(C) Minnesota Reformer
This story was originally published by Minnesota Reformer and is unaltered.
. . . . . . . . . .



We should know what large corporations pay in state taxes • Minnesota Reformer [1]

['Eric Harris Bernstein', 'More From Author', 'March']

Date: 2024-03-06

Americans don’t agree on much these days, but 80% of us agree that corporations do not pay their fair share of taxes, according to a recent Pew poll. On Monday, Minnesota Rep. Emma Greenman, DFL-Minneapolis, introduced a bill that could do something about it.

HF4513 would make the state tax returns of large corporations public. It’s a simple but powerful idea that would help restore trust and transparency in a corporate tax system tilted towards the rich and powerful.

Greenman’s bill — and a Senate companion bill by Sen. John Marty, DFL-Roseville, comes amidst a week of House Taxes Committee hearings targeting corporate power and accountability. Rep. Mike Howard introduced a bill that would require the Department of Revenue to study the scale of multinational corporate tax avoidance and make recommendations on how to confront it.

Tying these ideas together was a must-see research briefing in the House Tax Committee by Niko Lusiani of the New York-based Roosevelt Institute. Lusiani’s work explores the connection between monopoly power and corporate tax avoidance, and his presentation provided a powerful justification for the sort of transparency Greenman, Howard, and Marty are proposing.

To start, it’s clear that something is wrong with America’s approach to corporate taxation. When measured as a share of the economy, U.S. corporate profits are near an all-time high, while corporate tax collections are near a historic low.

A new study by the progressive-leaning Institute on Taxation and Economic Policy echoes this observation at the individual company level. Examining 342 major publicly traded corporations, ITEP found that 87 companies paid less than half of the federal statutory rate of 21%, while 55 paid less than 5%. The overall average effective tax rate of 14.1% is substantially lower than the current legal rate, which is itself far lower than the 35% rate that was law before the 2017 Trump tax cuts.

The unsurprising result is a greater burden on workers and families. While corporations have contributed as much as 40% of all federal taxes in the past, they chipped in less than 10% in recent years.

But the real focus of Lusiani’s presentation was to show how the rise of corporate wealth and the decline of corporate tax payments are really symptoms of a deeper problem.

Decades of mergers and eroding regulation have placed ever more power and wealth into the hands of a small number of very large corporations, and that’s having a corrosive effect on virtually every aspect of our society.

The rise of monopoly power undermines the basic value proposition of a market economy. In theory, a competitive market creates value because businesses are forced to compete for workers and consumers. If their product is too flimsy or too expensive, then people won’t buy it; if their wages are too low, people will work somewhere else.

But in our increasingly cartel economy, there is too little competition to ensure positive outcomes. Instead of creating better products, corporations can now increase profits simply by raising prices. And indeed, data show the rise of profit-seeking price increases during the recent inflationary period, as confirmed on the earnings calls of many publicly traded companies.

This is a dangerous pattern, and not just for Americans’ bank accounts. High margins and unearned profits feed a corporation’s ability to purchase more of their competitors and to lobby for even more preferential treatment in public policy. One of the most compelling revelations of Lusiani’s presentation was the stark advantage this has given to big businesses over smaller ones.

In the early 1970s, the largest 10% of firms earned just over 70% of total U.S. profits compared to more than 90% from 2019 to 2022. To make matters worse, the top 10% received a higher share of profits after taxes than before. That means they are not just earning more profits, but paying substantially lower tax rates than their lower-earning counterparts.

From higher prices to lower quality products to greater inequality, it would be hard to overstate the impact that our monopolistic economy is having on household economics, social well-being, and — ever since the U.S. Supreme Court’s Citizens United ruling greenlit unlimited political spending — our national politics.

Greater transparency in state taxes won’t solve all of these issues, but it will give Minnesotans more information with which to judge how our policies are serving the public interest. Seeing the state tax returns of large corporations would help us better understand the concentration of corporate profits and tax avoidance; it would also tell us who is benefiting from billions of dollars in corporate tax breaks.

The rise of corporate power is problematic for many reasons, but its most pernicious effect is to instill the belief that we are powerless in the face of massive private wealth. But we are not.

Minnesota has the highest state corporate income tax in the country, and for several years now, our corporate tax revenues have put the lie to claims that strong tax policies will hurt the economy and reduce tax collections: In addition to higher corporate taxes, Minnesota has one of the strongest economies and highest standards of living in the country.

Policymakers should not back down from efforts to ensure major corporations pay what they owe.

Last year, Minnesota earned national attention when legislators proposed a bold solution to international tax avoidance: Worldwide combined reporting promised to restore integrity to our tax code by taxing corporations based on Minnesota’s share of total global sales and profits, rather than just those declared within the United States, thus reducing corporations’ ability to hide revenue in foreign tax havens. The policy passed both houses but was abandoned during conference committee negotiations.

For all of us who oppose a corporation’s ability to effectively choose their own tax rate, it was a tough loss. But corporate tax disclosure and a government study of international corporate tax avoidance would be meaningful steps in the right direction.

The transparency proposal, in particular, will ruffle some feathers. But in truth, it is not a very radical idea.

Non-profits, labor unions and all publicly traded firms are already required to disclose far more detailed financial information. SEC-mandated 10-K forms, completed by all publicly traded companies, must include gross national revenue, profits, taxes, as well as executive compensation. Non-profit IRS 990 forms are also posted publicly and include not only detailed breakdowns of organizational revenues and expenses, but information on high-paid employees, programmatic operations, and more.

In this light, requiring state tax disclosure for corporations grossing more than $250 million in national sales seems not only reasonable, but somewhat milquetoast.

Consider the legal benefits we bestow on corporations: A corporate charter shields shareholders from personal liabilities and grants them a wide range of special tax privileges. Corporations also benefit from public investments that provide a skilled workforce through K-12 and higher education, a superb health care system that keeps those workers healthy, and the nation’s fifth-largest road network to move their products and workers.

Asking for some basic transparency in exchange for a corporate charter is a fair tradeoff.

The bill even takes steps to minimize hassle and red tape. It doesn’t require any accounting or administrative burdens not already incurred during the process of filing taxes, and it includes a 3-year delay before returns are made public, so as to shield disclosing corporations from any anti-competitive side-effects.

One might even entertain an argument that, by revealing the oppressive reality of Minnesota’s corporate taxes, greater transparency could convince Minnesotans that taxes on major corporations are simply too high.

But I wouldn’t bet on it.

[END]
---
[1] Url: https://minnesotareformer.com/2024/03/06/we-should-know-what-large-corporations-pay-in-state-taxes/

Published and (C) by Minnesota Reformer
Content appears here under this condition or license: Creative Commons License CC BY-NC-ND 4.0.

via Magical.Fish Gopher News Feeds:
gopher://magical.fish/1/feeds/news/MnReformer/