55 Corporations Paid $0 in Federal Taxes on 2020 Profits(itep.org)
itep.org
55 Corporations Paid $0 in Federal Taxes on 2020 Profits
https://itep.org/55-profitable-corporations-zero-corporate-tax/
57 comments
> BTW, individual taxpayers used to have this, too, it was called "income averaging".
TIL about income averaging, I've never heard of this before. Looks like it was phased out in 1986? https://www.phillipslawfirm.com/blog/2020/04/the-need-for-in...
TIL about income averaging, I've never heard of this before. Looks like it was phased out in 1986? https://www.phillipslawfirm.com/blog/2020/04/the-need-for-in...
The number one tax break they refer to is stock based comp. If companies paid their execs with cash (i.e. bonuses tied to share price or company performance) instead of shares, they'd have higher cash expense, and therefore wouldn't have those so called profits to tax in the first place. Such an obvious omission in this article indicates this is intentionally misleading.
The next two tax breaks (research and experimentation) and renewable energy seem worthwhile, and I'd guess popular on both sides of the isle.
The next two tax breaks (research and experimentation) and renewable energy seem worthwhile, and I'd guess popular on both sides of the isle.
But companies don't deduct stock-based comp from adjusted EPS? It is deducted for taxes, but not deducted when the board is setting targets...very selective definition of profit being used.
Btw, I did make a quick examination and some information is not accurate. For example, I knew that NKE don't have huge stock-based comp. The reason they paid no tax in 2020 was tax benefit from stock-based comp AND "Foreign-derived intangible income benefit". In 2019, they took most of their income overseas. Sometime in 2020, they stopped doing this. And in 2021, they paid $500m in income tax.
Interestingly, their effective tax rate actually fell even though they are now paying more income tax in the US (the tax-benefit from non-cash comp is now the more significant contributor to income-tax deductions, they are still gaining 370bps of effective income tax from IP shenanigans though...which is interesting given that this was supposed to have stopped from 2018).
Btw, I did make a quick examination and some information is not accurate. For example, I knew that NKE don't have huge stock-based comp. The reason they paid no tax in 2020 was tax benefit from stock-based comp AND "Foreign-derived intangible income benefit". In 2019, they took most of their income overseas. Sometime in 2020, they stopped doing this. And in 2021, they paid $500m in income tax.
Interestingly, their effective tax rate actually fell even though they are now paying more income tax in the US (the tax-benefit from non-cash comp is now the more significant contributor to income-tax deductions, they are still gaining 370bps of effective income tax from IP shenanigans though...which is interesting given that this was supposed to have stopped from 2018).
Title is misleading... The original title is "55 Corporations paid $0 tax..." and who cares... sounds like a garbage report by a think tank to bolsters the policies they care about. Why is this on HN?
I think a lot of people care that the poor and middle class are paying their fair share of taxes while millionaires and corporations are not.
But I agree that this probably isn't a great topic for HN.
But I agree that this probably isn't a great topic for HN.
Per the Tax Foundation, the bottom three quintiles by income are net recipients of federal tax money. See the third graphic: https://taxfoundation.org/average-federal-tax-rates-income-g...
At any given year there will be N corporations whose tax bill will be zero. It's not even relevant as a policy matter that "55 corporations" are cherrypicked to have $0 tax bill for a certain year. It's not legitimate tax policy debate even, just clickbait.
I’d wager that a lot of people outside of think tanks have strong opinions about taxation. I’d even go so far as to suggest that if you were to ask some average Americans what they think about this topic, you’d see that a nontrivial amount of them would have an opinion one way or the other.
I think this is on HN because taxation and social mores are relevant to entrepreneurship, which is a very big theme on a forum ran by a venture capital fund that operates in the United States.
I think this is on HN because taxation and social mores are relevant to entrepreneurship, which is a very big theme on a forum ran by a venture capital fund that operates in the United States.
HN's software strips leading numbers in some cases. I've put the 55 back above.
There seems to be an "expenses" column missing from this. I don't care what their gross is. What's their net?
