Forestall a Corporate Tax-rate Increase? The big losers will be the American people.

AB: Corporate America wanting more . . .

Opponents of higher corporate taxes argue it’s not really corporations, ultimately their wealthy executives and shareholders pay the price. They claim we’re all hurt by increased corporate tax collections and are helped by lower ones through the impact on our jobs, communities, retirement savings, and the economy as a whole.

While corporate taxation does have ripple effects, the reality is, it is the owners of the corporations and their highest-paid employees (the firms’ stockholders and top executives) who absorb the most immediate and largest costs–as they should. Therefore, it is the company insiders, including foreigners who own 42% of total corporate equity, and who have the most reason to seek corporate tax cuts and resist any hikes. It is working families who benefit when tax revenue increases and suffer when it declines because of the effect on public services, public debt, and the taxes the rest of us pay.

But the impact of the U.S. corporate income tax is actually even narrower than the whole universe of American corporations. Because of the great and growing concentration of corporate wealth and power, fewer and fewer megafirms pay the lion’s share of the total collected. They grab most of the benefit when corporate taxes are cut and work the hardest to prevent rates being raised or loopholes closed. The fight to lower corporate taxes is really their private fight, for their own narrow interests and not, as they often portray it as a selfless struggle on behalf of workers, the economy, or our nation.

Almost 600,000 corporations paid a total of around $370 billion in corporate income tax in 2021 (one of the most recent years with available data). It is estimated around 15% of that total was paid by just 10 companies. The concentration of corporate taxpayers extends further down the list: IRS data shows that in 2020 fewer than 400 corporate taxpayers reported 70% of all taxable income Just 2.2% of all corporate taxpayers that year accounted for almost all (95%) of all such income.

Of course, just because these few companies paid a disproportionate share of corporate taxes does not mean that they paid enough. Apple alone, for instance, is estimated to have paid more than one of every 50 dollars in corporate taxes collected in 2021. Yet according to another estimate (see report data), it paid a tax rate of just 14.2% that year. That’s almost a third less than the statutory corporate tax rate of 21%. It is also a lower rate than the average American family paid in 2021 (14.9%). Median household income in 2021 was about $80,000, while Apple racked up $39 billion in profits. Another example? Microsoft is estimated to have paid three out of every hundred dollars collected and paid a tax rate of just 18% on $46 billion in earnings.

In other words, the reason these tax payments by the biggest payers represent such a high share of the total is not that they’re paying so much but because we’re demanding so little.

Another indication the corporate-tax system is dominated by just a few companies is the way the payoffs from corporate tax breaks are distributed. The Institute for Taxation and Economic Policy (ITEP) has calculated total “tax subsidies” for 342 large profitable companies for the five years 2018-22. They calculated the difference between what they would owe over that period without special breaks in the tax code and what they actually paid with them in place. Well over half the subsidies in the study—more than $150 billion worth—went to just 25 companies. The Center for American Progress estimates that of the $48 billion 100 large corporations would save annually if the corporate tax rate were cut to 15%, nearly half ($23 billion) would go to just 10 of those firms.

ITEP also estimated that just two companies, Meta Platforms (owner of Facebook) and Microsoft could split between them over one-third (38%) of the benefit if an expired research expense loophole were restored. Just six corporations in total would scoop up nearly 60%—or almost $14 billion-worth—of the cash flowing from this one tax break. There are other ways to measure the concentration of corporate power. The top 10 U.S corporations in the 2023 global Fortune 500 generated almost half (46%) of the total profits of all the 136 American companies on the list.

As of late June 2024, just seven stocks made up almost a third (31%) of the total value of the S&P 500 stock index. Dubbed “The Magnificent Seven”, this tiny fraction of the index was responsible for over half the S&P’s market gain in 2023.

Certain well-known names show up on many of these lists, such as Alphabet (owner of Google), Apple, Meta Platforms, Microsoft, and Pfizer. They will be the ones spearheading the opposition to higher corporate taxes in the coming year—and will be doing so with particular ferocity because even some members of the Republican Party, usually Corporate America’s champion, support the idea of taxing corporations more.

We’ve used the above rankings and other criteria to identify the corporations with the most at stake in the upcoming tax battle. We call them the “Corporate Tax Ten”. Those of us who want to see corporations pay a fairer share of taxes would do well to focus our attention on them: their lobbying, their public relations, their overall attempts to make their interest in the tax battle seem like it’s about more than their profits, stockholders and top executives.

How much we tax corporations should be a matter of national interest, not dependent on the profit targets of a handful of mammoth companies. The reality is the battle over corporate taxes is really a very small scrimmage of very big players. Including the vast majority of corporations, the rest of us have essentially been relegated to the role of onlookers. We the people should reject that role because we have a big stake in who wins the game. For which the long-term fiscal health, economic equality and broad-based prosperity of our entire country all hinge on it. Knowing it’s really just a handful of huge corporations versus all the rest of us, we can more strategically and effectively take on the “Corporate Tax Ten.”

