A new report from the Institute on Taxation and Economic Policy has been getting a lot of attention. The report found that for 2018, the first year in which Trump’s signature Tax Cuts and Jobs Act was in effect, 91 profitable Fortune 500 companies paid no income taxes at all. None. Furthermore, across all 379 of the profitable Fortune 500 companies, the average effective tax rate was only 11.3 percent.
The low corporate tax rate, or absence of a corporate tax rate for 91 of those large companies, was in part due to the fact that Trump’s tax law lowered the overall corporate tax rate (for larger companies, at least). Previously, the corporate tax rate was based on a tiered structure in which the largest and most profitable companies paid higher rates than smaller, less profitable companies. Under the structure that predated Trump’s tax law, companies paid just 15 percent on their first $50,000 of income, and the corporate income tax rate increased from there, up to the highest rate bracket at 39 percent. Trump’s tax law set a flat 21 percent corporate tax rate, increasing the taxes paid by the smallest companies and decreasing the taxes paid by all the higher-earning corporations.
Of course, lowering the overall corporate tax rate to 21 percent does not explain how so many very large and very profitable companies got to 11.3 percent, or to zero percent. Turns out Trump’s corporate tax rate is a flat tax only in the sense that a slice of Swiss cheese is flat. While the rate doesn’t go above 21 percent, it is riddled with loopholes inserted by corporate lobbyists. These loopholes — “tax breaks” as they are more diplomatically referred to in the ITEP report — allow companies with savvy lawyers and lobbyists to avoid taxes by writing off more for a variety of things, from luxury automobiles to bicycle commuting reimbursements. According to the ITEP, had the 379 profitable Fortune 500 companies actually paid the full 21 percent rate without taking advantage of loopholes, they would have collectively paid income taxes totaling $161 billion for 2018, rather than the $86.8 billion they actually paid. The savings corporations realized by building the loopholes into Trump’s tax law appear to have been well worth the $6 billion spent annually on lobbying. (In addition to lobbying, corporations also spend directly on federal elections, to the tune of $2.6 billion in 2018.)
Tax Cuts And Jobs Act Increased Amount Paid By Humans, Decreased Amount Paid By Corporations
The relative tax rates of corporations and individuals are interesting, and relevant. But examining the rates for individuals versus corporations is not necessarily an apples-to-apples comparison. The raw amount of total tax dollars collected might give a more complete basis for comparison, and looking at that total, the systemic corporate tax dodge that is the Tax Cuts and Jobs Act can clearly be seen as coming at the expense of all the rest of us (actual people).
The Office of Management and Budget publishes an annual summary of federal government receipts by source going all the way back to 1934. For 2018, the federal government took in a total of $204.733 billion in income taxes from corporations — no small sum. Yet, it pales in comparison to the amount of income taxes collected from flesh-and-blood human beings: $1,683.538 billion. In 2018, you and I and all of our friends and relatives collectively paid more than eight times the total U.S. income tax paid by all the Targets and Walmarts and Raytheons of the world.
The year before Trump’s tax law went into effect, we humans paid a lot less, while corporations paid a lot more. In 2017, human beings paid $1,587.12 billion in income tax. Corporations paid $297.048 billion. We bloodbags still paid a lot more than the moneymaking business entities, but it was only about five times more instead of the eight times more we are now paying.
The total amount of income tax paid, by corporations and by people, has fluctuated over the years. In modern times, corporations have always paid a bit less overall than what is paid by actual people. You have to go back to 1943, when people paid $6.505 billion in income taxes and corporations paid $9.557 billion, to find a year when business entities with a core function of making money paid more income tax than biological entities with a core function of staying alive. So, I guess we’ve more or less settled on the status quo being that corporations contribute somewhat less than people to income tax receipts.
But it sure seems like corporations should be footing a little more than an eighth of what we’re all paying. And anyone who says Trump’s Tax Cuts and Jobs Act was anything more than a corporate giveaway at the expense of human taxpayers hasn’t spent the time that I have going through OMB spreadsheets.
Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
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