A recent study by the Institute on Taxation and Economic Policy (ITEP) has unveiled that numerous large, profitable U.S. companies have substantially reduced their federal tax bills, leveraging the provisions of the 2017 Trump-GOP tax law. This legislation, which cut the corporate tax rate from 35% to 21%, has been under scrutiny for enabling lucrative loopholes that major corporations have exploited.
The 2017 Tax Law: A Catalyst for Corporate Tax Avoidance
The Tax Cuts and Jobs Act, hailed by its proponents for spurring economic growth, has faced criticism for diminishing corporate contributions to public investments. “When President [Donald] Trump and congressional Republicans slashed the statutory corporate income tax rate… their goal was to allow corporations to contribute less to the public investments and the society that makes their profits possible,” the ITEP report elucidates.
The study focused on 342 profitable companies over the first five years since the law’s enactment, revealing that 23 of these companies paid no federal taxes during this period. Notably, Kinder Morgan, NRG Energy, and T-Mobile were among those with a 0% or negative effective tax rate. The analysis further disclosed that nearly a quarter of the examined companies, including giants like Netflix, Nike, and Citigroup, paid taxes at single-digit rates or less.
The utilities sector, followed by oil, gas, and pipelines, motor vehicles, and telecommunications, benefited from the lowest effective tax rates. This sector-specific advantage underscores the uneven impact of the tax law across different industries.
The ITEP study highlighted the substantial subsidies these companies received, totaling $276 billion over five years, with Bank of America enjoying the largest tax break of $23.89 billion. “For many of the biggest corporations in America, our 21% tax rate is an accounting fiction,” stated Matt Gardner, ITEP senior fellow and lead author of the study.
While corporate tax avoidance is not a new phenomenon, the ITEP report argues that the 2017 law exacerbated the issue. It advocates for policy reforms, including the implementation of a global minimum tax to prevent profit-shifting and ensure that multinational companies pay their fair share.
Tax experts and policymakers have weighed in on the study’s implications, emphasizing the need for a more equitable tax system. “Corporate tax avoidance occurs because Congress allows it to occur, and the Trump tax law made it worse,” the ITEP analysis asserts, calling for legislative action to curb these practices.
As the Biden administration pushes for a global minimum tax, the divided U.S. Congress poses a challenge to advancing these critical reforms. The ITEP report’s findings underscore the urgent need for a comprehensive overhaul of corporate tax policies to ensure fairness and transparency in the tax system.
The ITEP study sheds light on the pervasive issue of corporate tax avoidance in the wake of the 2017 Trump-GOP tax law, highlighting the substantial tax breaks enjoyed by profitable corporations at the expense of public investments. The report serves as a clarion call for policymakers to address these loopholes and work towards a tax system that equitably distributes the fiscal responsibility among corporations.
“Americans… may be alarmed to hear that so many corporations pay much less than [the 21% corporate income tax rate] in reality,” remarked Steve Wamhoff, ITEP’s federal policy director and report co-author, emphasizing the disconnect between statutory and effective corporate tax rates. The ongoing debate over corporate tax reform continues to unfold, with the ITEP study providing critical data to inform this crucial policy discourse.
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