As tax season is upon us, many Americans are finding out how much they owe in federal income taxes this year.
The Institute of Taxation and Economic Policy (ITEP) recently published a report doing the same analysis on the biggest corporations. ITEP reviewed tax returns for 379 of the most profitable corporations and found that these companies paid an effective federal corporate income tax rate of 11.3 percent on their 2018 income, the lowest effective tax rate in the past 40 years. This effective tax rate of 11.3 percent is also well below the statutory corporate tax rate of 21 percent, enacted under the 2017 Trump tax reform legislation. Nearly 100 of these corporations, including Amazon, Chevron, Halliburton, and IBM paid no federal income taxes in 2018, and another 56 companies paid effective tax rates of 5 percent or lower.
How are these companies able to get away with such low or nonexistent tax rates? Special tax loopholes unavailable to everyday people allow these corporations to avoid their tax responsibility while the rest of us responsibly pay our taxes. These loopholes includes items like accelerated depreciation and a “territorial” tax system that allows the shifting of income overseas.
While these corporations are paying very low tax rates, our national debt is rising to an incredible size. The Congressional Budget Office (CBO) reported that the federal budget deficit totaled $984 billion in fiscal year 2019. CBO estimates that without significant policy changes, the deficit will continue to increase through 2029 and will be much larger than its average over the past 50 years.
In Montana, we allow some of the same tax breaks as the federal government, giving corporations additional tax benefits and result in lost state revenue as well. Decoupling from these federal business tax breaks would help stabilize revenues for Montana and ask big businesses to pay their fair share, at least in our state.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.