A Journal of People report
Fifty-five of the biggest U.S. companies paid $0 in federal taxes or no tax last year, found a new study from the Institute on Taxation and Economic Policy (ITEP).
Despite raking in billions, Nike, Duke Energy, FedEx, and other public companies have paid no federal corporate income tax in the U.S. since 2018, according to the study.
The 55 publicly traded companies would have paid an estimated $12 billion in federal taxes if not for corporate tax breaks in 2020, including $8.5 billion in tax avoidance and $3.5 billion in tax rebates, the report found using regulatory filings and other information.
Nearly half of the companies have avoided paying federal taxes for the last three years, according to the report. Nike, FedEx, and DTE Energy were among 26 companies that recorded $77 billion in combined pre-tax income in the past three years, but did not pay any federal income taxes.
The ITEP’s data found some of the biggest U.S. companies have been avoiding federal taxes for decades, dating back to the Reagan administration. The companies, which encompass a wide variety of industries, use a range of tactics, including tax exemptions and deductions.
While company tax returns are private, publicly traded companies must file financial reports that include information on federal income taxes. Using the financial reports as well as data on each company’s pre-tax income, ITEP was able to analyze some of the major resources the companies used to avoid paying federal taxes.
In 2017, the Trump administration’s Tax Cuts and Jobs Act of 2017 amended the Internal Revenue Code of 1986, the Washington-based research group said the act failed to address major loopholes in the tax code.
“When President Trump signaled his intention to cut corporate taxes in 2017, he and Congress had an opportunity to pare back the many loopholes that have allowed companies to avoid tax on much of their income since the 1980s,” the report said. “Now, with three years of data published on the effective tax rates paid by publicly traded companies, it is clear that the Trump law has not meaningfully curtailed corporate tax avoidance and may even be encouraging it.”
The 2017 tax bill dropped the top corporate income tax rate from 35% to 21% – a corporate tax rate that is below average for most countries represented in the Organisation for Economic Co-operation and Development, a group that represents 37 developed countries. The act also allows companies to immediately write off the cost of new equipment and machinery.
Some of the loopholes ITEP found many companies used include tax breaks for executive stock options which allowed the companies to write off stock-option expenses.
Multiple companies, including Nike and Hewlett Packard, used federal research and experimentation tax credits to reduce their incomes, while companies like DTE Energy and Duke Energy used tax breaks for renewable energy to avoid paying federal taxes.
An Act Made it Easier to Avoid Taxes
The $2.2 trillion CARES Act passed last year to help alleviate the economic distress of the pandemic and help businesses survive, provided the 55 companies with over $500 million in tax breaks, according to ITEP.
Dozens of publicly traded companies used provision from the CARES Act that temporarily allowed businesses to use losses in 2020 to offset profits earned in previous years, according to the research group.
FedEx was one of the companies that used the CARES Act to reduce tax bills from prior years when the tax rate was higher.
The company told Insider the CARES Act “helped companies like FedEx navigate a rapidly changing economy and marketplace while continuing to invest in capital, hire team members, and fund employee pension plans.”
Nike, HP, Salesforce, Duke Energy, and DTE Energy did not respond to a request from Insider for a comment.
In its report, the left-leaning research group pointed to several tax code amendments that could cut down on the number of companies that do not pay federal taxes, including a “minimum tax” for profitable companies, as well as cutting back on tax breaks for public companies.
Almost $40.5 Billion in Pretax Profits
Many of these largest U.S. companies got rebates. They reported almost $40.5 billion in pretax profits as a group, according to the ITEP.
The 55 companies named in the report cross many industries, from agriculture to high tech.
Under the 2017 tax cut, the rate on corporate profits is 21%. But companies can use many tools to avoid taxes, such as writing off expenses related to the stock options they give their CEOs and other executives.
Companies can also use a suite of available tax credits by making investments that the U.S. government is trying to encourage, similar to how individuals can get tax breaks for saving in a retirement fund or making their home more energy efficient.
