged that the company may pay “cash taxes” as early as next year. Jacobson told investors the new tax law will save the company $800 million a year at its current earnings level. Will the 21 percent corporate rate help Delta? No — because the company doesn’t need it. Jacobson estimates the company’s cash tax rate will be much lower: between 10 to 13 percent.
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