The Tax Cuts and Jobs Act lowered the corporate tax rate from 35
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 and 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 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.
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
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.”
Moens credits his wife with getting their taxes filed early in February. They anticipated a refund, like in past years, because they overpaid during the year. “It wasn’t quite what Trump had said it was going to be,” said Moens, who assembles farm planting tractors at the Moline factory. “It was less than what we had received in previous years,” although nothing had changed.
Deere declined to elaborate on its taxes. Spokesman Ken Golden said, “We do not provide comments beyond what is contained in Deere & Company’s public filings as we believe the public filings provide the necessary information when they are assessed in their entirety.”
Trump’s tax cut bill slashed the corporate tax rate and eliminated and tightened certain deductions, while providing other new tax breaks to companies. The cut in the corporate tax rate alone will save corporations $1.35 trillion over the next 10 years, according to the Joint Committee on Taxation, which reports to the Senate and House finance and budget committees.
The United States theoretically had one of the highest corporate tax rates in the world, though many firms had an effective rate much lower. Previous administrations, including President Barack Obama’s, had sought to modestly cut the corporate tax rate to make it more competitive. After taking office in January 2017, Trump and the Republican-controlled Congress quickly enacted one of the most sweeping tax bills in decades — an overhaul that is estimated to raise the federal deficit to $900 billion this year, and more than $1 trillion, starting in 2022, according to the Congressional Budget Office, a nonpartisan legislative agency.
Corporations generally don’t get “refund” checks as individuals do for overpaying. Instead, corporations calculate how much in taxes they owe by rolling up various deductions and tax credits that then lower the tax bill until, in many cases, they owe nothing in taxes or accrue a deficit, referred to as a rebate, that they use to offset taxes in the future.
Robert Willens, an independent tax advisor who teaches corporate tax courses at Columbia Business School, said corporations have typically sought to obtain a refund on taxes paid in preceding years when they generated net operating losses in those years. The new tax bill eliminated that ability to carry back those net operating losses, but it allowed companies to carry the losses forward indefinitely, he said. Willens said he expects to see fewer refunds than in the past since net operating losses were the principal source.
“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.
Studies show that many corporations rarely paid the 35 percent
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.