President Trump, Treasury Secretary Steven Mnuchin and congressional Republicans are eager to cut the 35 percent tax on corporate profits, which is among the highest in the world. Trump, Mnuchin and congressional Republicans have also shown interest in corporate tax reforms that establish a simpler tax code that promotes growth and is far more difficult for corporations to game. Such reforms should go hand in hand with any tax cut.
A new study by the Institute on Taxation and Economic Policy, based on the regulatory filings of 258 U.S. Fortune 500 companies, illustrates how the 35 percent tax rate is nominal, not an actual onerous burden, in many industries. The actual rate paid by the companies was 21.2 percent. One hundred of the firms had at least one year from 2008 to 2015 in which they paid no taxes at all. Over that entire span, 18 companies, including General Electric, Sempra and PG&E, actually got money back from the federal government. In only two sectors – health care and retail – was it normal for effective corporate taxes to be higher than 30 percent.
Meanwhile, at least $2 trillion in overseas corporate profits are kept in foreign accounts because tax law allows U.S. companies to avoid paying taxes until the money is in U.S. accounts. Republicans have talked about putting a one-time 8 percent or 10 percent fee on these dollars to get them back flowing in the U.S. economy along with rule changes to prevent such further gamesmanship. Ending this trick and other tax-avoidance ploys should be a priority for a president who wants to “drain the swamp.”
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