There are a number of reasons why a profitable company may not pay taxes. For instance, years of deep losses can affect a tax bill.
Take United Continental, which reported a $3.2 billion income tax credit in 2015 despite reporting earnings before taxes of $4.2 billion. Accounting rules allow the airline to offset taxes due with valuation allowances resulting from losses in past years. During 2015, these allowances amounted to $4.7 billion which erased the company's $1.5 billion tax bill based on its normal corporate tax rate.
from Common Dreams by Hunter Blair
The Republican tax plan claims to be helping small businesses with a new loophole that’s actually tailor-made for the rich. The loophole is a new 25 percent top tax rate for pass-through businesses. Pass-through businesses are those that retain no earnings and pay no taxes at the business level. Instead, all profits are “passed-through” to the business owners, who then pay their individual income taxes, just like you and me.
This means that while almost all genuine small businesses are pass-throughs, not all pass-throughs are genuine small businesses. For example, pass-through income has exploded in recent decades, and most of this increase is not attributable to mom-and-pop stores, but to hedge funds and law firms and private equity partners. In fact, 49 percent of all pass-through income goes to just the top 1 percent of households. This makes pass-through income one of the most concentrated-at-the-top income categories in the entire economy.
This also means that the only straightforward tax cut provided by the loophole proposed in recent Republican tax plans is for rich households, not most small businesses. For example, take a married couple whose small restaurant made them $150,000 in net profits. They will not be helped by this proposal because they’re already paying a 25 percent marginal income tax rate. 86 percent of households with pass-through income already pay 25 percent or less, so will see nothing from this Republican tax plan. The people this pass-through loophole helps wealthy people like President Trump, whose top tax rate on income from more than 500 pass-through businesses would fall from 39.6 to 25 percent.
Hunter Blair is a budget analyst for the Economic Policy Institute, in which capacity he researches tax, budget, and infrastructure policy.
So, even if cutting corporate tax rates (and thus permitting higher retained earnings) did lead to more investment, there’s no guarantee workers’ wages would increase as a result. They haven’t for decades now. Why should that change in the future?
Moreover, there’s no guarantee higher retained earnings would lead to more investment. Just as likely (perhaps even more so), corporations would be able to use their profits for other purposes—including higher CEO salaries, increased dividends to stockholders, and more mergers and acquisitions—which have nothing to do with raising workers’ wages.
The only result would be more corporate power and more obscene levels of inequality in the United States. And that’s no lie.