Corporate America and Tax Fairness - How to Play the Game

With the Trump Administration "adjusting" America's corporate tax regime in favour of the corporate sector, a study by Americans For Tax Fairness and the Economic Policy Institute shows us how Corporate America plays the U.S. tax system to its benefit.

As we are all aware, the current, pre-Trump statutory tax rate on corporate income is 35 percent, among the highest in the world and well above the worldwide weighted average and average rates as shown here:

By way of comparison, here are the 20 nations with the lowest statutory corporate tax rates:

..and here are the nations with no corporate tax whatsoever:

This gives us some sense of why Corporate America has consistently whined about the high headline/statutory corporate tax rate in the United States.

The study of corporate taxes by Americans For Tax Fairness found the following:

1.) Corporate profits in 1952 were 5.5 percent of GDP and corporate taxes were 5.9 percent of GDP.  Today corporate profits are 8.5 percent of the economy and corporate taxes are just 1.9 percent of GDP as shown on this graphic:

That works out to a 55 percent increase in corporate net income and a 68 percent decrease in corporate tax revenue.

2.) In the past, corporations contributed $1 out of every $3 or 32.3 percent of federal revenue.  Today that has dropped to $1 out of every $9 or 10.8 percent of federal tax revenue despite the rise in profitability as shown on this graphic:

3.) Even when the statutory/headline corporate tax rate was 35 percent, the effective rate that corporations paid on both domestic and overseas profits was far lower as shown on this graphic:

Over the period from 2010 to 2013, according to data from Gabriel Zucman, the effective U.S. corporate tax rate (i.e. what Corporate America actually paid in taxes) was 12.5 percent, down from 43 percent in the 1950s.  When we look at the corporate tax rate on tax-haven profits, this is what we find:

Obviously, it is extremely beneficial for companies to avail themselves of corporate tax havens.

4.) Over the decades since the early 1980s, the share of U.S. offshore corporate profits that are being held in tax havens such as Ireland, Singapore, Bermuda and the Caribbean, Luxembourg and the Netherlands has risen from 23 percent in 1982 to 55 percent in 2013.  The share of untaxed offshore profits has also risen substantially as both a share of GDP and in nominal terms as shown here:

In 2004, Congress enacted a one-time profit repatriation tax holiday which allowed Corporate America to repatriate its overseas profits and pay only 5.25 percent in taxes.  It is estimated that up to 92 percent of these repatriated profits went to benefit shareholders and, in particular, executives, through stock repurchases.

5.) The $2.4 trillion in offshore profits are held primarily by information technology and health care sector companies as follows:

Information Technology - 29 percent of the total

Health Care - 20 percent of the total

Industrial - 13 percent of the total

Consumer Staples - 11 percent of the total

Financial - 10 percent of the total

Energy - 7 percent of the total

Consumer Discretionary - 6 percent of the total

Material - 4 percent of the total

Companies that have proprietary technology/products are the ones that benefit the most from the ability to shelter profits overseas. 

A total of four companies held 25 percent of the $2.4 trillion in untaxed offshore profits; Apple, Pfizer, Microsoft and General Electric.  A total of fifty companies hold 77 percent of the untaxed offshore profits.  In total, using the statutory tax rate of 35 percent, these companies would owe up to $695 billion in U.S. taxes on the $2.4 trillion in offshore profits.

With Corporate America paying an increasingly small portion of U.S. tax revenue when compared to what Main Street America is remitting to Washington as shown here:

...it appears that the Trump Administration's corporate tax "readjustments" are playing right into the hands of the corporate sector.  But then again, why should we be surprised given the Administration's close connections to Big Corporate America?