Friends, But, but something is
wrong. The Supreme Court said corporations are people. So why do
only real people have to pay taxes? Kagiso, Max
Published
on Portside (https://portside.org/)
You Paid Taxes. These Corporations Didn’t.
Kathryn
Kranhold
April
11, 2019
The
Center for Public Integrity
About
twice as many of the largest U.S. companies reported they didn’t owe taxes in
2018 compared with previous years, a partial result of the 2017 Trump tax law,
according to a report.
This
story was published in partnership with NBC News.
INTRODUCTION
Taxpayers
are scrambling to make last-minute payments due to the Internal Revenue Service
in just four days, but many of the country’s largest publicly-held corporations
are doing better: They’ve reported they owe absolutely nothing on the billions
of dollars in profits they earned last year.
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 an analysis released today by the Washington, D.C.-based think
tank, the Institute on Taxation and Economic Policy. The number is more than
twice as many as ITEP found roughly, per year, on average in an
earlier, multi-year analysis before the new tax law went into effect.
Among
them are household names like technology giant Amazon.com Inc. and
entertainment streaming service Netflix Inc., in addition to global oil giant
Chevron Corp., pharmaceutical manufacturer Eli Lilly & Co., and farming and
commercial equipment manufacturer Deere & Co.
The
identified companies were “able to zero out their federal income taxes on $79
billion in U.S. pretax income,” according to the ITEP report, which was
released today. “Instead of paying $16.4 billion in taxes, as the new 21
percent corporate tax rate requires, these companies enjoyed a net corporate
tax rebate of $4.3 billion, blowing a $20.7 billion hole in the federal budget
last year.” To compile the list, ITEP analyzed the 2018 financial filings of
the country’s largest 560 publicly-held companies.
The
following is a 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 controversial
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.
‘I DON’T SEE THAT
BEING FAIR’
The Moline,
Illinois-based Deere, which was started in 1837 by blacksmith John Deere, who
made farming plows, reported earning $2.15 billion in U.S. income before taxes.
It owed no U.S. taxes in 2018 and reported that it was owed $268 million from
the government, after taking into consideration various deductions and credits,
according to its annual filing with the Securities and Exchange Commission. The
company reported global profits of $2.37 billion.
Asked about the
rebate, Brian Moens, one longtime Deere employee, was contemplative. “Everyone
should pay their fair share whether it is an individual or a corporation,” he
said. “If just the small individuals are paying it without large corporations
doing their part, I don’t see that being fair.”
The blacksmith
John Deere set out in 1837 to make a plow that could break up the prairie soil
of Illinois. More than 180 years later, the Moline, Illinois-based Deere Co.,
which sells farming and commercial equipment worldwide, Deere had $2.15 billion
in U.S. income before taxes in 2018. Its federal tax bill: zero. Deere said the
U.S. government owed it $268 million in 2018. Charles & Hudson /
Creative Commons
Moens credits his
wife with getting their taxes filed early in February. They anticipated a
refund, like in past years, because they overpaid during the year. “It wasn’t
quite what Trump had said it was going to be,” said Moens, who assembles farm
planting tractors at the Moline factory. “It was less than what we had received
in previous years,” although nothing had changed.
Deere declined to
elaborate on its taxes. Spokesman Ken Golden said, “We do not provide comments
beyond what is contained in Deere & Company’s public filings as we believe
the public filings provide the necessary information when they are assessed in
their entirety.”
Trump’s tax cut
bill 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.
The United States
theoretically had one of the highest corporate tax rates in the world, though
many firms had an effective rate much lower. Previous administrations,
including President Barack Obama’s, had sought to modestly cut the corporate
tax rate to make it more 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, a nonpartisan
legislative agency.
Corporations
generally don’t get “refund” checks as individuals do for overpaying. 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, that
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 bill 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.
WE PAY ALL
REQUIRED TAXES
Studies show that
many corporations rarely paid the 35 percent rate under the old tax code. Over
the years, companies found many ways to cut their tax bills, from sheltering
foreign earnings in low-tax countries and banking credits for money spent on
research and development to deducting the expense of stock options for
executives.
Gardner said the
new tax law has left most of the old tax breaks intact while cutting the rate
by almost half, resulting in a “continued decline in our already low corporate
revenues.” Revenues from the corporate tax fell by 31 percent in 2018 to $204
billion from $297 billion. “This was a more precipitous decline than in any
year of normal economic growth in U.S. history,” he wrote.
Tax Foundation
chief economist Kyle Pomerleau said the U.S. corporate tax law was “in need of
reform.” He said the new law reduced the U.S. rate to discourage companies from
moving profits to countries with lower tax rates as well as allowing for
certain deductions that encourage more immediate investment in factories and
equipment.
Today’s ITEP
report is partly a follow-up to a multi-year analysis of profitable
U.S. corporations that showed many paid zero taxes. The institute reviewed the
financial filings of more than 600 corporations ranked on the Fortune 500 list
between the years 2008 and 2015. On average, about 30 companies each year
reported zero U.S. taxes or less. ITEP identified more than twice as many
companies claiming they owed no U.S. taxes in 2018.
