5 Charts Show How Tax Reform Can Tackle Bad Corporate Behavior

The Build Back Better agenda under negotiation in Congress includes sweeping public investments to make our economy more equitable, sustainable, and resilient in the face of future crises. Another major potential benefit: several tax reforms on the table to help pay for the plan would also reduce economic inequality and curb harmful corporate behavior.

Here we highlight corporate tax proposals in play on Capitol Hill that are designed to discourage corporate tax dodging and offshoring, excessive CEO pay, and wasteful stock buybacks.

Corporate tax dodging and offshoring

For decades, large corporations have pitted countries against each other to drive their own tax bills lower and lower. This has put an enormous strain on public budgets for education, health care, and other vital investments. In the United States, the percentage of total federal revenue from corporate tax receipts dropped from 32.1 percent in 1952 to 6.6 percent in 2019, according to the Office of Management and Budget.

The Biden administration has just forged a deal with more than 130 governments aimed at ending this global race to the bottom. Each of these governments has agreed to charge large corporations a “global minimum tax” on profits of at least 15 percent.

Through rampant abuse of tax havens and other loopholes, many U.S. corporations have gotten away with paying a much lower effective tax rate (The effective rate is what corporations actually pay, while the statutory rate is what they owe before accounting for tax breaks and credits). One government survey found that U.S.-based multinationals paid an average U.S. tax rate of just 7.8 percent in 2018. The Institute on Taxation and Economic Policy found that 55 large, profitable U.S. corporations actually paid zero in federal income taxes last year.

The new corporate minimum tax would generate U.S. revenue of an estimated $148 billion over a decade. This would go a long way towards covering the costs of vital investments in the Build Back Better agenda. For example, it is more than enough to pay for universal free community college and more than twice as much as the cost of building affordable, accessible housing for more than 300,000 families.

Democratic lawmakers are also considering closing various other loopholes that have encouraged use of offshore tax havens. The House Ways and Means Committee has proposed other international tax reforms that would raise more than $300 billion over 10 years, while President Joe Biden’s more comprehensive plan would raise as much as $1 trillion.

Corporate tax rate increase