Edit: And carryover losses, etc
Edit: And carryover losses, etc
Pre-tax income is not gross.
But this is ignoring a lot of stuff like tax loss carry forwards.
But this is ignoring a lot of stuff like tax loss carry forwards.
Another big one are R&D tax credits, passed under the Obama administration. The government told companies that they can save on tax if they pour money into research, so companies poured money into research and then (certain extremely vocal members of) the government got mad that they saved on tax.
“We need to invest more in our country!”
“Whoa whoa quit investing, we need your tax revenue!”
“Whoa whoa quit investing, we need your tax revenue!”
Unpopular opinion - eliminate corporate taxes. Anyone big enough avoids them anyway so what's the point? Just put higher taxes on individuals based on consumption (a la VAT) and income actually derived for that tax year.
While I sort of agree, I also think the reason this happens in the first place is because all US political entities play nice to the giants. There’s much talk about raising corporate tax, but that’s actually misplaced — if we fixed tax loopholes we could even go as far as to lower corporate tax for smaller corporations, which I think would be the proper approach.
But of course the political class is disincentivized to admit this.
But of course the political class is disincentivized to admit this.
I used to think that but IMHO the biggest issue today is the growing wealth gap, and how did that gap get so big?
Ownership of companies, and more specifically people not getting their wealth from income but from share price appreciation.
Getting rid of corporat tax would only make this gap grown even wider and bring down the amount of tax that governments bring in.
it would be the worst of both worlds, decreased government revenue and wider wealth gap.
Ownership of companies, and more specifically people not getting their wealth from income but from share price appreciation.
Getting rid of corporat tax would only make this gap grown even wider and bring down the amount of tax that governments bring in.
it would be the worst of both worlds, decreased government revenue and wider wealth gap.
> Getting rid of corporat tax would only make this gap grown even wider and bring down the amount of tax that governments bring in.
That's why this needs to be offset by higher individual taxes.
illustrative math:
company has $100M revenue, $50M paid in salaries+taxes, $5M "real profit", $0 paid in taxes today because they hide the $5M profit
new proposal
Company has $100M revenue, $55M paid in salaries+taxes, 0M "real profit", $0 paid in taxes
Government now gets to collect $5M in taxes. The burden is higher on salaries+taxes now. This would temporarily push wages down to offset, BUT in the long run it would either (1) the company would have to readjust wages for high performers and (2) increased profits to companies would mean more jobs. Either way, it would simply correct itself.
That's why this needs to be offset by higher individual taxes.
illustrative math:
company has $100M revenue, $50M paid in salaries+taxes, $5M "real profit", $0 paid in taxes today because they hide the $5M profit
new proposal
Company has $100M revenue, $55M paid in salaries+taxes, 0M "real profit", $0 paid in taxes
Government now gets to collect $5M in taxes. The burden is higher on salaries+taxes now. This would temporarily push wages down to offset, BUT in the long run it would either (1) the company would have to readjust wages for high performers and (2) increased profits to companies would mean more jobs. Either way, it would simply correct itself.
But again, the rich don't pay taxes like we do so any proposal that attempts to work by increasing individual taxes just won't work:)
The company is already paying fair wages, more profits won't change that.
in your scenario government revenue goes down as no corporate taxes are now collected and no additional individual taxes will be paid.
How does this help the government?
The company is already paying fair wages, more profits won't change that.
in your scenario government revenue goes down as no corporate taxes are now collected and no additional individual taxes will be paid.
How does this help the government?
> n your scenario government revenue goes down as no corporate taxes are now collected and no additional individual taxes will be paid.
My scenario very clearly illustrated that the government would collect $5M in taxes where they wouldn't have before.
> the rich don't pay taxes like we do so any proposal that attempts to work by increasing individual taxes just won't work:)
Which is why consumption taxes work (hence my suggestion of VAT)
My scenario very clearly illustrated that the government would collect $5M in taxes where they wouldn't have before.