“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.”
MATTHEW GARDNER,
ITEP SENIOR FELLOW AND LEAD AUTHOR OF THE REPORT
One new
significant provision expanded companies’ ability to write off certain
investments in equipment and factories as well as intellectual property,
allowing a full expensing or a 100 percent write off immediately. The rule is
in effect until 2022, but gradually phases out by the end of 2026.
Jeffrey Hoopes, an
accounting professor at the Kenan-Flagler Business School at the University of
North Carolina at Chapel Hill, said the government typically provides such tax
breaks during an economic recession “to get companies to invest more” — not
when the “economy is doing well.” The U.S. economy grew 2.9 percent in 2018, as
fast as or faster than any year since 2005.
Amazon reduced its
tax bill partly through accelerated depreciation deductions primarily on
equipment, according to its federal filing. In addition, Amazon stated that it
has tax benefits related to excess stock-based compensation. ITEP found that
Amazon reduced its tax bill by $1 billion through deductions for expenses
related to stock-based compensation, one common means for reducing tax bills.
The Seattle-based
retail and technology behemoth reported a federal tax rebate of $129 million on
$10.8 billion in U.S. income before taxes.
An Amazon
spokesman said the company “pays all the taxes we are required to pay in the
U.S. and every country where we operate.”
The spokesman said
Amazon has paid $2.6 billion in taxes over the last three years but declined to
specify whether those taxes were paid in the U.S. or overseas.
PROFITS: HALF A
BILLION. REFUND: $342M
Pharmaceutical and
technology companies have long been criticized for leaving profits overseas in
countries with little or no corporate taxes, or tax havens like the Cayman
Islands, Luxembourg and the Netherlands. The 2017 tax law looked to address
those issues by changing the way the profits from foreign subsidiaries are
taxed in the United States. As part of the shift to a new tax regime, U.S.
corporations were assessed a one-time tax on foreign profits; the tax can be
paid over eight years.
A number of
companies accounted for the foreign profits payment in 2017 and 2018, resulting
in significant tax bills.
Under the new law,
a company’s income is only taxed in the country in which it is earned.
The U.S. no longer taxes new foreign profits unless they reach a certain
threshold, at which point the income is taxed at 10.5 percent, half that of the
U.S. effective rate.
Take for example
the giant technology hardware and services company IBM Corp., which
consistently ranks among the biggest U.S. companies. The company had revenues
of $79.6 billion, more than 60 percent of which came from outside the United
States. To that end, IBM made a $2 billion tax payment on future foreign
profits in 2018, according to its financial filings. Tax advisor Willens noted
IBM elected to make the $2 billion tax payment on future overseas earnings in
2018 instead of down the road in the period it occurs as many companies will
do.
Meantime, in the
United States, IBM reported getting a federal refund of $342 million on its
U.S. income before taxes of $500 million, according to ITEP and the company’s
annual filing. That computes to an effective U.S. tax rate of negative 68
percent. Its worldwide profits were $8.7 billion – and its total tax provision
was $2.6 billion including the foreign tax payment.
IBM did not return
requests for comment. On a January conference call with investors, IBM Chief
Financial Officer Jim Kavanaugh said it anticipated “an all-in rate of at least
11 percent to 12 percent” in 2019, but he did not elaborate.
Certain tax rules
did not change under the 2017 law, such as the ability of companies to offset
taxes with business losses from previous years. Prior to filing for bankruptcy
in September 2005, Delta Airlines compiled massive losses that it carries
forward, allowing the company to forego paying taxes for years.
At the end of
2010, Delta had $17.1 billion of federal pre-tax net losses, according to its
financial filing; those offsets have dwindled over the years. ITEP states that
Delta also was among the companies that used accelerated depreciation
of presumably flight equipment to “dramatically reduce their tax
rates.” Delta had a rebate of $187 million on $5 billion in U.S. income before
federal taxes. Delta did not respond to requests for comment.
Delta’s tax-free
days may be coming to an end — soon. In a conference call with investors in
December, Delta Chief Financial Officer Paul Jacobson acknowledged that the
company may pay “cash taxes” as early as next year. Jacobson told investors the
new tax law will save the company $800 million a year at its current earnings
level. Will the 21 percent corporate rate help Delta? No — because the company
doesn’t need it. Jacobson estimates the company’s cash tax rate will be much
lower: between 10 to 13 percent.
Kathryn Kranhold
is currently working as part of the Center’s team writing about the economic
effects of the 2017 Tax Cuts and Jobs Act. Kranhold is a former staff reporter
for The Wall Street Journal and for The Hartford Courant. At
the Journal, Kranhold wrote about General Electric Co.’s far-ranging
global operations, and covered the legal system, including the anti-trust case
against auction houses Sotheby’s Holdings Inc. and Christie’s International
PLC. Kranhold was the paper’s leading public utilities reporter during the late
1990s, and part of the team covering California’s energy crisis and the rise
and fall of Enron. Kranhold spent 10 years at The Hartford Courant,
covering the court system and politics. Kranhold has also worked in
communications, advising universities, non-profits and corporations on
strategic issues.
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