MADRID, SPAIN – 07/15/2020: Nike, Just Do It logo, seen in a shop on Gran Via street in Madrid. … [+]
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Joe Biden made an unusual statement even for Democrats. The president called for higher corporate taxes to prop up the price of his infrastructure plan and when asked if companies would leave the US, they have 51 or 52 Fortune 500 companies that haven’t paid a single penny in taxes in three years. Come on man Let’s get real, ”said Jeff Stein of the Washington Post.
Biden rejected the idea that companies could flee to other countries to avoid higher rates. And he was right.
The talk of higher corporate tax comes after the Tax Cuts and Jobs Act of 2017, which could have been better described as “Increased Profits and Wealth” for the Rich Business Act. The decline from the previous 35% to 21% was radical. How else can big employers and the jobs they can offer on US shores be kept?
About that. Executives, CEOs and investors hungry for even more fiscal upside have realized for many years that the US has been uncompetitive on national tax rates. And yet, even with a few maneuvers to move a handful of multinationals to other countries, you might find how many giants are left.
The whole conversation is part of an ongoing sales job. An urge to get more and more because it usually works at some point. Companies and their PR corps give a sad head shake as well-known names go where they may be better appreciated.
Talking about high taxes is pretty silly when you look at the numbers. Corporate taxes have been falling fairly steadily since 1950. Here is my updated graph of the seasonally adjusted effective corporate tax rates per year. That said, I used Federal Reserve data to determine the difference between pre-tax and post-tax earnings that makes up total taxes. Division by profit before tax gives the effective rate.
The effective tax rate was 14.1% until the end of 2020. As Biden noted, 55 large companies – including Nike NKE, FedEx FDX, Salesforce CRM, and Archer Daniels Midland ADM, and HP – paid no federal income tax in 2020, according to the left-wing Institute for Taxes and Economic Policy.
There are people who would instantly say that everything is due to loss. But not all losses are created equal. Some are current (you might be wondering why a company like Uber can keep losing billions a year and still stay in business). However, many are a matter of accounting, not the actual money in the tubes.
Companies, especially long-established companies that actually go in and out during the red year, would lose investors and the ability to stay in business. It is the dichotomy of what is shown to Wall Street and the helmsman. Both can exist and make the company cry badly while the bank vaults are filled to the bursting.
ITEP found that, for example, in fiscal 2020 (which ended May 31, 2020) Nike received a tax break of $ 109 million on revenue of approximately $ 2.9 billion. Nike’s 10-K had a tax expense of $ 348 million, resulting in net income (financial profits) of approximately $ 2.5 billion. This corresponds to an implicit total income rate of 12.1% – including federal, state and foreign tax rates. Forget about 21% in the federal government
Not zero, but still little profit. In 2020, a person would see a 12% tax bracket only for money earned between $ 9,876 and $ 40,125.
And if you dig deeper, you’ll see more. Here, also from the 10-K, you will find a more detailed explanation of where the tax money went:
Tax details from the 2020 2020-10-K filing.
In 2020, Nike received $ 109 million back from the federal government and was able to defer $ 380 million in federal, state, and foreign taxes. That left the net of $ 348 they paid.
For tax reasons, why should a company relocate to another location for such deals?
There are other reasons big companies stay in the US as well. Whether practicing access to elected representatives that can affect business interests, easy availability of the robust US capital markets, existing workforce, college talent, state technology transfer and so many other resources for a company.
Using a public financial report analysis tool called Calcbench, I merged 2020 revenue, pre-tax revenue, and tax paid for all S&P 500. While there are undoubtedly explanations for one form or another, 83 have received money back from the government. many while making profit. Like Wells Fargo WFC, a bank with some serious legal troubles, with revenues of $ 58.2 billion, pre-tax income of $ 581 million, and over $ 3 billion in tax arrears.
Salesforce, an enterprise software company, had taxable profits of $ 2.5 billion on sales of $ 21.3 billion. And then there were tax breaks of $ 1.5 billion, or more than half of the profits.
Advanced Micro Devices AMD (major chipmaker) had sales of nearly $ 9.8 billion, pre-tax profits of a little less than $ 1.3 billion and received back $ 1.2 billion.
If you take the entire S&P 500, there was generally collective revenue of nearly $ 10.9 trillion, pre-tax income of $ 852.9 billion, and an effective tax rate of 20.6% – including federal -, national and foreign taxes.
Biden was right. The vast majority of companies in the US have no interest in leaving the company. The offers are too good. But if they do complain, someone is likely to throw them a bone so they can make even more money.
Nice job if you can get it.