Companies Aren’t Paying Their Fair Share of Taxes

There is no way to justify cutting the federal corporate tax rate below the current 35%, says Americans for Tax Fairness.
Frank ClementeJuly 13, 2017

Corporations and their lobbyists complain about the 35% federal corporate tax rate. But the effective corporate tax rate — what corporations actually pay after taking advantage of loopholes — is as low as 14%, according to a recent study by the nonpartisan Government Accountability Office.

Frank Clemente

Frank Clemente

That’s a lower tax rate than many middle-class families and small businesses pay, and it’s not nearly enough.

It’s not just a matter of fairness. Real people suffer real harm from corporate tax dodging: commuters driving potholed highways, students priced out of college, seniors denied nursing-home care. Budget proposals from the White House and Congress promise deep cuts to public services — cuts that would be unnecessary if corporations paid their fair share of taxes.

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U.S. corporations are enjoying near-record profits, but corporate taxes are way down. Corporate executives and shareholders are rewarded richly, yet the rest of us are left footing the bill for the national priorities like infrastructure, health care, the military, education, and research that allow American businesses to thrive.

It wasn’t always so. Sixty years ago, corporate profits represented about 6% of the economy, and so did corporate tax payments. These days, corporate profits make up over 8% of the economy, and corporate taxes less than 2%. Back then, corporate taxes supplied one out of every three dollars in federal revenue. Now, it’s just one in nine.

One especially egregious loophole allows American corporations to avoid U.S. taxes by stashing profits offshore. Corporations now hold a staggering $2.6 trillion in earnings overseas, on which they owe over $750 billion in U.S. taxes. A loophole called “deferral” allows multinational corporations to decide when and if to pay their U.S. taxes on all that offshore money.

Over half these profits are not productively invested, but instead socked away in offshore tax havens purely to avoid U.S. taxes. Even worse, much of that money was actually made in America, then shifted offshore with accounting tricks. One estimate is that we lose $100 billion a year in tax revenue from such “profit shifting.”

A mere handful of American firms are responsible for most of those offshore profits. Fifty companies hold three-quarters of it, 10 companies own 40%, and one-fourth of the total belongs to just four corporations: Apple, Pfizer, Microsoft, and General Electric.

Rather than ending deferral and collecting the taxes we’re due, President Trump and congressional Republicans want to reward an elite group of corporate tax dodgers with a huge tax cut of over half a trillion dollars.

If we instead demanded that corporations pay their full offshore tax bill, we could make a variety of productive public investments: double highway and transit repairs over seven years; provide tuition-free community college to nine million students; pay for a decade’s worth of preschool for all four-year-olds; expand the Earned Income Tax Credit; and boost funding for the National Cancer Institute by half.

Backers of corporate tax cuts claim they would lead to greater investment and economic growth. But corporations aren’t short of money now; they’re sitting on record amounts of cash and can borrow cheaply. Recent history shows corporations are likely to use tax cuts to increase dividends and share buybacks, not invest or hire.

Any cut in the federal corporate tax rate would further enrich corporate executives and shareholders while hurting working families and small businesses by forcing cuts to important public services and doing little to boost the economy. We should instead close corporate tax loopholes and use the resulting increased tax revenue to invest in America’s communities, families, and future.

If we want to secure Medicare, Medicaid, Social Security, public education, and our roads and bridges, we need corporations to chip in their fair share.

Frank Clemente is the executive director of Americans for Tax Fairness.