Corporate tax rates
Source: Tax Foundation
This Is Tax Evasion,
Plain and Simple
The race to the bottom on corporate taxes has gone on for too long.
Since the 1980s, countries have competed for business by reducing companies’ taxes.
A few nations, like Ireland and Bermuda, have adopted extremely low rates and become tax havens for companies like Google and Apple.
Last week, 130 countries, including the United States, agreed to a blueprint to tax their companies’ profits at a minimum 15 percent rate — no matter where the profits are booked.
The pact is a step in the right direction. But for working-class Americans who have fallen behind as tax cuts helped the rich get richer, 15 percent is too little, too late.
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By Gabriel Zucman and Gus Wezerek
Gabriel Zucman is an economist at the University of California, Berkeley, and one of the authors of “The Triumph of Injustice.” Gus Wezerek is a writer and graphics editor for Opinion.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. Economically, it was a golden period. Middle-class incomes
grew at roughly the same rate
as those of the richest Americans.
But as globalization gave companies the ability to choose where they recorded profits, Congress scrambled to keep their business by lowering corporate taxes. In 2018, American companies were taxed at an average effective rate of
less than 14
percent
, by our calculations.
Corporate tax breaks have helped business owners amass
inconceivable
amounts of money over the past few decades. Meanwhile, middle-class Americans have
footed the bill
, as Congress has propped up the budget by raising taxes on wages.
Taxes on wages have increased as corporate taxes have decreased.
Share of national income
Payroll tax
8%
6
4
Corporate
income tax
2
0
1950
1960
1970
1980
1990
2000
2010
Taxes on wages have increased as corporate taxes have decreased.
Share of national income
Payroll tax
8%
6
4
Corporate income tax
2
0
1950
1960
1970
1980
1990
2000
2010
Note: Lines represent federal taxes. Source: Emmanuel Saez and Gabriel Zucman, “The Triumph of Injustice.”
President Biden should be applauded for trying to end the race to the bottom on corporate tax rates. But even if Congress approves the
15 percent global minimum corporate tax
, it won’t be enough to close the growing economic gap between America’s rich and middle class. Taxing multinationals at 15 percent would still leave them facing a
lower rate
than the average American pays in state and federal income tax.
For the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about
$200 billion
in additional revenue each year. Over 10 years, that money would be
more than enough
to pay for nationwide high-speed internet, free community college and universal preschool for 3- and 4-year-olds.
There’s little chance that Republicans will support a 25 percent floor. But they already had their shot at reining in tax evasion with the 2017 Tax Cut and Jobs Act, and they failed. New data from the Bureau of Economic Analysis suggests profits booked in foreign tax havens
have
not declined
since the law was passed. In 2018, U.S. corporations reported more profit in Ireland than in Mexico, China, Germany and France combined.
Companies have resorted to devious schemes to justify their profit shifting. For years, the rights to Nike’s Swoosh trademark
belonged
to one of the company’s Bermuda subsidiaries. In its quest to avoid taxes, Apple moved some of its intellectual property to
Jersey
, a small island in the English Channel.
Put another way: In 2018,
Facebook
made $15 billion in profit in Ireland — the equivalent of about $10 million for each of its employees there. That same year, Bristol Myers Squibb recorded close to $5 billion in profit in the Emerald Isle, or roughly $7.5 million per
employee
.
American companies have moved their profits to tax havens. But their capital or employees? Not so much.
100%
Profits booked
abroad
Capital abroad
Wages paid
to employees
abroad
75
Not in
tax havens
50
25
In tax
havens
0
1966
2018
1966
2018
1966
2018
American companies have moved their profits to tax havens.
But their capital or employees? Not so much.
100%
Profits booked abroad
Capital abroad
Wages paid to
employees abroad
75
Not in tax havens
50
25
In tax havens
0
1966
2018
1966
2018
1966
2018
Note: Trends show activity of majority-owned foreign affiliates of U.S. multinationals in all sectors except oil. Source: Thomas Wright and Gabriel Zucman, “The Exorbitant Tax Privilege.”
This is tax evasion, plain and simple. When a company logs billions of dollars in profit in a shell company, it violates the spirit of the Internal Revenue Code’s economic substance doctrine, which states that a transaction must have a purpose other than to reduce tax liability.
But multinational companies get away with it by spending billions of dollars on top-tier lawyers and former lawmakers. Hobbled by budget cuts, the Internal Revenue Service has
struggled
to audit them.
The time for incrementalism is long past. For decades, Congress has been playing catch-up as business owners and a handful of tax havens have driven international tax policy. The result has been a nation where working-class Americans are left with
underfunded
public schools and hospitals as the wealthy
board rocketships
to outer space.
With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
More on tax evasion and inequality
The Tax Pirates Are Us
How to Tax Our Way Back to Justice
Our Broken Economy, in One Simple Chart