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Federal tax laws allowed DISH Network to claim tax liability of less than $0 for 2018 through 2020, even though the company reported profits in each of those years that added up to $6.6 billion.
American corporations have been subject to the Trump tax law for three full years, 2018 through 2020, and the numbers are in. While proponents tout the law as genuine tax reform, the data show that our system for taxing corporate profits does not function. As lawmakers explore how to pay for trillions of dollars in investments in a forthcoming reconciliation package, part of the answer is for Congress to shut down the special breaks and loopholes that allow corporations to so easily avoid taxes.
According to publicly available information, 39 corporations belonging to either the S&P 500 or the Fortune 500 told investors in their earnings statements that they were profitable each year from 2018 through 2020. But they also reported that they paid no federal income taxes over that period.
Some paid federal income taxes in one or two of these years, but their income tax liability over the entire three-year period was $0—or negative, meaning they received a refund from the IRS.
For example, DISH Network paid $44 million in 2018 and $173 million in 2019. But in 2020, it reported a tax liability of negative $231 million, meaning the IRS paid the company a refund of $231 million for taxes it had paid in previous years. Since that refund was bigger than what DISH paid in the other two years, the company’s total tax liability for 2018 through 2020 was less than zero. Federal tax laws allowed this even though DISH reported profits in each of those years that added up to $6.6 billion.
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Of the 39 corporations, T-Mobile reported the largest profits while still avoiding paying taxes. It reported profits of $11.5 billion from 2018 through 2020, with a tax liability of negative $80 million, meaning it received refunds of $80 million from the IRS for that three-year period.
These figures come out of the filings that publicly traded corporations submit annually to the Securities and Exchange Commission (SEC). In April, we used the information from these public filings to identify 55 corporations that were profitable in 2020 but paid no federal income taxes for that year. President Biden has rightfully cited this finding as a reason to reform our corporate tax laws to raise revenue.
After we published that study, some argued that many companies that paid nothing in 2020 would eventually pay some taxes if they are truly profitable over time. But our new research demonstrates that 39 corporations paid nothing over a three-year period despite reporting profits in each of those three years.
And that’s not all. Many corporations that did pay some taxes from 2018 through 2020 contributed very little to the Treasury relative to their enormous profits. Our analysis of corporate filings finds that 73 corporations were profitable in each of those years, yet paid an effective rate that was less than half the statutory corporate tax rate of 21 percent established under the Trump tax law.
For example, Amazon reported profits of $43.4 billion from 2018 through 2020 and paid an effective federal tax rate of just 4.3 percent, meaning it paid only 4.3 percent of those prodigious profits in federal corporate income taxes during that time.
Besides Amazon, many other household names like Bank of America, Deere, Domino’s Pizza, Etsy, General Motors, Honeywell, Molson Coors, Motorola, Netflix, Nike, Verizon, Walt Disney, Whirlpool, and Xerox all paid effective federal income tax rates in the single digits.
Most Americans would say something is wrong if the corporate tax rate is 21 percent but profitable corporations like Amazon and Bank of America only pay around 4 percent of their profits in federal income taxes. But that is exactly what has happened since the law went into effect, because it indulged all sorts of corporate tax avoidance strategies to minimize payments to the IRS.
Fortunately, there are many solutions before Congress. Some of President Biden’s proposals would shut down the breaks and loopholes that reward companies when they use convoluted accounting gimmicks to claim that their profits are earned in tax havens like Bermuda, the Cayman Islands, and Ireland. These proposals would be effective on their own and would be even stronger if the developing international agreement to set corporate tax rates no lower than 15 percent goes into effect.
Another proposal from the Biden administration would raise revenue by reversing years of cuts in the IRS’s budget for tax enforcement. Many of the tax avoidance strategies used by corporations are clearly legal uses of provisions enacted by Congress, but some fall into a legal gray area and might be blocked by an IRS that has the resources to pursue corporate tax dodging in a serious way.
The Biden administration also proposes a fallback provision to impose a minimum tax on corporations, ensuring that they pay at least 15 percent of the profits they tell shareholders they earn all over the globe. This is probably very consistent with how most Americans think our tax system should work. If fairness means anything, it must mean that corporations reporting enormous profits to investors should pay their share to support the society that makes those profits possible. The Biden plan would surely take an important step toward that goal.