“Most CEOs of large, publicly trade corporations are not going to risk prison to get out of paying taxes when Congress provides them with so many legal ways to do so,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.
The $2.2 trillion rescue package that Washington approved last spring to ease the pain caused by the pandemic opened more avenues for companies to limit their federal tax bills. The law allowed corporations to takes losses reported in 2018 through 2020 and use them to reduce tax liabilities from earlier years, even ones where income was taxed at higher rates.
“When President Trump signaled his intention to cut corporate taxes in 2017, he and Congress had an opportunity to pare back the many loopholes that have allowed companies to avoid tax on much of their income since the early 1980s,” the authors of the report, Wamhoff and Matthew Gardner, wrote. “But now, with three years of data published on the effective tax rates paid by publicly traded companies, it is clear that the Trump law has not meaningfully curtailed corporate tax avoidance and may even be encouraging it.”
Corporations altogether paid nearly $243 billion in total tax receipts in 2019, down 30% from five years earlier.
One of every three corporations with more than $1 billion in assets paid zero in federal income taxes from 2013 through 2017, according to a report prepared last year by the staff of the House of Representatives’ joint committee on taxation. For smaller companies, with less than $1 billion in assets, two out of three companies have zero federal income tax liability in a given year.
Nike’s Profit over the Last Three Years
The publication’s latest findings revealed that the sportswear giant was among the companies that were able to evade federal income tax payments legally for the last three years, even though the brand made $4.1 billion in that timeframe combined according to the ITEP.
Nike used a federal tax credit meant to encourage corporate research and development. The athletic apparel giant also took tax benefits related to share-based compensation for its fiscal year that ended on May 31. Altogether, it received $109 million in federal tax rebates after reporting total pretax income of $2.9 billion for the year.
Officials at Nike, which is based in Beaverton, Oregon, could not be immediately reached for comment.
U.S. Senator Bernie Sanders also chimed in on the discrepancy via Twitter. “If you paid $120 for a pair of Nike Air Force 1 shoes, you paid more to Nike than it paid in federal income taxes over the past 3 years, while it made $4.1 billion in profits and Nike’s founder, Phil Knight, became over $23 billion richer,” Sanders wrote.
If you paid $120 for a pair of Nike Air Force 1 shoes, you paid more to Nike than it paid in federal income taxes over the past 3 years, while it made $4.1 billion in profits and Nike’s founder, Phil Knight, became over $23 billion richer. Yes. We must #TaxTheRich.
— Bernie Sanders (@BernieSanders) April 2, 2021
At Duke Energy, one of the nation’s largest utility owners, the company recorded $110 million in tax credits last year for producing renewable energy through wind facilities, for example. That and other credits helped the Charlotte, North Carolina-based company net a $281 million rebate for federal income taxes last year, after reporting $826 million in pretax U.S. income from continuing operations.
“Lawmakers developed these tax policies to encourage corporate taxpayers to make investments in economic growth, infrastructure and renewables,” Duke spokesperson Catherine Butler said.
She said federal tax rules allowed Duke to delay some cash payments for taxes into the future, but not eliminate them. The company had about $9 billion in deferred tax liabilities at the end of 2020, which Butler said will become future tax payments over time.
In 2019, corporate taxes made up 3.9% of total U.S. tax revenue, according to the Tax Foundation, a group that wants tax policies that lead to greater economic growth. That compares with an average of 9.6% across the economies in the Organization for Economic Cooperation and Development.
That figure could rise if Biden can push through the changes to corporate taxes he has suggested to help pay for his $2.3 trillion plan to renew the nation’s infrastructure.
A proposal to raise the corporate tax rate to 28% may not make much of a difference for the companies using tax credits and other tools to avoid paying any tax. But Biden’s plan to enact a 15% minimum tax on the income that corporations report to their investors, known as book income, could force some zero-tax corporations to start paying, depending on how it is done.
Republicans in Congress have also already resisted corporate tax increases, saying they would hurt the U.S. economy.