On paper, Donald Trump and congressional Republicans slashed the U.S. corporate tax rate from 35% to 21%, delivering a windfall for private-sector giants that were already enjoying record profits. But in practice, the official tax rates only tell part of the story.
A couple of years ago, the Institute on Taxation and Economic Policy released the results of a detailed study that found of the Fortune 500 companies, about 400 paid an average tax rate of about 11% — roughly half of the current rate of 21% — thanks to a series of loopholes, exemptions, and giveaways Republicans made no effort to address in the “tax reform” package.
What’s more, as regular readers may recall, the same research found that plenty of corporate giants weren’t paying any federal taxes at all.
To understate matters, the tax landscape hasn’t improved. The Washington Post reported this morning:
Fifty-five of the nation’s largest corporations paid no federal income tax on more than $40 billion in profits last year, according to an analysis by the Institute on Taxation and Economic Policy, a progressive think tank. In fact, they received a combined federal rebate of more than $3 billion, for an effective tax rate of approximately negative 9 percent.
The same report added that, in the wake of the Republican tax-cut package from four years ago, 26 corporations haven’t paid any federal income taxes in recent years — including private-sector giants such as FedEx and Nike — even as these same corporations enjoyed a combined income of $77 billion.
All of this is certainly notable in its own terms. Indeed, when polls show many Americans endorsing higher taxes on big businesses, it’s likely because much of the public realizes that the playing field is tilted unfairly in corporations’ favor.
But there’s also a political context that makes this all the more significant right now: President Joe Biden’s infrastructure plan, called the American Jobs Act, proposes an increase to the corporate tax rate, from 21% to 28%, as a way of financing the infrastructure investments.
Republicans who lowered the rate from 35% to 21% are predictably outraged by the very idea, suggesting it would do drastic harm to the economy to ask corporate giants to operate under a 28% rate.
That’s wrong for a variety of reasons, but the research is pointing to a more fundamental problem: major American businesses aren’t even paying the 21% rate that exists on paper.
Republican officials believe the proper response to this is indifference. As the GOP explores ways to position itself as a “working-class” party, it’s worth keeping these details in mind.
