Although the new law did eliminate some old tax breaks and loopholes, it introduced many new ones. Clearly, corporations have become extremely savvy at finding ways to pay less in taxes.
Here are the big four tax-avoidance strategies:. This is one of the most significant business breaks in the U. Accelerated depreciation allows a company to deduct the costs of assets they acquire over a period of years and at a rate that exceeds the actual depreciation of the assets. This is the biggest single corporate tax break in the U. Tax Code. When companies acquire expensive assets, like buildings or factory equipment, they can then deduct their costs from their profits for a period of years.
This is one of the tax breaks that got better with the TCJA. The new law made "full expensing" legal. That is, corporations can write off the entire cost of an investment in the year it is made. There are significant tax incentives for American corporations to shift profits and jobs overseas,. Many companies have found ways to officially incorporate outside of the U. They enjoy a zero percent tax rate on most profits generated offshore.
Holding cash in offshore tax havens is another common strategy. Repatriating it to the U. Bloomberg News notes that software code is a lot easier to shift around than factory equipment. Other corporate tax breaks benefit other industries. Certain types of banking and insurance income are free from taxes if they are earned overseas. Allowable write-offs and depreciation expenses can also loom large.
Interest from debt is also deductible. In its most basic form, the boosting of expenses to offset revenues will lower the tax rates that corporations pay. Stock options have become a standard form of compensation for company CEOs and other top executives. Employees love them because they can be extremely lucrative. The company awards them the option to buy a set number of shares at a specific price sometime in the future, typically within 10 years. If the company stock rises, they cash in. To be fair to these companies, these are the "effective" rates and were calculated using publicly available filings with the Securities and Exchange Commission.
The tax expenses reflected in those documents do not necessarily match those in the private tax filings, and the analysis does not include state and local taxes. Amazon has come under fire for its effective tax rate previously, including from some prominent contenders for the Democratic presidential nomination.
Skip Navigation. Corporations are paying a smaller share of federal tax revenue than they did in the s, dropping from one-third then to only one-tenth of the total today. This issue is at the epicenter of the coming battle over tax reform.
Conservatives have defined the debate in a highly misleading manner. They focus on the top statutory rate — the rate specified by law — instead of the effective tax rate — what is actually paid. Because U. But their argument is unpersuasive when the debate focuses on effective corporate tax rates.
Consolidated Edison, Williams, PPL and Sealed Air all used depreciation tax breaks to substantially reduce current income tax expense, as did at least a dozen other companies. Notably, there is much we cannot know about factors reducing federal effective income tax rates for these corporations. The Securities and Exchange Commission only requires the disclosure of any tax provision that individually has a significant effect on tax rates and companies routinely take advantage of this limitation to combine the effect of different tax provisions into a single line item.
In the case of multinational corporations, it is often unclear whether the tax credits mentioned reduce U. Besides the standard array of tax breaks described above, the data introduce a new factor driving down corporate tax bills: the CARES Act, ostensibly designed to help people and businesses to stay afloat during the pandemic. Tax law previously allowed companies to carry back losses to offset profits in two prior years.
The TCJA bars companies from doing this although it still allows companies to carry losses forward to offset profits in future years. The CARES Act loosened rules for the treatment of losses not just in , but also retroactively for losses reported in and , which have nothing to do with the pandemic. Even worse, it allows corporations to carry back losses as far as five years. This means losses incurred in , , and can offset income taxed at the higher 35 percent tax rate in effect before Taxing profits at one rate while allowing losses to produce savings at a higher rate is an invitation for companies to play games, moving profits and losses around from one year to another on paper to reduce their tax bills.
The limited disclosures made by these 55 companies suggest that this opportunity is not lost on the leaders of profitable firms.
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