President Trump’s tax law, the Tax Cuts and Jobs Act (TCJA) that was passed in December 2017, has been widely panned as a victory for large businesses and corporations which saw their corporate tax rate drop from 35% to 21% last year.
But businesses blend write-offs with a variety of tax credits to lower their tax rate to an “effective” rate that is even lower. In 2018, according to data provided to Yahoo Finance by research firm Oxford Economics, corporations lowered their effective tax rate to just 7% — the lowest since 1947.
And while some corporations managed to pay $0 under the new tax law, it was unclear what kind of financial blow that would deal to the U.S. But according to recently released data from the IRS, in 2018 – the first year that the TCJA was in effect – the Treasury Department collected $91 billion less than it did in 2017.
In 2017, the IRS collected over $338.5 billion in income taxes (before refunds) from businesses. That number dropped by 22% to about $262.7 billion for fiscal year 2018. In comparison, in FY 2016, income taxes collected from corporations was on par with 2017, at $345.6 billion.
The 2018 figures represent the lowest amount Treasury has collected from business in nearly a decade; in 2011 the IRS pulled in $242.8 billion from corporations income tax.
Not only did Treasury collect less from corporations in 2018, it also refunded them more than it had in previous years. Last year the IRS refunded businesses $60 billion, for a net total of $202.7 billion collected from corporations. In 2017 the refund figure totaled roughly $45 billion for a net collection of $293.6 billion.
When considering the net figures, big businesses paid $91 billion less in 2018 than it had the year prior.
Declining tax revenue has only widened deficits, as national debt has ballooned to $22 trillion.
“There are a lot of breaks and loopholes that allow a company not to pay,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy (ITEP). “People, when they think of tax reform, think the government is going to fix the tax code and get rid of breaks and loopholes and get rid of tax dodging. What we got at the end of 2017 was not that. It was the opposite of that. The Tax Cuts and Jobs Act left a lot of special breaks and loopholes in place and created some new ones.”
And as companies avoid paying federal income tax, they make record-breaking profits. Amazon avoided federal income tax on a whopping $11.2 billion in profits in 2018. And it wasn’t alone. Like Amazon, 60 big businesses didn’t cough up money to Uncle Sam last year, according to ITEP analysis. They included Netflix (NFLX), Delta Airlines (DAL), and General Motors (GM).
“Instead of paying $16.4 billion in taxes at the 21% statutory corporate tax rate,” ITEP noted, “these companies enjoyed a net corporate tax rebate of $4.3 billion.”
But while companies were able to avoid paying taxes thanks to the new Republican tax law, the IRS pulled in roughly $2 trillion from individual tax returns, a leap of nearly $100 billion from the amount collected in 2017.
While the majority of Americans did get a tax cut, many bemoaned receiving smaller-than-anticipated refunds or even being hit with a “surprise” tax bill.
After the passage of TCJA, the IRS encouraged taxpayers to update their withholdings, but few did. More than halfway through 2018, after the law took effect, the Government Accountability Office (GAO) warned that under the new law, more Americans would owe money to the IRS, while those receiving refunds would decrease. In the end, many Americans saw modest increases in their paychecks throughout the year, but didn’t notice.
Anger over big businesses avoiding taxes has made its way into the 2020 election as Democratic candidates start crafting policies aimed at making corporations pay their “fair share.”
Massachusetts Senator and Democratic candidate Elizabeth Warren has been particularly vocal, proposing a new corporate tax that would pull in an estimated $1 trillion in revenue — nearly 4 times what the IRS collected in 2018. In a Medium post, Warren’s team stated that the “Real Corporate Profits Tax” would only apply “to companies that report more than $100 million in profits — about the 1,200 most profitable firms in the country last year. That first $100 million is left alone, but for every dollar of profit above $100 million, the corporation will pay a 7% tax. Any company profitable enough to hit the Real Corporate Profits Tax will pay that tax in addition to whatever its liability might be under our current corporate tax rules.”
Warren said the tax would “make our biggest and most profitable corporations pay more and ensure that none of them can ever make billions and pay zero taxes again.”
Republicans repeatedly argued that the tax cuts would spur growth and investment as companies spent money for initiatives that would create jobs and boost GDP.
But according to the Tax Policy Center, the data doesn’t support that claim. “Economic data for the first months after Congress passed the law shows no evidence of a growth surge,” the Center noted.
Economists believe the impact of TCJA on GDP growth will largely fade in 2019.
Research from the progressive policy center Center for American Progress shows businesses used cash saved from the TCJA to buy back stocks, hitting record highs. Buybacks in 2018 were higher than $1 trillion for the year.
Business investment did receive a boost, rising to a rate of 6.1%, up from a 5% annual increase in capital investments since 2010.
But as the Tax Policy Center points out, “it is unclear what effect the TCJA had on capital spending since such investments have a very long lead time and were likely planned long before passage of the tax cuts.”
Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.