> the rich don't pay taxes like we do so any proposal that attempts to work by increasing individual taxes just won't work:)
Which is why consumption taxes work (hence my suggestion of VAT)
How does that work for corporations that have a lot of non-US employees? That would in effect be a massive tax break for them because only a subset of their employees are paying the higher/new VAT tax.
I mean who cares? Doesn't this sort of already happen for the opposite case?
Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains?
Would be nice if the dividends were taxed. But most corporations return cash using stock buy-backs. They are more tax-efficient (read 0 tax). Also dividends are often taxed at a lower rate than ordinary income and entirely tax-free in some countries.
A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares.
This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
> A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense.
Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
Buyback programs are at the then-current publicly traded rates. They aren't generally at some magical premium, or else the whole trading price of the stock would go up even more.
Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment.
Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment.
Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
I appreciate the lesson, I spent my whole career as a hedge fund trader so I’m familiar.
I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is??
Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is??
Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
You said:
> Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
He's trying to explain to you why stock buybacks don't "literally directly put money in the pockets of investors". If your shares are sold back to the company as part of the buyback you are 1) no longer an investor obviously, and 2) have not realized any gains as a result of the buyback. Investors who did not sell see their shares appreciate, which is different from "putting money in their pockets"
> Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
He's trying to explain to you why stock buybacks don't "literally directly put money in the pockets of investors". If your shares are sold back to the company as part of the buyback you are 1) no longer an investor obviously, and 2) have not realized any gains as a result of the buyback. Investors who did not sell see their shares appreciate, which is different from "putting money in their pockets"
Seriously? You’re going to defend someone’s complete lack of understanding of market dynamics by making a pedantic stand that someone who sold their shares no longer qualifies as an investor?
Well for one, that presupposes that investors sell all of their shares at the same time, which they rarely do. So, I have 100 shares and I sell 10 back to the company. I receive 10 shares worth of cash directly from the company and I still have 90 left thus qualifying me as an investor under your definition.
And secondly, your entire premise is absurd. By your definition, a dividend isn’t a company returning cash to investors because by the time they issue the dividend, it’s no longer their cash, it’s the investors.
You guys just don’t understand this stuff. The real world just doesn’t work the way you imagine it.
Well for one, that presupposes that investors sell all of their shares at the same time, which they rarely do. So, I have 100 shares and I sell 10 back to the company. I receive 10 shares worth of cash directly from the company and I still have 90 left thus qualifying me as an investor under your definition.
And secondly, your entire premise is absurd. By your definition, a dividend isn’t a company returning cash to investors because by the time they issue the dividend, it’s no longer their cash, it’s the investors.
You guys just don’t understand this stuff. The real world just doesn’t work the way you imagine it.
Can you answer the question "who gets money literally put in their pockets as a result of a stock buyback?"
Hint: the answer is... no one. Investors who held see the value of their holdings increase, again, different from "cash in your pocket"
Hint: the answer is... no one. Investors who held see the value of their holdings increase, again, different from "cash in your pocket"
> Can you answer the question "who gets money literally put in their pockets as a result of a stock buyback?"
The investors who sold the shares to the company. Markets aren’t some magical entity that conjure shares out of thin air.
If a company buys back 10 shares, they buy those 10 shares back from an investor who wants to sell 10 shares. That investor now has cash literally in their pocket.
How do you think this stuff works? Where do you think the money goes when companies spend on buybacks?
The investors who sold the shares to the company. Markets aren’t some magical entity that conjure shares out of thin air.
If a company buys back 10 shares, they buy those 10 shares back from an investor who wants to sell 10 shares. That investor now has cash literally in their pocket.
How do you think this stuff works? Where do you think the money goes when companies spend on buybacks?
The investors who sold shares to the company did so at the then-current publicly traded share price. I bet they wish they didn't since the stock value increased after the sale. These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation. Hope that makes it clear!
This is very naive, in incorrect. The stock market goes up on average…investors know this. When they sell it’s usually because they need cash, or they believe there is a better use for their capital. Most people who sell stocks do so knowing that it will continue to go up.
This also has nothing to do with returning cash to investors. They were going to sell the stock anyway. Who cares if it keeps going up? It has nothing to do with the mechanics of a buyback.