List of the Top Ten Corporations with Detail is found here: “The Corporate-Tax-10“

More: Corporate-Tax-10.pdf

The main tax goal of the “Corporate Tax 10” in 2025 is to stop the corporate rate from being raised from its current 21% as part of a larger legislative deal addressing the expiration of the 2017 Trump-GOP tax cuts, a tax hike even Republican members of Congress are considering.

The Tax 10 have a lot at stake: according to a 2022 estimate by the Congressional Budget Office (CBO), each percentage-point increase in the corporate tax rate raises roughly $130 billion over 10 years. Based on the share of total corporate taxes paid by the top 10 heaviest-taxed firms earlier this decade, they could collectively owe around $21 billion more in the first 10 years after just a one-percentage-point bump in the corporate tax rate. If the rate was raised by five percentage points, they might be on the hook for an extra $100 billion. Alphabet alone could owe $5 billion more in taxes over 10 years if the corporate rate were raised from the current 21% to 26%.

The amount of money the Tax 10 might owe could be even greater, because a more recent report by the Treasury Department estimated that President Biden’s proposed seven-percentage-point boost in the corporate tax rate—from 21% to 28%—would raise over $1.3 trillion in a decade. (CBO’s earlier calculation would indicate a seven-point boost would instead raise about $900 billion.)

If the Tax 10 succeed in their efforts to forestall a tax-rate increase, the big losers will be the American people. Using the more conservative estimate of $130 billion of revenue raised per percentage-point increase, a two-point hike would raise enough revenue to make community college tuition-free, increase Pell grants to make all higher-education more affordable, and increase aid to historically Black colleges and universities (HCBUs). A three-point increase could pay for a national paid family-and-medical leave program of 12 weeks for all the nation’s employees. A four-point bump would nearly fund a program of free pre-K education for all four
year-olds and expanded child care for 16 million kids.

A higher corporate tax rate could also be used to lower public debt, the growing size of which is used by Republicans as an excuse to try to cut funding for public services, including Social Security and Medicare.

Of course, the Tax 10 might not be content with playing defense: instead of just trying to forestall a corporate-tax-rate increase, they may try to push for Donald Trump’s proposed tax-rate cut to 15% for domestic manufacturers. As noted above, the Center for American Progress has estimated that several members of the Corporate Tax 10 would have pocketed significant savings from such a rate reduction if it had been in effect during the most recent annual reporting period. Microsoft would be $4 billion richer; Alphabet, $3.5 billion; Apple, $2.7 billion. (These figures again indicate that the $130 billion per-percentage-point estimate is a cautious one.)

In addition to fighting over the corporate tax rate, the Tax 10 will be trying to resurrect a trio of costly business tax breaks that have expired or begun to phase down over the past few years.

• The most expensive of which is the “bonus depreciation,” which allows companies to immediately write off the cost of big investments like factories, machinery and vehicles; instead of piecemeal over many years, to better reflect those investments’ ongoing value. Bonus depreciation began phasing out at the end of 2022, but the Corporate Tax 10 would like to see it revived retroactively, so they don’t miss a single year of their generous tax break. Reviving bonus depreciation would lose $378 billion of revenue over 10 years. That would be more than enough money to fund the plans presented in President Biden’s last budget to expand the availability and lower the cost of housing (cost: $183 billion); as well as to expand and improve home- and community-based Medicaid services for older and disabled Americans ($154 billion).

• The second most costly expired business tax break that the Corporate Tax 10 hopes to bring back to life (again, retroactively) would hurry another business deduction that makes more sense to draw out over time. Since 2022, businesses have had to deduct in annual increments (“amortize”) the costs of research and experimentation instead of writing them all off in the year incurred. Such gradual write-offs acknowledge the long-term benefits firms derive from R&E (also known R&D, for “research and development”). Bringing back R&E “expensing” would cost $277 billion in lost revenue over 10 years. That’s again roughly the same amount of money President Biden proposed to spend making community college tuition-free, lowering other higher-education costs, and investing in HBCUs.

• The final expired tax break the Corporate Tax 10 would like to put back on the books allowed businesses to deduct more of the interest they pay on their loans. Making loans cheaper through the tax code prompts businesses to borrow more. Too much business debt can make companies and the whole economy more prone to failure. Reviving the looser interest-deduction rules would cost $53 billion in lost revenue over 10 years.

Little of these tax breaks to corporations will flow to the citizens. We are in the midst of developing a definable upper class as a result of the tax breaks.