Just as the Biden government is pushing to raise taxes on businesses, a new study found that at least 55 of the largest Americans didn’t pay taxes on billions in profits in the past year.
The comprehensive tax bill, passed by Republican Congress in 2017 and signed by President Donald J. Trump, lowered the corporate tax rate from 35 percent to 21 percent. But dozens of Fortune 500 companies have been able to further reduce their tax burden – sometimes to zero, thanks to a number of legal deductions and exemptions that the analysis has found have become an integral part of tax law.
Salesforce, Archer-Daniels-Midland, and Consolidated Edison were among the names named in the report produced by the Institute of Taxes and Economic Policy, a left-wing research group in Washington.
26 of the listed companies, including FedEx, Duke Energy, and Nike, have avoided paying federal income tax over the past three years despite reporting combined income of $ 77 billion. Many also received tax breaks in the millions.
Company tax returns are private, but publicly traded companies are required to file financial reports that include federal income tax expense. The institute used this data along with other information that each company provided about its pre-tax revenue.
Catherine Butler, a spokeswoman for Duke Energy, responded in an email that the company is “fully compliant with federal and state tax laws as part of our efforts to invest for the benefit of our customers and communities.”
She noted that the bonus write-off, intended to encourage investments in areas such as renewable energy, “resulted in Duke’s cash tax obligations being postponed to future periods, but not eliminated”. According to a filing in late 2020, Duke has $ 9 billion in deferred tax payable in the future.
DTE Energy, a Detroit-based utility company that had not paid federal taxes for three years, said large investments in modernizing aging infrastructure as well as new solar and wind technologies were the top drivers last year. “For utilities, the benefits of these federal tax savings will be passed on to utilities in the form of lower electricity bills,” a statement said.
A provision in the 2017 tax bill enabled companies to write off the cost of new equipment immediately.
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April 2, 2021, 12:40 p.m. ET
The $ 2.2 trillion CARES bill passed last year designed to help businesses and families survive the economic devastation caused by the pandemic also included a provision that temporarily allowed businesses to Use losses in 2020 to offset gains made in previous years.
DTE used that provision to receive an expedited refund of credits equivalent to $ 220 million in previously paid alternative minimum taxes, the company said.
FedEx also took advantage of the provisions of the CARES Act and used losses in 2020 to reduce tax burdens from previous years when the tax rate was higher. These regulations “helped companies like FedEx navigate a rapidly changing economy and market while continuing to invest in capital, hire team members, and fund employee retirement plans.”
The report is the latest fodder in a debate on whether and how tax legislation should be revised. Politicians, business leaders, and tax experts argue that many deductions and credits are in place for good reason – to fuel research and development, fuel expansion, and smooth the ebb and flow of the business cycle, allowing profit and loss to be viewed in longer than possible a single year.
“The fact that many companies don’t pay taxes shows that there are many regulations and preferences,” said Alan D. Viard, a resident scientist at the American Enterprise Institute, a conservative research group. “It doesn’t tell you whether they are good or bad or indifferent. It is at most a starting point, certainly not an end point. “
He pointed out that the Biden government itself supports tax credits for investments in green energy.
Supporters of more aggressive corporate tax policies pointed to the study’s findings. “This is not rocket science: giant corporations reporting billions in profits shouldn’t be able to pay $ 0 in federal taxes,” Massachusetts Democrat Senator Elizabeth Warren said on Twitter.
The Institute for Taxes and Economic Policy has published some form of its report on corporate taxes for decades. During the 2020 presidential campaign, the focus was on the results, with Democratic candidates arguing that tax legislation was deeply flawed.
Tax avoidance strategies include a mix of old standards and new innovations. For example, companies have saved billions by allowing top managers to buy discounted stock options in the future and then deduct their value as a loss.
The Biden government announced this week that it intended to raise the corporate tax rate to 28 percent and set some sort of minimum tax that would cap the number of zero payers. The White House estimated the revisions would raise $ 2 trillion over 15 years, which will be used to fund the president’s ambitious infrastructure plan.
Proponents say the rewriting would not only generate revenue, it would also help make tax laws fairer and that individuals and businesses at the top of the income ladder would have to pay more. However, Republicans have signaled that the tax hikes in the Biden proposal – Kentucky Senator Mitch McConnell, the “massive” minority leader – will preclude support from both parties.
Regarding the proposed changes, Matt Gardner, Senior Fellow at the Tax Institute said, “If I were to make a list of the things that corporate tax reform is supposed to do, this draft will address all of those issues.”
Deductions and exemptions wouldn’t go away, but other changes like the minimum tax would reduce their value, he said.
