Corporations paid 11.3% tax rate under 2017 law Figure is lowest measured by think tank since 1984
WASHINGTON — About 400 of America’s largest corporations paid an average federal tax rate of about 11% on their profits last year, roughly half the official rate established under President Donald Trump’s 2017 tax law, according to a report released Monday.
The 2017 tax law lowered the U.S. corporate tax rate from 35% to 21%, but in practice large companies often pay far less than that because of deductions, tax breaks and other loopholes.
In the first year of the law, the amount corporations paid in federal taxes on their incomes — their “effective rate” — was 11.3% on average, possibly its lowest level in more than three decades, according to a report by the Institute on Taxation and Economic Policy, a left-leaning think tank.
From 2008 to 2015, under the previous tax code, the corporations’ effective rate was about 21%, according to ITEP’s prior research.
The report also found that 91 corporations in the Fortune 500, many worth billions of dollars, paid no federal taxes last year.
The findings come amid an explosion in the federal deficit, which this year rose to almost $1 trillion. In October, the U.S. Treasury Department announced the deficit had grown $205 billion, or 26%, in the past year, an unusual occurrence during a period of strong economic growth.
Corporate tax revenue fell markedly during the first year of the tax law, from about $300 billion in 2017 to $204 billion in 2018, according to federal data, although it increased slightly from 2018 to 2019.
“When drafting the tax law, lawmakers could have eliminated special breaks and loopholes in the corporate tax to offset the cost of reducing the statutory rate,” the report says. “Instead, the new law introduced many new breaks and loopholes, though it eliminated some old ones.”
Republicans and conservative tax experts contend the cut in corporate tax rates helped generate economic growth and boost business investment in the economy.
Democrats, meanwhile, maintain the rate cut went too far and primarily helped enrich stockholders and corporate executives.
Many companies said a big drop in corporate tax rates would allow them to invest more in capital and equipment, but the uptick in new investment appears to have been short-lived. Much of the extra capital went into record stock buybacks, which increase share prices without requiring new investment or hiring.
The 91 profitable Fortune 500 corporations that paid no federal tax in 2018 earned a combined $101 billion last year. As a group, their effective federal tax rate was -5.9%, meaning many of them received a federal tax refund on top of their profits.
Those paying no federal tax include many household names: Online retailer Amazon, for instance, received a $129 million rebate on $10.8 billion in profits, primarily because of how the tax code treats stock options in pay packages.
The 11.3% figure is the lowest effective corporate tax rate ITEP has found since it started evaluating this data in 1984.