In 2020, the pandemic killed hundreds of thousands of Americans and unemployment rose to levels not seen since the Bureau of Labor Statistics began collecting data in the 1940s.
Even so, Amazon’s bottom line surged to $ 20 billion last year as people switched to online shopping. But the company only paid 9.4 percent of its profits in federal corporate taxes afterwards Pay zero in 2018 and about 1 percent in 2019. The total effective federal corporate tax rate over three years was just 4.3 percent on profits of $ 44.7 billion. That is far from the statutory quota of 21 percent.
Netflix’s profits soared to $ 2.8 billion in 2020 as people went out less and instead watched more TV at home. Still, the company paid less than 1% of those profits in federal corporate taxes after paying nothing in 2018 and about 1 percent in 2019. In those three years, Netflix paid a total effective interest rate of 0.4 percent on $ 5.3 billion in profits. Here, too, not anywhere near the statutory rate of 21 percent.
And at the end of last week, we learned that Zoom, the video conferencing platform that has become ubiquitous for meetings, has seen profits jump 4,000 percent over the past year. But the company didn’t pay federal corporation tax for 2020.
Zoom, Amazon and Netflix are not alone. The pandemic has hit many businesses, large and small, hard, with many reporting losses over the past year. But some with profits – even some with record profits from the pandemic – avoided paying corporation tax on those profits. So far, my colleagues have found more than 50 S&P 500 companies that reported profits for the past year but didn’t pay federal corporation tax – a year when our lives depended on public funding for testing, research, and vaccine distribution.
Here are some truths about corporate tax avoidance.
- First, the legislature could address this, but has decided against it. We were all well aware of the corporate tax avoidance crisis as Congress drew up a major overhaul of the tax law that went into effect in 2017 by former President Trump. The above numbers are the result of this new law during its first three years.
- Second, tax avoidance is not due to the current economic crisis. Corporate income tax is a tax on corporate profits. It doesn’t affect companies that don’t benefit. Closing extra breaks and loopholes would not hurt businesses hit by the pandemic.
- Third, corporate tax evasion harms ordinary Americans by reducing resources for health care, road repairs, and other essentials. Trump administration officials claimed their corporate breaks would boost the economy. In fact, GDP growth in the first two years of the law was 2.9 percent and 2.2 percent, similar to or significantly below 2015 levels. Proponents of the breaks also argued that benefits would be passed on to workers and salaries would be increased 4,000 would rise to $ 9,000.
We all need the things that the public sector provides. If corporate taxes go unpaid, the American people will spend less on things that would help our communities. That means fewer repairs to our failing infrastructure, less investment in greening our economy, less resources to help young people get into college.
This is especially important now as policy makers will soon be discussing what our nation can afford to improve our economy and health in the future.
While our research suggests companies already have too many tax breaks, some lawmakers want to offer even more. Some lawmakers are proposing to extend the corporate breaks in the Trump tax bill by making the expiring expense rule permanent and removing some tax increases related to interest deductions and research spending that have yet to come into effect.
In addition to these immediate decisions, five proactive changes would improve corporate taxation.
- First, Congress should address offshore corporate tax avoidance by aligning taxes on domestic and foreign profits.
- Second, Congress should address what we might call domestic corporate tax avoidance by removing tax breaks for accelerated depreciation or spending. Instead, companies should tax investments when the assets actually wear out, an approach known as economic depreciation.
- Third, domestically too, Congress should end the book-tax gap on stock options, which allows companies to tell investors and the IRS different things about the cost of their stock options.
- Fourth, if Congress doesn’t get rid of domestic business disruptions, it should enact a new minimum tax that ensures companies pay a minimum amount on their profits so that companies like Amazon, Netflix, and Zoom can’t pay zero in some profitable years.
- After all, Congress should fund the IRS so we can enforce the laws they make.
Many legislators want tax breaks and still claim that we cannot afford to help people directly. In fact, we can choose a fair tax law that will give us the means to make the child tax credit permanent, which could reduce child poverty by45 percent. We can enforce tax laws and have more resources to create green jobs and make our infrastructure climate-proof. And we can close loopholes and increase revenue to help ordinary families pay for childcare and college.
With a better corporate tax law, we’re starting to generate the resources necessary to improve life, reduce climate change, and create a better country.