Amazon made $10.8 billion last year and did not pay a penny in corporate income tax. In fact, it claimed a federal income tax rebate of $129 million. It’s not alone. Sixty profitable Fortune 500 companies avoided all federal income taxes by taking advantage of lax provisions in the 2017 Tax Cuts and Jobs Act. Cutting the basic corporate tax rate, which Republicans pushed down to 21 percent in 2017, is one thing. But the accompanying generous tax breaks went too far. Profitable companies should pay their fair share of taxes.
Beyond Amazon, here are some examples from the study by the Institute on Taxation and Economic Policy, a left-leaning think tank. They are jaw-dropping:
• IBM earned $500 million in U.S. income but instead of paying income tax got a rebate of $342 million.
• General Motors earned $4.3 billion and got a rebate of $104 million.
• John Deere earned $2.15 billion and got a rebate of $268 million.
• Duke Energy earned $3 billion and got a rebate of $647 million, including $129 million in renewable energy production tax credits. In Duke’s case, its subsidiary, Duke Energy Florida, is agreeing to use tax savings to cover $705 million in expenses from Hurricanes Irma, Michael and Nate and to replenish its hurricane reserves, according to filings with Florida agencies. Those costs could have been passed along to customers in higher rates.
It is not news that companies have been able to avoid corporate taxes. But, according to the think tank’s report, provisions of the Trump tax bill basically doubled the number of Fortune 500 companies that paid nothing. The think tank calculates that 60 of America’s biggest corporations earned $79 billion in U.S. pretax income and would have paid $16.4 billion in taxes at the 21 percent corporate tax rate. Instead, they paid nothing. And — wait for it — they actually got an aggregate rebate of $4.3 billion.
There are an array of breaks available. One that dramatically reduces their tax rates is “accelerated depreciation,” a tax break that allows companies to write off the cost of capital investments much faster than these investments wear out. The idea is to stimulate investment, but while those results are mixed, the blow to federal tax coffers is clear. There are other tax breaks related to stock options, fossil fuel tax subsidies and investment tax credits.
Whether it was smart tax policy to lower the overall corporate tax rate can be argued either way. But it’s clear the other tax breaks are too generous and too broad. Congress needs to weigh the advantages of tax breaks for useful, legitimate policy ends — such as encouraging alternative energy sources — against the loss in much-needed tax revenue. Tax policy should encourage wise investment such as green energy and discourage bad investment. But in the end, any profitable company should pay a fair share and not be able to avoid income tax altogether.