The government spending bill that was just passed through the Senate and awaits approval from Congress is estimated to total nearly $1.7 trillion.
While it will fund a variety of initiatives like aid to Ukraine and enhanced retirement savings, it will not extend “accelerated depreciation” tax breaks, which were initiated during the Trump administration and seen by many as corporate tax cuts.
According to a recent report from the Institute on Taxation and Economic Policy (ITEP), 23 companies saved a combined $50 billion through these tax breaks from 2018-2021.
Verizon (VZ) saved nearly $5.13 billion, earning it the top spot on the list. Google (GOOGL) took second with roughly $4.7 billion in tax breaks, followed by Meta (META) at $3.8 billion, Intel (INTC) at almost $3.3 billion, and FedEx (FDX) at $3.2 billion.
The 23 companies paid a combined $78.6 billion in federal corporate income taxes during that time, which was 8.9% of their $886.6 billion in reported profits. The standard corporate tax rate is 21%.
On an individual level, the tax rates varied widely. For example, Duke Energy (DUK) had a negative tax rate of -10.6%, General Motors (GM) paid 0.2%, and Target’s (TGT) rate was 15.9%.
‘The indirect effect’ of reducing government revenue
The origins of the bonus depreciation tax cut began with a decade-old federal income tax law known as “accelerated depreciation,” which allows businesses to file for subsidized taxes for equipment not used as often and nearing old age.
Then-President Trump took it a step further with the Tax Cuts and Jobs Act (TCJA), creating the “bonus depreciation” law.
From 2018 to 2021, the “bonus depreciation” law gave corporations additional tax breaks with the existing accelerated depreciation law. Companies could receive a full tax deduction the same year they purchased equipment or assets instead of making smaller deductions over a longer period of time as the equipment wore out.
According to public accountants at Blue & Co., there are pros and cons to utilizing 100% depreciation. On the plus side, it reduces overall tax liabilities. On the negative side, however, it can prevent future deductions, especially in a financial year with low revenue.
The Trump administration argued that “bonus depreciation” would increase investment, but according to the Center for American Progress, business investments slowed down dramatically by mid-2019 before plunging in 2020.
High inflation benefits bonus depreciation by allowing companies to delay tax payments. For example, a company that delays a $100,000 tax bill until 2030 would effectively see its payment reduced relative to its value in 2022 due to the effects of inflation. This loophole allows corporations to avoid federal taxes for years, according to ITEP.
“These tax breaks have no direct effect on the common population, but they have the indirect effect of reducing the revenue that the government has to invest in anything else like highways, education, defense, that might benefit Americans,” Steve Wamhoff director of federal tax policy, told Yahoo Finance.
This can create a tax burden shift in which consumers are left with higher sales taxes and income inequality becomes more prevalent. In 2021, over 10% of government revenue relied on business taxes.
“If you look at what has happened over the last 40 years, the bottom 90% has stagnated,” Nobel Prize economics professor Joseph Stiglitz said during a Columbia University panel discussion. “The top 1% has done extraordinarily well.”
President Biden’s Build Back Better Act (BBBA) increased taxes on companies with a “minimum tax” and individuals in the top tax brackets (earning above $400,000).
Critics believed it will deplete investment incentives. But according to an analysis by Brookings, it will grow jobs by 2 million and help raise government revenue each year.
“Inflation is a real issue affecting the lives of Americans,” the ITEP report stated. “Families everywhere are grappling with higher prices. It does them no good to provide a corporate tax break to reward businesses for making investments they would have made anyway.”
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Tanya is a data reporter at Yahoo Finance. You can follow her on Twitter @tanyakaushal00.
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