Tax Revenue Not Profits

The biggest corporations in America pay almost no taxes. Solving that problem could solve America's debt.

In 2022, pre-tax corporate profits soared to almost $12 trillion. Despite the corporate tax rate being 21%, corporations only paid a combined $425 billion in taxes. A tax rate of only 3.5%.

Meanwhile individual taxpayers like you and me paid over $2.6 trillion in taxes excluding payroll taxes (the separate tax on your paystub which goes to Social Security and Medicare).

Overall the US brought in $4.9 trillion, but the federal government still had a deficit of $1.38 trillion.

Corporate taxes made up only 9% of US revenue. Yet those companies had the money to pay exorbitant CEO salaries and bonuses, took government subsidies (paid for by you), and participated in stock buybacks to artificially inflate stock value which enriched their executives even further.

It is time for a different approach to corporate taxes.

When you go through all of the cumbersome paperwork to pay your personal taxes every year, you are taxed on your revenue, your earnings. 

There are some specific deductions you can take, but you can’t run through all of your finances to show that you made no profit and therefore should pay no tax. Even if you can’t pay your taxes because you are in debt, you still need to pay them and the government will work out a payment plan with you.

Corporations on the other hand can find a reason to write off every single dollar they make to pay very little, or even no taxes at all.

Amazon had a revenue of $538 billion from June 2022 to June 2023. In that same span of time Amazon paid only $594 million in taxes. 

How did it get this bad?

Declining corporate tax rate. 

Just as the buying power of the minimum wage peaked in the late 1960s, so did the corporate tax rate. It also happens to be the last time in American history where the middle class was robust. 

The corporate tax rate has dropped from a high of 52.8% to the 21% that it is today. During this same time, and in part because of this reduction, wealth inequality has risen to extreme levels, product prices have increased, and corporations have reached record profit levels.

All at the expense of the average American.

Write-Offs

Ronald Reagan was no hero to middle class working Americans. He fought against unions, reduced taxes on the wealthy, and most relevant to our discussion today, made stock buybacks legal in 1982.

Stock buybacks allow corporations to purchase their own stock which keeps the stock price artificially inflated and in turn increases the wealth of all of the executives of the company.

What is worse, is that companies are allowed to write off those buybacks to reduce their profit margins and therefore reduce their tax burden. 

Accelerated depreciation is another legalized trick corporations use. First introduced as a temporary measure in 2002 as an attempt to stimulate the economy post 9/11, accelerated depreciation became a permanent part of corporate culture with the Tax Cuts and Jobs Act in 2017. 

This law allows a business to write off 100% of business equipment investments in the first year of purchase instead of writing off a small percentage of it each year due to standard depreciation.

This became a major boon for large corporations like Amazon which could now upgrade and modernize large swaths of their operation while reducing their tax burden to almost nothing. In essence, allowing them to fully offset their cost and supercharge their revenue. 

Even worse, typically only the largest companies can make these kinds of moves so it is a policy that helps the corporate giants get bigger without helping small businesses.

Accelerated depreciation can also be combined with net operating losses. 

When a corporation reports net operating losses greater than their taxable income they can carry 80% of those additional losses to the next year.

So if a corporation spends a lot of money on expensive upgrades, not only can they avoid taxes in the current year, they could avoid taxes in the following year as well.

If this seems unfair, it is. 

Companies get to make hundreds of billions of dollars in a year, buy back stock to enrich their executives, invest in their businesses to make additional billions in the future, and do it all while paying no taxes to the nation that has given them a path to such immense wealth.

Those taxes should go towards maintaining the infrastructure that their own products and supplies travel on. To improve electricity grids that they use for their businesses. To pay for the government and military that runs and protects the nation they operate within.

Even worse, companies such as Walmart and Amazon pay their workers so little that those workers need government assistance and yet, those corporations aren’t paying their taxes to fund that assistance.

Half Measures

Biden has enacted a band-aid to this situation, but it is one that still gives corporations another tax break. The new policy places a 15% minimum tax on book income for corporations making over $1 billion a year. Book income is a different calculation from the profit totals used with regular taxes, but still allows for write downs.

While this is hailed as a victory, it allows companies that were skirting paying taxes to pay a much lower rate than they should be paying. And this applies to the largest companies in America which should be providing the largest tax payments.

The most telling aspect about this approach is that corporations were spending huge sums of money to fight off other solutions, such as a higher corporate tax rate, but hardly fought against the alternative minimum tax.

Why would they fight when they’ve been rewarded with a lower tax rate for not paying taxes in the first place?

There are additional plans and ideas in the works such as taxing stock buybacks or even severely limiting stock buybacks. Even measures such as windfall taxes for the largest corporations.

While these are important steps to take, corporations will forever look for as many loopholes as they can find to reduce their reported profits and therefore their tax burden.

A Different Approach

There is a cleaner solution which makes it much harder for companies to use creative accounting tricks: tax revenue, not profits.

A progressive corporate tax on revenue would ensure that companies always paid taxes. It would put a lower tax burden on small businesses which are the backbone of America, and a higher tax burden on the giant corporations who are currently avoiding paying taxes.

A structure as simple as:

• Up to $100 million in revenue - 2% tax

• $100 million to $1 billion - 4%

• >$1 billion - 6%

This would ensure that when Amazon has $538 billion in revenue they don’t get away with only paying $594 million in taxes, instead they would pay over $30 billion in taxes.

With this type of plan, the top 30 companies in the US would be paying a combined $421 billion in taxes which is roughly what all corporations paid in total corporate taxes in 2022.

While this isn’t a claim that the above tax rates are the rates the US should use, it highlights the effectiveness and the simplicity of having corporations pay taxes based on revenue the same way that individual filers pay their taxes every year.

The US needs a solution to the problem of corporations avoiding taxes, and the sooner we decide on an effective path forward, the sooner we can turn America around from a deficit to a surplus and begin paying off our $32 trillion debt.