Don't Mess With Taxes

Photo by Adeolu Eletu on Unsplash

The main goal of the Republican tax reform bill in 2017 was to lower the corporate tax rate. It did that, cutting it from 35 percent to 21 percent and making it permanent.

For anyone not fluent in Congressional legislative language, that means that, unlike the many individual tax breaks in the Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025, there’s no sunset on the lower corporate tax rate.

That’s put much of the tax focus, especially on Capitol Hill, on those expiring provisions. But the corporate tax rate has come up on the presidential campaign trail.

The GOP nominee Donald J. Trump wants to lower the corporate tax rate from 21 percent to 15 percent, but only for companies that manufacture products in the United States. He says that will spur domestic manufacturing.

Vice President Kamala Harris, the Democrats’ choice to keep the Oval Office, wants to roll back the TCJA corporate tax to the prior 28 percent rate. Harris wants to use the additional business tax money to fund expanding the child tax credit and easing the cost of personal housing and medical debt.

And some member of Congress also are directly questioning major companies that paid their top executives more than the businesses paid in tax.

Corporate tax breaks’ individual effects: While the differences in the TCJA provisions generally are categorized as tax breaks for big business versus benefits for individual taxpayers, the Institute on Taxation and Economic Policy, a tax policy nonprofit based in Washington, D.C., says things are that clear cut.

“It’s worth remembering that corporate tax cuts and breaks heavily benefit the wealthiest Americans, who are disproportionately white: aside from the sizable benefits that flow to foreign investors, 84% of the benefits go to the richest 20% of households,” according to an item in ITEP’s weekly Data Driven newsletter.

A report by the nonpartisan but more progressive group elaborates. The ultimate beneficiaries of lower corporate taxes are mainly the owners of stocks, who are concentrated among the wealthiest households, according to ITEP's analysis.

“Aside from the benefits that flow to foreign investors, 29 percent of the benefits flows to the richest 1 percent of households in the U.S. and another 29 percent flows to the next richest 4 percent. In all, 84 percent of the benefits from corporate tax breaks go to the richest 20 percent of households,” says ITEP.

CEO pay focus: Sixteen Capitol Hill lawmakers — 5 Democrats and an Independent in the Senate and 10 Democrats in the House — have taken the individual/corporate tax connection a step further.

The Senators and Representatives on Sept. 23 sent letters to 35 companies that have in recent years paid their chief executives more than the corporations paid in taxes.

The list includes high-profile firms such as Netflix, Ford, T-Mobile, U.S. Steel, and Tesla, whose CEO Elon Musk is the richest man in the world.

The letters were tailored for each company, but they all contained this TCJA notation: “The windfall from TCJA to big businesses, executives, and wealthy shareholders is unmistakable,” and cited, among other data, the ITEP study.

Each letter also tells recipients —

“For decades, big businesses and the wealthy have skirted their responsibility to pay federal income taxes, leaving hardworking Americans to foot the bill. Corporate profits have hit record highs and nearly doubled as a share of the economy since the 1950s, while corporate federal income taxes as a share of GDP have shrunk by fifty percent. The latest giveaway was the $2 trillion Tax Cuts and Jobs Act (TCJA) passed by Republicans and signed by President Trump in 2017, handing corporations a $1.3 trillion tax cut by slashing the corporate income tax rate from 35 to 21 percent, with more loopholes to help them avoid paying even that.”

The impetus for the letter-writing campaign, which was led by Sens. Elizabeth Warren (D-Massachusetts) and Sheldon Whitehouse (D-Rhode Island), and Rep. Greg Casar (D-Texas), was a March study from the Institute for Policy Studies and Americans for Tax Fairness.

The report, “More for them, less for us: Corporations that pay their executives more than uncle Sam,” analyzed executive pay data and found 64 companies paid more to their top five executives than they did in federal taxes in at least two out of those five years. For more than half (35) of these corporations, the payouts to top brass over that entire span exceeded their net tax payments.

In the letter to Musk, the members of Congress wrote:

Tesla is among the most dramatic examples of this phenomenon - big, profitable corporations that have actually been paying their top executives more than they pay the government in federal income taxes. According to an analysis by the Institute for Policy Studies and Americans for Tax Fairness, in the period between 2018 and 2022, Tesla raked in $4.4 billion in profits and did not pay a single dollar in federal income tax. During the same time period, you, as Tesla’s CEO saw a substantial increase to your personal fortune, becoming one of the richest men in the world. In 2018 alone, you received a “performance award” valued at $2.28 billion - the largest pay package ever recorded for a company’s CEO.

Each letter concluded with three questions the Senators and Representatives asked the CEOs to answer by Oct. 8, 2024. They were:

1. How much did the corporation pay in federal tax in each of 2018, 2019, 2020, 2021, 2022, and 2023?
2.  How much would the corporation have paid in each of these years if the provisions of the Tax Cuts and Jobs Act had not been in effect?
3. How much is the corporation spending on lobbying efforts relating to renewing, amending, or maintaining the Tax Cuts and Jobs Act?

You can check out all the individual letters for company specifics. The Institute for Policy Studies and Americans for Tax Fairness report includes two tables (on pages 24 and 25) that show the 35 companies’ domestic pre-tax profits, federal taxes paid (or refunded), effective tax rates, and executive pay.

If the lawmakers hear back from the CEOs, or, more likely, don’t get responses, I’m sure the members of Congress will let us know.

You also might find these items of interest:

• Senate blocks bipartisan tax bill, dooming (for now) popular tax breaks
• House GOP Tax Teams seek public input on expiring tax reform provisions
• ERC denial letters arriving as senators seek to expedite or eliminate the business tax credit

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