About 400 of America’s largest corporations paid an average federal tax rate of about 11 percent on their profits last year, about half the official rate established under President Donald Trump’s tax law of 2017, according to a report released Monday.
The 2017 GOP tax law lowered the U.S. corporate tax rate to 21 percent from 35 percent, but in practice large companies often pay far less than that due to deductions, tax breaks and other loopholes.
In the first year Trump’s tax law was in effect, the actual amount corporations paid in federal taxes on their incomes — their so-called effective rate — was an average of 11.3 percent, likely its lowest level in more than three decades, according to a report by the Institute of Taxation and Economic Policy, a left-leaning think tank.
From 2008 to 2015, under the previous tax code, corporations paid on average an effective rate of about 21 percent, according to ITEP’s prior research.
The report also found that 91 corporations in the Fortune 500, many worth billions of dollars, paid no federal taxes at all last year.
“When drafting the tax law, lawmakers could have eliminated special breaks and loopholes in the corporate tax to offset the cost of reducing the statutory rate,” the report says. “Instead, the new law introduced many new breaks and loopholes, though it eliminated some old ones.”
ITEP looked at the 379 companies in the Fortune 500 that were profitable in 2018 and provided enough information to calculate their tax rates. Researchers excluded taxes incurred by corporations under a one-time “repatriation tax” on money they brought back from overseas due to the tax law, according to Matt Gardner, an analyst at ITEP.
The findings come amid an explosion in the federal deficit, which this year rose to close to $1 trillion. In October, the U.S. Treasury Department announced the deficit had grown $205 billion, or 26 percent, in the past year, an unusual occurrence during a period of strong economic growth.
The 11.3 percent statistic amounts to the lowest effective corporate tax rate ITEP has found since it started evaluating this data in 1984.
Globally, countries have struggled to tax corporations as multinational firms have grown increasingly effective at shifting their profits to foreign tax havens. A 2018 study found that in the past three decades, the average corporate tax rate globally plummeted from about 49 percent in 1985 to 24 percent in 2018.
The result is nations worldwide have lowered their official tax rates to try to remain competitive internationally. In the United States, corporate taxes have plunged dramatically as a share of the federal budget, from more than 4 percent to around 1 percent, putting strain on other sources of revenue.
ITEP’s report calls for several measures to ensure against corporations from paying such low effective tax rates, including a new minimum tax on all corporations “to act as a backstop” on their federal bills. The report also calls for limiting the ability of tech and other companies to classify executive stock options as “costs” that allow them to reduce their taxes.