Tax Subsidies by Industry:
We also looked at the size of the total tax subsidies received by each industry for the 258 companies in our study. Among the notable findings:
• 55 percent of the total tax subsidies went to just four industries: financial, utilities, telecommunications, and oil, gas & pipelines — even though these companies only enjoyed 35.5 percent of the U.S. profits in our sample.
• Other industries receive a disproportionately small share of tax subsidies. Companies engaged in retail and wholesale trade, for example, represented 17 percent of the eight-year U.S. profits in our sample, but enjoyed less than 5 percent of the tax subsidies.
It seems rather odd, not to mention highly wasteful, that the industries with the largest subsidies are ones that would seem to need them least. Regulated utilities, for example, make investment decisions in concert with their regulators based on needs of communities they serve. Oil and gas companies are so profitable that even President George W. Bush said they did not need tax breaks. He could have said the same about telecommunications companies. Financial companies get so much federal support that adding huge tax breaks on top of that seems unnecessary.
HISTORICAL COMPARISONS OF TAX RATES AND TAX SUBSIDIES
How do our results for 2008 to 2015 compare to corporate tax rates in earlier years? The answer illustrates how corporations have managed to get around some of the corporate tax reforms enacted in 1986, and how tax avoidance has surged with the help of our political leaders.
By 1986, President Ronald Reagan fully repudiated his earlier policy of showering tax breaks on corporations. Reagan’s Tax Reform Act of 1986 closed tens of billions of dollars in corporate loopholes, so that by 1988, our survey of large corporations (published in 1989) found that the overall effective corporate tax rate was up to 26.5 percent, compared to only 14.1 percent in 1981-83.[2] That improvement occurred even though the statutory corporate tax rate was cut from 46 percent to 34 percent as part of the 1986 reforms.[3]
In the 1990s, however, many corporations began to find ways around the 1986 reforms, abetted by changes in the tax laws as well as by tax-avoidance schemes devised by major accounting firms. As a result, in our 1996 to1998 survey of 250 companies, we found that their average effective corporate tax rate had fallen to only 21.7 percent. Our September 2004 study found that corporate tax cuts adopted in 2002 had driven the effective rate down to only 17.2 percent in 2002 and 2003. The eight-year average rate found in the current study is only slightly higher, at 21.2 percent.
As a share of GDP, overall federal corporate tax collections in fiscal 2002 and 2003 fell to only 1.24 percent. At the time, that was their lowest sustained level as a share of the economy since World War II. Corporate taxes as a share of GDP recovered somewhat in the mid-2000s after the 2002-enacted tax breaks expired, averaging 2.3 percent of GDP from fiscal 2004 through fiscal 2008. But over the past five fiscal years (2011 to 2015) that this study examines, total corporate income tax payments fell back to only 1.6 percent of GDP on average.
Corporate taxes paid for more than a quarter of federal outlays in the 1950s and a fifth in the 1960s. They began to decline during the Nixon administration and remained low in the Reagan era. By fiscal year 2015, corporate taxes paid for a mere 10.6 percent of the federal government’s expenses.
In this context, it seems odd that anyone would insist that corporate tax reform should be “revenue neutral.” If we are going to get our nation’s fiscal house back in order, increasing corporate income tax revenues should play an important role.
