On April 12, 2019, Kristin Myers writes on Yahoo! Finance:
Big businesses are faring better than ever under the Trump era tax law, the Tax Cuts and Jobs Act (TCJA).
According to analysis from the Institute on Taxation and Economic Policy (ITEP), 60 Fortune 500 companies avoided paying all federal income tax in 2018 (with their total average effective tax rate being roughly -5%).
That’s more than three times the number of companies that avoided paying corporate taxes on average from 2008 to 2015. During that period, 18 companies managed to pay 0% or less (with their total average effective tax rate over 8 years being roughly -4%).
“There are a lot of breaks and loopholes that allow a company not to pay,” Steve Wamhoff, ITEP’s Director of Federal Tax Policy, told Yahoo Finance. “People, when they think of tax reform, think the government is going to fix the tax code and get rid of breaks and loopholes and get rid tax dodging. What we got at the end of 2017 was not that. It was the opposite of that. The Tax Cuts and jobs act left a lot of special breaks and loopholes in place and created some new ones.”
U.S. President Donald Trump talks with journalists after signing tax reform legislation into law in the Oval Office December 22, 2017 in Washington, DC. (Photo: Chip Somodevilla/Getty Images)In 2017, the effective corporate tax rate was 13.6%. In 2018, corporations paid just 7% of their profits as federal taxes, according to data provided to Yahoo Finance by research firm Oxford Economics.
That’s the lowest effective tax rate since at least 1947.
‘These companies enjoyed a net corporate tax rebate’
Of all 60 companies paying taxes for 2018, the first full year under the TCJA, Amazon (AMZN) topped the list with the largest portion of income. In 2018, Amazon paid $0 in taxes on record profit of $11 billion. 2018 was the second year in a row that the e-commerce giant was able to avoid paying taxes.
Amazon is joined on the list by other big companies raking in big profits, including Delta Airlines (DAL), Chevron (CVX), Netflix (NFLX), and General Motors (GM).
“Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate,” ITEP noted, “these companies enjoyed a net corporate tax rebate of $4.3 billion.”
Under TCJA, Trump’s new tax law cuts the corporate tax rate from 35% to 21%. And some big businesses that did end up paying tax in 2018 paid far less than that.
‘They should really be paying taxes’
While not illegal, corporations are often able to take advantage of a creative cocktail of tax credits, loopholes, and exemptions.
“It’s hard to know exactly what they’re doing,” Wamhoff said when discussing Amazon. “In their public documents they don’t lay out their tax strategy. So it’s unclear exactly which breaks [the company is taking advantage of]. They vaguely say tax credits. One could think of many different ways a corporation could do this, like the depreciation breaks which were expanded under TCJA.”
Despite the new tax law, Wamhoff noted, this is nothing new. Several corporations have avoided paying federal income tax throughout the years, he says.
“These companies have been consistently profitable,” he explained. “And they should really be paying taxes.”
Elizabeth Warren, the Democratic Senator and presidential candidate wants to end this, proposing a new corporate tax that would pull in an estimated $1 trillion in revenue. In a Medium post, Warren’s team stated that the ‘Real Corporate Profits Tax’ would only apply “to companies that report more than $100 million in profits — about the 1200 most profitable firms in the country last year. That first $100 million is left alone, but for every dollar of profit above $100 million, the corporation will pay a 7% tax. Any company profitable enough to hit the Real Corporate Profits Tax will pay that tax in addition to whatever its liability might be under our current corporate tax rules.”
Team Warren added that the tax would “make our biggest and most profitable corporations pay more and ensure that none of them can ever make billions and pay zero taxes again.”
There are policies that can be adopted and executed to reverse the ultimate direction of collapse of the American market-economy system. Such policies are based on the recognition that as the production of goods, products and services changes from labor intensive to capital intensive, the way in which every human being — not just a few, but EVERY person — earns his or her income must change in the same way. At the core of this quiet revolution is the understanding and commitment to broadening the ownership of productive capital simultaneously with the responsible growth of economy.
Starting with the for-profit business corporation, a legal entity created and sanctioned by state and federal government and judicial law, in place of retained earnings (reinvesting the corporate earnings already earned) and debt financing to finance future corporate growth, there are two ways to approach reforming the system.
The incentive approach would raise the corporate tax rate to at least 90 percent with full-earnings dividend payouts to the actual owners tax-deductible to the corporation, allowing corporations to completely eliminate paying corporate taxes. Right now there is double taxation. Under this proposal, the actual owners would then have their corporate share earnings subject to personal income tax rates. Incentivizing or requiring corporations to finance their growth by issuing and selling new stock would create opportunities to broaden capital asset ownership. New owners could becreatedusinginsured, interest-free CapitalHomesteadAccount financing, insteadofretainedearningsandcorporatedebtfinancing,neitherofwhichcreateanynewownersbutfurtherconcentratesownershipamongthosewhoalreadyown. This way, the market would become more competitive as existing corporations and new corporations with viable capital formation projects would have a source of raising monies representing the true asset value of the projects and not have their profit subject to corporate taxation. Thus, the new money creation would be directly tied to the asset value of growth projects, and not inflationary.
This is a win-win for corporations as they can simultaneously create new owners and thus “customers with money,” whose income is generated from the full earnings payout of the corporation. This new source of income will enable Americans to purchase what they produce and create demand for the products and services they need and desire.Ordinary Americans would befurtherenrichedastheeconomytakesoffandgrowssubstantiallytodoubledigitpercentsannuallywitheverycitizencontributingproductivelythroughtheircapitalassetsandbecomingabetter”customerwithmoney”tosupportwhatisbeingproduced.Asgrowthoccurs,therealsowouldbecreatednewemploymentopportunities.
Such corporation ownership-broadening approaches would go a long way to reform an otherwise unjust system whereby the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing future productive capital acquisition out of the earnings of existing productive capital (past savings).
The force judicial law approach would be a government reform, under the terms of incorporation,requiring for-profit business corporations to issue and sell full-voting, full-dividend payout stock to the general public when they launch an Initial Public Offering (IPO) and thereafter to underwrite their growth with the purpose of providing opportunity for both their employees and non-employees, to participate in their growth, and thereby the economy’s growth, by purchasing the newly issued stock using insured, interest-free “pure”capitalcredit (CHAs), repayable solely out of the full earnings generated by the earnings produced by the actual future capital assets, and without any requirement for past savings to pledge as collateral security.
Of course with either means, there needs to be a financial mechanism put in place that will guarantee loan risks associated with the commercial banks making the “pure” capital credit loans; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital — the rich, and those who can afford to speculate on the ups and downs of Wall Street market value. This is because “poor” people and the majority of Americanshave no security or collateral, or sufficient income resulting in savings to pledge against loans as security in the event full repayment does not occur, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.
Criteria must be created to qualify the corporations wanting to form new capital projects, both new start-ups and established ones, subject to this policy and those corporations that qualify overseen so as to ensure that their executives exercise prudent fiduciary responsibility to generate loan payback. Of course, the number one criteria would be that any proposed capital project be determined to be viable. Once the guaranteed loans are paid back to the lending entity, the new capital formation will continue to produce income for existing and future owners.
