WASHINGTON — As American corporations have generated an ever-smaller share of federal tax revenue, the burden has fallen more heavily on individuals, through the income tax and the levies that pay for Social Security and Medicare.
President Joe Biden has proposed to stop companies from stashing profits in countries with low tax rates. To do so, he is calling for a 21% minimum tax on multinationals’ foreign earnings and is urging other countries to follow suit.
His plan would also rescind what the administration sees as international loopholes in former President Donald Trump’s 2017 tax legislation.
Here’s a look at how U.S. corporations manage the tax system:
— Last year, more than 50 of the largest U.S. companies actually paid nothing in federal income taxes, even though they reported $40 billion in pretax profits as a group, according to the Institute on Taxation and Economic Policy. Companies can deploy many tools to avoid taxes — from deducting costs related to stock options they give executives to claiming tax credits by making investments that the government is trying to encourage. Some that do pay tax pay far less than the stated corporate rate. In 2020, for example, Amazon paid an effective federal income tax rate of just 9.4%, according to the Institute on Taxation and Economic Policy. (Amazon CEO Jeff Bezos says he supports an increase in the corporate tax rate.)
— Tax havens account for seven of the top 10 countries for U.S. multinational profits. Bermuda — with 64,000 people, about the same as Cheyenne, Wyoming — accounted for 10% of U.S. multinationals’ foreign profits in 2018. The six other top tax havens are the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland. Apple, for instance, has paid low taxes in Ireland.
— An analysis by Credit Suisse shows that technology and healthcare companies, in particular, report far higher profits than revenue overseas, suggesting that they’ve been shifting earnings out of the United States to take advantage of low tax rates abroad.
— Thanks to rate cuts and the aggressive use of tax havens, corporate tax revenue has plunged as a percentage of the nation’s gross domestic product, the broadest measure of economic output. From a post-World War II high of 5.9% of GDP in 1952, U.S. corporate tax collections dropped to 1.2% of GDP last year, according to the White House’s Office of Management and Budget. Among OECD countries, by contrast, corporate tax revenue amounts to an average of about 3% of GDP.