At least 60 companies reported that their 2018 federal tax rates amounted to effectively zero, or even less than zero, on income earned on U.S. operations, according to a new analysis released this month by the Washington, D.C.-based think tank, the Institute on Taxation and Economic Policy (ITEP). The number is more than twice as many as ITEP found roughly, per year, on average in an earlier, multi-year analysis — a partial result of the 2017 Trump tax law going into effect.
For decades, profitable Fortune 500 companies have manipulated the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits. The ITEP report presents the first comprehensive study at how corporate tax changes under the GOP’s controversial 2017 Tax Cuts and Jobs Act (called the “Cut Cut Cut Act” by President Donald Trump) affect the scale of corporate tax avoidance. The list was compiled from ITEP’s analysis of the 2018 financial filings of the country’s 560 largest publicly-held companies.
The report determined that in 2018, 60 of America’s largest, most highly profitable corporations reported federal tax rates amounting to effectively zero, or even less than zero, on $79 billion in collective U.S. pretax income. Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate (which was drastically reduced from 35 percent by the 2017 tax bill), these companies enjoyed a net corporate tax rebate of $4.3 billion, blowing a $20.7 billion hole in last year’s federal budget.
Among the big winners are household names like technology and retail behemoth Amazon.com Inc. — who reported almost $11 billion of U.S. income and claimed a federal income tax rebate of $129 million, video streaming service Netflix Inc. (who just raised their monthly membership rates by $1 to $2) — who paid no federal income tax on $856 million of U.S. income, Delta Air Lines — who brought in just over $5 billion and received a net refund of $187 million, computer maker International Business Machines (IBM) — who earned $500 million in U.S. income and received a federal income tax rebate of $342 million, beer maker Molson Coors — who enjoyed $1.3 billion of U.S. income and received a federal income tax rebate of $22.9 million, and automaker General Motors (GM) — who reported a negative tax rate of -2%, receiving a $104 million rebate on $4.3 billion of income.
The following is a partial list of the country’s largest publicly-held profitable corporations that paid no federal income taxes in 2018 on billions in U.S. income, according to ITEP analysis of 560 companies. ITEP reports U.S. income before federal taxes, and takes into consideration paid state and local taxes, which could reduce or increase U.S. income. The report does not look at total tax provision, a number that could include foreign taxes and deferred taxes.
All figures, except for tax rate, are in millions.
| Company | U.S. Income | Federal Tax | Effective Tax Rate |
|---|---|---|---|
| Amazon.com | $10,835 | –129 | –1% |
| Delta Air Lines | $5,073 | –187 | –4% |
| Chevron | $4,547 | –181 | –4% |
| General Motors | $4,320 | –104 | –2% |
| EOG Resources | $4,067 | –304 | –7% |
| Occidental Petroleum | $3,379 | –23 | –1% |
| Honeywell International | $2,830 | –21 | –1% |
| Deere | $2,152 | –268 | –12% |
| American Electric Power | $1,943 | –32 | –2% |
| Principal Financial | $1,641 | –49 | –3% |
| FirstEnergy | $1,495 | –16 | –1% |
| Prudential Financial | $1,440 | –346 | –24% |
| Xcel Energy | $1,434 | –34 | –2% |
| Devon Energy | $1,297 | –14 | –1% |
| DTE Energy | $1,215 | –17 | –1% |
| Halliburton | $1,082 | –19 | –2% |
| Netflix | $856 | –22 | –3% |
| Whirlpool | $717 | –70 | –10% |
| Eli Lilly | $598 | –54 | –9% |
| IBM | $500 | –342 | –68% |
| Goodyear Tire & Rubber | $440 | –15 | –3% |
| Penske Automotive Group | $393 | –16 | –4% |
| Aramark | $315 | –48 | –15% |
| AECOM Technology | $238 | –122 | –51% |
| Tech Data | $203 | –10 | –5% |
| Performance Food Group | $192 | –9 | –4% |
| Arrow Electronics | $167 | –12 | –7% |
| *Source: Institute on Taxation and Economic Policy | |||
The Tax Cuts and Jobs Act, signed by President Donald Trump in December 2017, lowered the corporate tax rate to 21 percent from 35 percent, among other cuts. That’s partly to blame for giving corporations an easier way out of paying taxes, said Matthew Gardner, an ITEP senior fellow and lead author of the report. The new corporate tax rate “lowers the bar for the amount of tax avoidance it takes to get you down to zero,” he said.
