Under the Tax Cuts and Jobs Act, 91 profitable Fortune 500 companies paid $0 in taxes on U.S. income in 2018, according to a new report from the Institute on Taxation and Economic Policy (ITEP). Across all 379 profitable companies in the Fortune 500 the effective tax rate was just 11.3%, just over half the 21% tax rate under the law.
“In 2018, the 379 companies earned $765 billion in pretax profits in the United States,” the report noted. “Had all of those profits been reported to the IRS and taxed at the statutory 21% corporate tax rate, the 379 companies would have paid almost $161 billion in income taxes in 2018.”
Instead, the companies only paid $86.8 billion, roughly 54% of what they owed.
A ‘pernicious effect’
Matthew Gardner, senior fellow at ITEP and lead author of the report, says that what companies are doing is “entirely legal” — but that they can avoid paying taxes thanks to tax breaks.
“A whole host of tax breaks in the code collectively have this pernicious effect,” Gardner said. But he added, though legal, “this doesn’t exonerate these companies from wrongdoing.”
“What we are seeing is a product of the actions of Congress, aided and abetted by corporate lobbyists,” he explained. “This is the predictable consequence of creating tax breaks for any activity you can think of.”
In 2017, the IRS collected over $338.5 billion in income taxes (before refunds) from businesses. That number dropped by 22% to about $262.7 billion for fiscal year 2018. In comparison, in FY 2016, income taxes collected from corporations was on par with 2017, at $345.6 billion.
The 2018 figures represent the lowest amount the Treasury has collected from business in nearly a decade; in 2011 the IRS pulled in $242.8 billion from corporations’ income tax.
Companies are not only paying less in taxes; the government is also giving more tax breaks.
Last year, the IRS refunded businesses $60 billion for a net total of $202.7 billion collected from corporations. In 2017, the refund figure totaled roughly $45 billion for a net collection of $293.6 billion.
According to ITEP, tax subsidies for the 379 companies totaled $73.9 billion with half of the total tax-subsidy dollars — a total of $37.1 billion — going to just 25 companies. ITEP’s research finds that each of those companies had more than $650 million in tax breaks last year.
“Bank of America topped the list of corporate tax-subsidy recipients with more than $5.5 billion in tax subsidies in 2018,” the report stated. “Other top tax subsidy recipients included JP Morgan Chase ($3.7 billion), Wells Fargo ($3.2 billion), Amazon ($2.4 billion), and Verizon ($1.7 billion).” Verizon is the parent company of Yahoo Finance.
Proponents of the tax law said that it would increase corporate investment in the economy, spurring growth.
And while capital expenditures did grow at the fastest pace in 25 years in 2018, share buybacks among publicly-traded companies have also gotten to the $1 trillion level, according to Goldman Sachs. S&P 500 companies bought back $833 billion in stock in 2018, the firm said.
“Public companies will repurchase shares (or pay out dividends) with excess cash when they feel investing for growth and financing M&A don’t offer attractive returns for the risk,” Yahoo Finance’s Sam Ro explained. “It’s a controversial and often politicized use of cash since it’s considered a less productive option that enriches shareholders.”
Furthermore, declining tax revenue has only widened deficits, as national debt has ballooned up over $23 trillion.
But while companies were able to avoid paying taxes thanks to the new Republican tax law, the IRS pulled in roughly $2 trillion from individual tax returns, a leap of nearly $100 billion from the amount collected in 2017.
While the majority of Americans did get a tax cut, many bemoaned receiving smaller-than-anticipated refunds or even being hit with a “surprise” tax bill.