Profit companies

Corporate minimum tax could hit these ultra-profitable companies


Cash Effective Tax Rates

of the most profitable companies since 2019

Berkshire Hathaway, Amazon and Intel have paid less than 15% in taxes globally in each of the past three years

Tech companies including Alphabet

reduce their tax bill by declaring their income

in countries with lower rates

Source: Washington Post analysis

Calcbench data

Cash Effective Tax Rates

of the most profitable companies since 2019

Berkshire Hathaway, Amazon and Intel have paid less than 15% in taxes globally in each of the past three years

Tech companies, including Alphabet, lower their tax bills by reporting income in countries with lower rates

Source: Washington Post analysis of Calcbench data

Cash Effective Tax Rates

of the most profitable companies since 2019

Berkshire Hathaway, Amazon and Intel paid less than

15% tax worldwide in each of the last three years

Tech companies, including Alphabet, lower their tax bills by reporting income in countries with lower rates

Source: Washington Post analysis of Calcbench data

Cash Effective Tax Rates

of the most profitable companies since 2019

Berkshire Hathaway, Amazon and Intel have paid less than 15% in taxes globally in each of the past three years

Tech companies, including Alphabet, lower their tax bills by reporting income in countries with lower rates

Source: Washington Post analysis of Calcbench data

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correction

A previous version of this article incorrectly included Union Pacific in the table of profitable low-tax companies due to an error in the source data. His effective cash tax rate for the last three years is 18%.

On Friday, the House passed the Reducing Inflation Act, which includes a 15% minimum tax rate on highly profitable businesses — a levy that could hit Amazon, Verizon and others. The tax would help pay for important investments in climate and health care.

But the minimum tax conflicts with a feature of corporate taxes in America: deductions and credits approved by Congress.

Tax credits and deductions are deliberately designed as tools to induce certain behaviors. But because they reduce the corporate tax bill, they risk reducing the effectiveness of a minimum tax. Businesses can still use exclusions for research and development, capital expenditures and the like to lower their tax bills. The Democrats’ flagship climate proposal comes in the form of tax relief — which is also exempt from the minimum corporate tax rate.

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Because of these exemptions, it would still be possible for profitable corporations to achieve a tax rate of less than 15%, Daniel Bunn, executive vice president of the Tax Foundation, said in an email.

The minimum tax proposal would raise $220 billion over 10 years, according to the Joint Committee on Taxation, a nonpartisan body of Congress that analyzes tax bills. The minimum tax rate would apply to companies that reported to their shareholders an annual average of $1 billion in annual profits over three years.

More than 250 companies in the S&P 500 have averaged more than $1 billion in pretax revenue over the past three years, according to a Washington Post analysis of Calcbench data. Of these, 83 paid less than 15% income tax worldwide. The list includes tech companies like Amazon and Intel, banks like Bank of America and US Bancorp, telecom giants Verizon and AT&T, and other household names like General Motors and UPS.

The rate is calculated on the basis of overall income, which means that a company could, in theory, “have an effective domestic tax rate lower than 15% as long as its foreign profits were taxed higher”, Kyle Pomerleau, researcher principal at the American Enterprise Institute, said in an email.

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President Biden frequently notes that 55 profitable corporations paid no federal income taxes in 2020, according to analysis by the Institute on Taxation and Economic Policy, a liberal think tank.

The topic of discussion avoids that companies often pay different amounts of tax from year to year. But it points to a truism that Democrats aim to correct: Over the long term, many businesses pay less than the current standard corporate tax rate of 21%.

Some corporations avoid federal income tax by redirecting their income to countries where they operate with lower tax rates. Until late 2019, Google’s parent company, Alphabet, licensed its own intellectual property from Bermuda, an offshore tax haven. Alphabet said its worldwide effective tax rate in 2018 and 2019 was lowered by billions because “substantially all” of its foreign income came from its Irish subsidiary, according to a securities filing.

Corporations also reduce their taxes through deductions and credits. Amazon slashed $3 billion in tax bills from 2019 to 2021 through its use of stock-based compensation and another $2.2 billion in other tax credits, including one for research and development, according to title filings. The company reported federal tax expenditures of $4.1 billion for those years on $69.4 billion of U.S. pretax profits, an effective federal rate of less than 6%. (Amazon founder Jeff Bezos owns The Post.)

To win the support of Sen. Kyrsten Sinema (D-Arizona), Democrats changed their minimum rate proposal to exclude deductions for certain investments and exempt privately owned businesses. These last-minute changes will also help some ultra-profitable companies pay less than the minimum rate.

This analysis was based on data from Calcbench, extracted from documents filed by the companies with the Securities and Exchange Commission. The chart shows effective cash tax rates (tax expense divided by pre-tax income). The table includes the 20 most profitable companies in recent years that have disclosed enough numbers to do the math.