“The specter of big corporations avoiding all income taxes on billions in profits sends a strong and corrosive signal to Americans: that the tax system is stacked against them, in favor of corporations and the wealthiest Americans,” Gardner wrote in the report.
Trump’s tax act slashed the corporate tax rate and eliminated and tightened certain deductions, while providing other new tax breaks to companies. The cut in the corporate tax rate alone will save corporations $1.35 trillion over the next 10 years, according to the Joint Committee on Taxation, which reports to the Senate and House finance and budget committees.
In 2027, the tax act’s final year, 53.4 percent of all Americans would actually pay more in taxes under the GOP policy, according to an analysis by the Tax Policy Center. The study determined that 82.8 percent of the law’s benefits went exclusively to the top 1 percent, who received an average cut of $20,660. The top 0.1 percent, the highest pinnacle of wealth earning $5.1 million or more a year, garnered $148,260 back on average, thanks to the GOP bill.
Even in the first years of the law’s implementation, when there is an across-the-board tax cut, the benefits of the law were heavily concentrated among the upper tier of Americans, with nearly two-thirds of all benefits bestowed upon the richest fifth of Americans in 2018.
Though the TPC paper is the first rigorous analysis of winners and losers under the 2017 tax act, the analysis neglected to factor in an additional cost of the legislation: its repeal of the individual mandate, which the Congressional Budget Office estimates could cause as many as 13 million Americans to lose their health insurance, reducing federal spending for poor and middle-class Americans’ health insurance by $338 billion over 10 years. That worsens the bill’s distribution for the poor and middle class.
Almost all provision of the bill, with the exception of the reduction in the corporate tax rate from 35 percent to 21 percent, are temporary, expiring at the end of 2025. One exception is the adoption of a new slower-growing inflation measure to adjust tax brackets, a change that effectively raises taxes over time and helps pay for the permanent corporate rate cut. Since corporate rate cuts mostly help Americans rich enough to own stock, that means that in 2027, poor and middle-class Americans would see a very mild tax increase on average.
The United States theoretically had one of the highest corporate tax rates in the world, though many firms have managed to work out an effective rate that was much lower. Previous administrations, including President Barack Obama’s, had sought to modestly cut the corporate tax rate, claiming it would make US businesses more globally competitive. After taking office in January 2017, Trump and the Republican-controlled Congress quickly enacted one of the most sweeping tax bills in decades — an overhaul that is estimated to raise the federal deficit to $900 billion this year, and more than $1 trillion, starting in 2022, according to the Congressional Budget Office (CBO), a nonpartisan legislative agency.
Corporations generally don’t get “refund” checks as individuals do for overpaying the IRS. Instead, corporations calculate how much in taxes they owe by rolling up various deductions and tax credits that then lower the tax bill until, in many cases, they owe nothing in taxes or accrue a deficit, referred to as a rebate, which they use to offset taxes in the future.
Robert Willens, an independent tax advisor who teaches corporate tax courses at Columbia Business School, said corporations have typically sought to obtain a refund on taxes paid in preceding years when they generated net operating losses in those years. The new tax law eliminated that ability to carry back those net operating losses, but it allowed companies to carry the losses forward indefinitely, he said. Willens said he expects to see fewer refunds than in the past since net operating losses were the principal source.
“However, if a corporation files an amended tax return, because it now decides that it paid too much in taxes in a prior year based on its revised treatment of an item of income or expense, it can certainly get a refund of all or a portion of the taxes paid in the earlier year,” Willens said.
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