The Big Prize: Corporate Rate Cuts
Cutting the corporate rate has been a Republican talking point for decades. But this push has always been built on the inaccurate assertion that our corporate taxes are among the highest in the world. Until January 1 of this year, the federal corporate income tax topped out at 35 percent on paper, a rate higher than statutory rates imposed by other Organization for Economic Co-operation and Development (OECD) nations. But due to copious loopholes in the federal tax code, many corporations paid significantly less.
Our corporate tax rules allow many of the biggest companies to shelter much of their income from tax. As a result, even though our statutory federal tax rate until recently was higher than most other nations’, corporate tax collections as a share of the U.S. economy have generally been below the OECD average.
A series of detailed studies by my organization, the Institute on Taxation and Economic Policy (ITEP), show that the biggest and most profitable corporations have, as a group, been able to shelter nearly half of their profits from tax. Our most recent study showed that between 2008 and 2015, 258 consistently profitable Fortune 500 corporations paid an average effective tax rate of 21.2 percent, and 100 of these companies avoided paying even a dime of federal income taxes in at least one profitable year during this eight-year period.
Further, more than half of big profitable multinationals paid a lower foreign tax rate on their foreign profits than the U.S. rate they paid on their domestic profits.
For clear-eyed observers, the diagnosis for this dual ailment—an above-average nominal tax rate, and a below-average effective tax rate—has always been clear. Get rid of the giveaways for industries and companies with lobbying muscle.
The war over corporate tax reform has a second front: the treatment of foreign income. Big multinationals have shifted trillions of dollars out of the United States and into foreign tax havens, emboldened by a provision of the old tax law that allowed companies to indefinitely postpone taxes on their allegedly foreign profits until those profits are repatriated, or brought back to the Unites States. In many cases, the foreign destination of these profits is an accounting fiction. In 2012, the most recent year for which data are available, U.S. multinationals reported that 59 percent of their subsidiaries’ foreign profits were earned in ten small tax-haven countries, including Bermuda and the Cayman Islands. In some cases, they reported profits in these countries that exceeded the nations’ entire GDP, a clearly impossible feat.