> These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation.
What in the ever loving Christ? Why does this matter? You guys just keep moving the goal posts. This simply doesn’t matter and I’m not sure why you guys get hung up on it. Shareholders love buybacks. Why does HN think they have figured something out that millions of other people have missed. It gets so tiring going in circles.
This also has nothing to do with returning cash to investors. They were going to sell the stock anyway. Who cares if it keeps going up? It has nothing to do with the mechanics of a buyback.
> These investors who sold did not benefit from the sale any more than they would have selling on the open market in a non-buyback situation.
What in the ever loving Christ? Why does this matter? You guys just keep moving the goal posts. This simply doesn’t matter and I’m not sure why you guys get hung up on it. Shareholders love buybacks. Why does HN think they have figured something out that millions of other people have missed. It gets so tiring going in circles.
trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system).
The company may stock buy back directly from employee's RSUs, which are taxed as income.
The company may stock buy back directly from employee's RSUs, which are taxed as income.
> The company isn't buying stock above market price (thus adding value to the system).
That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean?
Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean?
Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
I don't think it's accurate to say "you don't have a cent of that money until you sell your home".
Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
>"I don't think it's accurate to say "you don't have a cent of that money until you sell your home"."
That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares).
>"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets."
We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.
That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares).
>"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets."
We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.
>. They are more tax-efficient (read 0 tax).
It's not 0 tax... it's cap gains (short or long) whenever the shareholder sells.
It's not 0 tax... it's cap gains (short or long) whenever the shareholder sells.
It’s not 0 tax for personal after-tax accounts, not for PE, hedge funds, 401k accounts, IRAs, so and so forth. Guess where most of the stocks are actually held. I have 0 in my cash account, lots in my 401k account.
Hedge funds don't spend money... at the end of the day, a human being who wants to reap the benefits of this investment will need to realize gains and pay tax.
Or they could commit to just staring at imaginary numbers in a bank account forever I guess, but then you start to ask existential questions about what inequality actually means if nobody ever spends money.
And yes, 401ks are tax-advantaged... that's the point of the account. It would be equivalently tax-advantaged if companies were paying dividends instead of running buybacks.
Or they could commit to just staring at imaginary numbers in a bank account forever I guess, but then you start to ask existential questions about what inequality actually means if nobody ever spends money.
And yes, 401ks are tax-advantaged... that's the point of the account. It would be equivalently tax-advantaged if companies were paying dividends instead of running buybacks.
Distributions of cash are taxed in most cases regardless of how structured.
The value of your stock might go up. That is taxed if you sell if for cash.
The value of your stock might go up. That is taxed if you sell if for cash.
See my earlier comment. Stock gains are often not taxed (retirement accounts, pension funds, etc) . And private company owners can postpone realized gains for a very long time or put it in a trust.
All corporate taxes combined make up only 7% of the federal government's revenue, and an even smaller percentage of federal spending.
We could end corporate taxes tomorrow and the treasury department would barely notice, but I can't help but imagine the efficiency gains that would ripple across the whole economy. There is so much productivity and human effort and brain power wasted that just goes into minimizing (and maximizing) the amount of tax paid by businesses. Not to mention the way it skews investment decisions.
We could end corporate taxes tomorrow and the treasury department would barely notice, but I can't help but imagine the efficiency gains that would ripple across the whole economy. There is so much productivity and human effort and brain power wasted that just goes into minimizing (and maximizing) the amount of tax paid by businesses. Not to mention the way it skews investment decisions.
> Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains?
The answer is that even if that is the case, it doesn't matter. But let me elaborate.
First - wages paid to workers are out of the equation, since they're deductible; see:
https://www.irs.gov/publications/p535
(caveat: I'm not a USer nor a tax specialist)
As for dividends for shareholders, those are sometimes/often "qualified":
https://smartasset.com/taxes/dividend-tax-rate
and there may be other loopholes I'm not aware of. And the non-qualified tax rate is not that high either.
