Some of the US’s most profitable corporations, including General Motors, Citigroup and Netflix, have slashed their tax bills in the years since the passage of the Trump tax cuts, with nearly a quarter paying rates in the single digits and 23 paying nothing, a report has found.
The 2017 law cut the top corporate income tax rate from 35% to 21%. But the new assessment of corporate tax avoidance, published on Thursday by the non-profit Institute on Taxation and Economic Policy (Itep), found that during the first five years the law was in effect, many profitable public companies in the US paid a far lower rate in practice.
Together, the 342 corporations studied by Itep paid an average effective tax rate of just 14.1%. Eighty-seven companies paid an average of less than 10%; 55 of those firms paid less than 5%; and 23 corporations, including T-Mobile US and Xcel Energy, paid zero (or less) federal income tax over the five-year period – even though they made a profit each year.
Among the lowest taxpayers were companies including Netflix and Nike, as well as several corporations whose CEOs have become high-profile advocates for corporate social responsibility and “stakeholder capitalism”, such as Salesforce and Bank of America.
In the five years since the Trump tax law took effect, “the biggest and most profitable companies don’t appear to be paying anywhere close to that 21% rate”, said Matt Gardner, a senior fellow at Itep and the lead author of the report. “What Trump described as a big tax cut turned out to be just that.”
Between 2018 and 2022, Bank of America brought home more than $138bn in profits, yet the company paid only $5.3bn in federal income tax – an effective rate of 3.8%, Itep found.
Bank of America was recently named the second most “just” company in the United States by Just Capital, a non-profit that ranks US corporations by how well they “perform[] on the issues that matter”, like serving their communities. Fortune magazine has called the Bank of America CEO, Brian Moynihan, “the king of stakeholder capitalism”, a term that describes the notion that corporations today are taking care of not just their executives and shareholders but all of society.
In 2020, Marc Benioff, the co-founder and CEO of Salesforce, declared to the New York Times that “it’s time for a new kind of capitalism: stakeholder capitalism, which recognizes that our companies have a responsibility to all our stakeholders”.
During the first five years of the Trump law, however, Salesforce paid only $175m in taxes on some $6bn in profits, according to the Itep report.
“There appears to be a substantial overlap between the companies that are routinely avoiding corporate income taxes and the companies whose leaders seem to have laudable charitable aims,” Gardner said. “No one would doubt that Marc Benioff wants to do good things in the world. He just doesn’t seem to prioritize doing it in the way that the law says he should. He wants to do it his way.”
The Itep report makes clear that the companies listed in the report aren’t breaking the law. “Tax avoidance occurs because Congress chooses to allow it,” the report notes, “either by enacting special exceptions and breaks from the regular tax rules, or by leaving in place loopholes that are clearly being exploited.”
Congress is currently considering additional exceptions that could help corporations lower their 2022 tax bills even further, the report warns.
A bipartisan tax package that recently passed the House of Representatives, for which corporate interests have been lobbying aggressively for months, includes a tax break that would allow businesses to immediately deduct the costs of “research and development” conducted in the United States.
The Trump tax law requires firms to spread out the deductions over time, rather than claiming them all at once, starting in 2022.
But the tax deal currently moving through Congress would roll back that limitation for domestic investments – and do so retroactively. That means companies could update their 2022 (and 2023) tax filings to claim billions of dollars in new deductions, ostensibly to reward them for investing in research and development – even though the only thing that would have changed is the text of the tax code.
“By definition, extending them backwards in time … can’t encourage a dime of additional research,” Gardner said.
While limited corporate disclosures make it difficult to say precisely how much money companies could claw back, the available data suggests that this single, retroactive policy tweak could potentially save some firms billions of dollars – and that the benefits “would be hugely concentrated in the hands of a very small number of corporations”, Gardner said.
Meta, for instance, might be able to shave its tax bill by nearly $6.5bn, the report found, which would bring its average effective tax rate below 0% over the five-year period of the study. Microsoft could potentially save a similar sum.
“I always go back to that social contract of our company with the world around us,” Satya Nadella, the CEO of Microsoft, told Just Capital in 2020. “You can’t exist if all you’re doing is benefiting yourself … Profit [comes] because of the larger surplus you’re creating around you.”
“The whole point of having a tax system is to pay for all the important services that we need,” Gardner said. “Healthcare isn’t sexy, right? Education isn’t sexy. Making sure that we have the money we need to defend ourselves as a nation isn’t sexy. But these basic bread-and-butter needs are why we have a tax system.”
