Americans’ Justified Unhappiness with Corporate Tax Avoidance
Corporate tax avoidance is a hot topic in recent years, with many Americans expressing their dissatisfaction with the loopholes that allow big corporations to pay very little or no federal income tax. The reduction in corporate tax rates and the abundance of special breaks contribute to widening income and racial disparities. The unfair advantage these loopholes give to corporations results in increased inequality.
A recent report sheds light on this issue, revealing how many well-known companies managed to pay effective tax rates lower than the statutory rate before and after the Trump tax law. For example, Verizon Communications paid 21% effective tax from 2013-2016, which dropped to 8% from 2018-2021. Walmart’s rate decreased from 31% to 17%, and AT&T’s dropped from 13% to 3%. The trend is evident across several prominent corporations, illustrating a worrying pattern of reduced tax obligations post-tax law changes.
The figures speak volumes about the extent of corporate tax avoidance in the United States. From 2013 to 2016, 296 consistent profit-making companies underpaid $248.0 billion in corporate income taxes, sheltering 37% of their income from taxation. Despite expectations of tax reform reducing such practices, tax avoidance increased after the 2017 law came into effect. The subsequent $225.6 billion underpayment from 2018 to 2021 further highlights the worsening scenario.
The consequences of corporate tax avoidance are far-reaching and contribute significantly to income and racial inequality. Lower corporate taxes primarily benefit high-income and white Americans, as well as foreign investors who hold shares in American corporations. The distribution of benefits from corporate tax breaks heavily favors white households, which own a considerable portion of corporate stocks. In contrast, Black and Hispanic households receive only 1% of the benefits each, despite comprising 12% and 9% of U.S. households, respectively.
When considering the benefits flowing to foreign investors, the disparity becomes even more pronounced. White Americans receive a disproportionately small share of corporate tax break benefits, with only 53% of the total benefits reaching them. This unequal distribution of benefits amplifies the income and racial inequalities prevalent in the country.
To address these disparities effectively, policymakers must consider limiting or eliminating corporate tax breaks. However, the current administration’s lack of interest in this issue, coupled with the possibility of introducing new tax breaks, poses a significant challenge to reducing income and racial inequality. It is crucial to address these loopholes to ensure a fairer and more equitable tax system that benefits all Americans, irrespective of their income or racial background.