But then, think of what remains. A business has gotten a bunch of income, untaxed. It is not simply a funnel of money to individuals: A business is a social entity, a social actor - and on a macro level, commercial enterprises are a very powerful part of society (especially the huge ones). Them not being taxed mean they control a larger fraction of society's resources.
Now, sure, when they use that money, it will often end up being taxed further along the way - but that's no different from your income being taxed when you use it. And just like with a business, the income we make eventually gets passed on to others through our purchases or gifts or what-not. So why should we pay any income tax at all? It's faulty logic both for us as individuals and for corporations.
The answer is that even if that is the case, it doesn't matter. But let me elaborate.
First - wages paid to workers are out of the equation, since they're deductible; see:
https://www.irs.gov/publications/p535
(caveat: I'm not a USer nor a tax specialist)
As for dividends for shareholders, those are sometimes/often "qualified":
https://smartasset.com/taxes/dividend-tax-rate
and there may be other loopholes I'm not aware of. And the non-qualified tax rate is not that high either.
But then, think of what remains. A business has gotten a bunch of income, untaxed. It is not simply a funnel of money to individuals: A business is a social entity, a social actor - and on a macro level, commercial enterprises are a very powerful part of society (especially the huge ones). Them not being taxed mean they control a larger fraction of society's resources.
Now, sure, when they use that money, it will often end up being taxed further along the way - but that's no different from your income being taxed when you use it. And just like with a business, the income we make eventually gets passed on to others through our purchases or gifts or what-not. So why should we pay any income tax at all? It's faulty logic both for us as individuals and for corporations.
Wages are part of expenses that are subtracted from revenue that determines profit.
yep, so the extra cash goes to dividends (that are taxed as income to the investor) and buy backs that appear as capital gains taxes.
Nope, and yup respectively.
All the discussion over corporate tax (and unrealized capital gains) seems rooted in pathos, not practical policy. It seems unfair that some corporation pays zero income tax while people pay xx%, so people write firebrand articles to argue that it's unfair.
Nevermind that pathways from corporate income to income an actual natural person can enjoy are patrolled pretty carefully by the taxman. Total receipts might be less than if corporate managers picked a suboptimal strategy, but the operating assumption of tax policymakers _must_ be that actors are rational and wealth-maximizing. We can't write tax policy that admits certain strategy then complain that receipts are lower under that strategy than they might be, just like you can't lose a game, and complain that you would've won if only your opponent was worse.
All the discussion over corporate tax (and unrealized capital gains) seems rooted in pathos, not practical policy. It seems unfair that some corporation pays zero income tax while people pay xx%, so people write firebrand articles to argue that it's unfair.
Nevermind that pathways from corporate income to income an actual natural person can enjoy are patrolled pretty carefully by the taxman. Total receipts might be less than if corporate managers picked a suboptimal strategy, but the operating assumption of tax policymakers _must_ be that actors are rational and wealth-maximizing. We can't write tax policy that admits certain strategy then complain that receipts are lower under that strategy than they might be, just like you can't lose a game, and complain that you would've won if only your opponent was worse.
So many talk about taxes, but very little about their spending. In my experience, government really wastes huge amounts of money on subprime projects.
Although that may be a good thing, redistributing wealth from rich to poor, same what allowed us to climb out of the Great Depression.
Although that may be a good thing, redistributing wealth from rich to poor, same what allowed us to climb out of the Great Depression.
Some of the companies on their list with near-$0 pre-tax US income: AMD, Akamai, FedEx, HP, Nike, Salesforce, VeriSign.
Lies, damned lies, and statistics.
It is not a loophole, it is a deliberate policy to accommodate business plans that simply do not fit in a single tax year. For example, building a chip fab, designing an airliner, creating rocket technology, is a multiyear process. There can be many years of expected losses before it is possible to start showing a profit. It is perfectly reasonable to offset those profits with the years of losses.
It also applies to businesses that expect to have lean and fat years, like farming. It allows companies to rebuild their reserves after years of losses.
BTW, individual taxpayers used to have this, too, it was called "income averaging".