November 9, 2018
The Tax Cuts and Jobs Act of 2017 lowered the corporate marginal tax rate to 22%. That means corporations are paying less in taxes than they did prior to passage of the TCJA, right? Not necessarily.
A WalletHub study finds that the overall tax rate that S&P 100 companies pay, around 39%, is more than 10 percentage points higher than what they paid in 2016. The study also finds that S&P 100 companies pay roughly 65% lower rates on international taxes than U.S. taxes.
And while 16 companies in the S&P 500—including ATT, ExxonMobil, Pfizer and Berkshire Hathaway—pay a negative overall tax rate, tech companies such as Apple and Facebook still incur rates that are at least 15% lower abroad than they incur in the U.S. That continues a trend seen in each of the last four years of the Obama administration.
Regardless, there’s a direct link between the lower corporate tax rate and the growing federal deficit because the federal government is leaving money on the table. Right?
Again, not necessarily.
Tax experts polled by WalletHub had differing takes on the question of whether the current corporate tax structure leaves money on the table. “While the highest corporate marginal tax rate was 35% under the old law, corporations actually only paid an average of about 23%,” responded Stetson University’s Valrie Chambers.
Under the new law, she added, “the highest corporate marginal tax rate is 22%. So, the amount we are leaving on the table may not be as much as some politicians would like us to believe.”
That being said, “for many nations with large infrastructures, the average tax rate is about 22%, and that extra 1% of a very large corporate profit is quite a bit of money to leave behind,” Chambers said. “Looking at this a different way, we are foregoing what may be too much tax revenue while certainly incurring a very large governmental deficit.”
At the University of Kentucky, Bradford Jordan was more unequivocal in his view that “taxing corporations the way we do is damaging to economic growth.” However, he told WalletHub, the real question is why we tax corporations at all.
Much of the tax, said Jordan, comes from consumers in the form of higher prices. “The corporate tax is a cost, so it shows up in prices like any other cost,” he said.
“Higher prices mean companies sell less, so they produce less, so they need fewer workers,” Jordan reasoned. “The need for fewer workers means less demand for labor, and thus lower wages. Workers pay a portion of the tax through lower wages.”
Instead of taxing corporations, said Jordan, “tax things we don’t like. Taxes on pollution and cigarette smoking are good examples. A revenue-neutral carbon tax, including large taxes on fossil fuels, might be a good place to start.”
For comments, questions or concerns, please contact Paul Bubny