Trump touts cut to corporate tax rate, but many CT companies already pay less
Washington – President Donald Trump’s framework for a tax overhaul would cut the top rate corporations pay from 35 to 20 percent, but many corporations – including some headquartered or with a large presence in Connecticut – already are paying less than the corporate rate.
United Technologies paid an effective tax rate of about 26 percent in 2016, Xerox about 21 percent, Travelers 26 percent, Pfizer 18 percent, General Electric about 1 percent, and Hartford Insurance less than 1 percent.
The reason many companies pay less than the 35 percent rate is that they keep profits overseas – where they are taxed at a lower rate – and/or take a number of tax breaks and deductions, said Michael J. Graetz, a Columbia University professor of tax law.
On Wednesday, during a speech in Harrisburg, Pa., Trump told a crowd of truckers they would be “major beneficiaries” of his tax plan, an outline that Congress is using as a basis for a tax code overhaul.
“You are going to make more money, you are going to do better than ever before,” Trump promised the truckers.
Trump said American households would gain an average of $4,000 in income. That calculation comes from a speech that Kevin Hassett, chairman of Trump’s economic advisers, gave last week.
Hassett said a “back of the envelope” calculation showed that if American companies had not kept 71 percent of their foreign-earned profits overseas last year, American workers would have had a 1 percent raise. Over eight years, Hassett said, that would translate into a raise of $4,000 for the typical household.
Trump’s tax plan also proposes to give American companies a one-time chance to repatriate their foreign profits at a much lower tax rate.
“We will eliminate the penalty on returning future earnings back to the United States, and we will impose a one-time, low tax on money currently parked overseas so it can be brought back home to America where it belongs,” Trump said.
Critics say that companies that return overseas profits won’t necessarily use that money to give workers raises and that much of it could go to stockholders and investors.
Sen. Bernie Sanders, I-Vt., blasted the plan to cut corporate taxes, saying it’s “based on the widely discredited theory of ‘trickle-down economics,’ will provide virtually no benefit to truck drivers and will result in a tax increase for tens of millions of middle class Americans.”
Matt Gardner, senior fellow at the Institute of Taxation and Economic Policy, said Trump’s plan to give corporations with profits overseas a “tax holiday,” would unfairly reward companies like Pfizer, United Technologies and General Electric that moved money abroad to avoid paying U.S. taxes.
“They did not move the money because they wanted to invest in other countries, but because they didn’t want to pay taxes in the United States,” he said.
But Columbia’s Graetz said the 35 percent U.S. corporate rate is the highest among industrialized nations and should be reduced to encourage U.S. companies to repatriate profits. He estimates U.S. companies have more than $2.5 trillion in profits offshore.
“The corporate rate is too high because it creates incentives to locate deductions here and income abroad,” he said.
But with the key details of the Trump tax plan left up to Congress, Graetz said, “it seems too early to tell” the impact of the planned overhaul on average Americans – or the corporations it aims to help.
“It’s a frame without a picture,” Graetz said of the tax plan.
In order to pay for the reduced corporate tax rate, Congress may eliminate tax breaks and deductions companies now use to reduce their tax burden.
“They like to tell you the good news and hold back the bad news,” he said.
Some popular corporate tax deductions include the write-down of major assets, spending on research and development and on alternative fuel sources.
“This is a long overdue first step, but until further details of the framework proposals are released, Xerox cannot reach a conclusion on how it would impact us,” said company spokesman Bill McKee.
Xerox was able to pay a tax rate of under 21 percent last year, in part because of a number of U.S. corporate tax breaks, foreign tax credits and retirement plan costs.
The Hartford Insurance Co. said it paid hardly any corporate taxes last year because it had pervious net operating losses after deductions “which federal tax law allows us to carry forward until they are absorbed.”
Not all companies pay less than the 35 percent corporate rate, however.
Aetna paid 44 percent in corporate taxes last year, in part because of the Affordable Care Act’s health insurance tax, although that tax is passed on to policyholders.
Health insurers are seeking a permanent end to the tax as part of an ACA overhaul.
Sign up for CT Mirror's free daily news summary.
Free to Read. Not Free to Produce.
The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.YES, I'LL DONATE TODAY