Apr 02, 2021
For millions of ordinary people in the U.S., 2020 was a painful year in which loved ones and jobs were lost as a result of the Covid-19 pandemic and its devastating economic repercussions. But for many of the country's major corporations, last year was a lucrative one--particularly if they were among the 55 companies that paid $0 in federal income taxes on a combined $40.5 billion in profits, as a new study shows.
"We should be asking bigger questions about a tax system so flawed that it asks next to nothing of profitable corporations that derive great benefit from our economy."
--Matthew Gardner, ITEP
Released Friday, the report is based on the Institute on Taxation and Economic Policy's (ITEP) analysis of 2020 financial reports filed by the country's largest publicly traded corporations.
Instead of paying a collective $8.5 billion in federal income taxes on last year's profits of $40.5 billion, as mandated by the statutory 21% rate, the 55 companies exploited preexisting loopholes and pandemic-related tax breaks to reduce their tax bills to zero.
Not only did these corporations secure a zero-tax liability, they received a collective $3.5 billion in rebates, bringing the total amount of lost federal revenue to $12 billion. And 26 of them haven't paid a dime for the past three years, a time period in which the GOP's "morally and economically obscene" tax cuts for corporations and wealthy Americans have been in effect.
"We should continue to call on policymakers to address the gaping corporate tax loopholes that make this kind of tax avoidance possible," said Matthew Gardner, a senior fellow at ITEP and an author of the report.
"But in a pandemic year when so many small businesses shuttered and millions of people lost their economic livelihoods," he added, "we should be asking bigger questions about a tax system so flawed that it asks next to nothing of profitable corporations that derive great benefit from our economy--in good and bad economic times."
In the report, Gardner characterized the latest example of tax dodging by profitable companies as part of "a decades-long trend of corporate tax avoidance by the biggest U.S. corporations [that] appears to be the product of long-standing tax breaks preserved or expanded by the 2017 Tax Cuts and Jobs Act (TCJA) as well as the CARES Act tax breaks enacted in the spring of 2020."
The report includes a table listing the profits and effective tax rates of all 55 companies.
Some publicly traded corporations that paid $0 in federal income taxes in the most recent fiscal year, such as Zoom, are not included because they are not yet part of the S&P 500 or Fortune 500. But many of the companies--which represent a variety of industries, including technology, utilities, manufacturing, banking, agriculture, and others--are household names.
Some of the most well-known brands, according to ITEP's analysis, include the following:
- Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.
- The cable TV provider Dish Network paid no federal income taxes on $2.5 billion of U.S. income in 2020.
- The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income last year and received a rebate of $230 million.
- The shoe manufacturer Nike didn't pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income in 2020, instead enjoying a $109 million tax rebate.
- The software company Salesforce avoided all federal income taxes last year on $2.6 billion of U.S. income.
\u201cIf you paid $120 for a pair of Nike Air Force 1 shoes, you paid more to Nike than it paid in federal income taxes over the past 3 years, while it made $4.1 billion in profits and Nike's founder, Phil Knight, became over $23 billion richer. Yes. We must #TaxTheRich.\u201d— Bernie Sanders (@Bernie Sanders) 1617379515
As Gardner wrote, "the biggest and most profitable U.S. corporations have found ways to shelter their profits from federal income taxation" for decades, which ITEP has documented "since the early years of the Reagan administration's misguided tax-cutting experiment."
"A widely cited ITEP analysis of an eight-year period (2008 through 2015) confirmed that federal tax avoidance remained rampant before the TCJA," but now that "most corporations [are] reporting their third year of results under the new corporate tax laws pushed through by President Donald Trump in 2017, it is crystal clear that the TCJA failed to address loopholes that enable tax dodging--and may have made it worse," he added.
According to ITEP, "the companies used a combination of old and new tax breaks to secure a zero-tax obligation." Gardner documented the "familiar" tactics that corporations used to slash their effective federal tax rate on corporate profits:
- More than a dozen used a tax break for executive stock options to sharply reduce their income taxes last year;
- At least half a dozen companies used the federal research and experimentation credit to reduce their income taxes in 2020;
- Tax breaks for renewable energy are part of the tax avoidance scheme for several utility companies; and
- A provision in the TCJA allowing companies to immediately write off capital investments--the most extreme version of accelerated depreciation--helped more than a dozen companies reduce their income tax substantially.
In addition, Gardner noted, there is "a new factor driving down corporate tax bills: the CARES Act, ostensibly designed to help people and businesses to stay afloat during the pandemic."
While "tax law previously allowed companies to carry back losses to offset profits in two prior years," Gardner wrote that "the TCJA bars companies from doing this (although it still allows companies to carry losses forward to offset profits in future years). However, the CARES Act temporarily restored companies' ability to carry back losses and, incredibly, is more generous than the pre-TCJA rules."
ITEP noted that "the provision's generosity (the act retroactively loosens rules even for losses in years before the pandemic) provides a ripe breeding ground for corporate tax accounting gimmicks." As Gardner pointed out, "some companies used a CARES Act provision to 'carry back' 2018 or 2019 losses to offset profits they reported in prior years, resulting in a rebate that reduced their 2020 taxes, in some cases to less than nothing."
Notably, the publication of ITEP's report coincided with the Biden administration's push to raise the corporate tax rate to 28% to fund the American Jobs Plan, as its physical and social infrastructure package is called.
\u201cThis kind of BS is why Americans are MORE enthusiastic about the #AmericanJobsPlan if it's paid for by higher taxes on pandemic profiteers, the already-wealthy & big corporations. The @USChamber needs to stop complaining and admit that corporations need to pay their damn taxes.\u201d— Heather McGhee (@Heather McGhee) 1617363617
"Fortunately," Gardner wrote, "the policy remedies Congress shunned in 2017 remain available today. By paring the tax breaks identified in this report, or by re-introducing some form of a 'minimum tax' requiring profitable companies to pay at least some tax in any profitable year, Congress and President Biden could take a major step toward a fairer and more sustainable tax system."
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