As Washington dives into debate about tax reform this fall, Calcbench wants to help inform the discussion—with our latest research report, looking at cash taxes paid among the S&P 500 for the last five years.

Our analysis, done as usual with our friends at Radical Compliance, found that the average taxes paid by the group in those five years equalled a rate of 22.8 percent; roughly one-third lower than the 35 percent statutory rate often cited in policy debates.

You can download our report, “We Are the 22.8 Percent: Analysis of Taxes Paid Among the S&P 500,” on the Calcbench Research page.

We calculated those rates by dividing a company’s income taxes paid into earnings before taxes, both of which are readily available on our Company-in-Detail or Data Query pages. Our study examined those numbers for all S&P 500 companies that made a profit in the five years of 2012-2016. The average rates fluctuated within a range of 20.32 percent (2016) to 24.58 percent (2014).

We also calculated the implied tax deficit—the difference between what large U.S. companies did actually pay in the last five years, versus what they would pay at the full 35 percent statutory rate. That implied tax deficit was $795.4 billion, an average of $159.1 billion annually over the last five years.

Other key findings of the study include:

  • The 10 firms with the most pre-tax profit in 2016 paid taxes at an average rate of 17.5 percent;
  • Roughly 40 percent of S&P 500 firms studied paid taxes in 2016 at a rate of 25 percent or lower; while 30 percent of the group paid at the full 35 percent statutory level or higher;
  • The 10 firms with the lowest tax rates above zero paid $4.7 million in taxes on $1.54 billion in pre-tax profit— a rate of 0.26 percent.

How does all this square with the Trump Administration proposals for tax reform? Funny you should ask. Last week the administration proposed cutting the corporate tax rate from 35 to 20 percent, ostensibly to make the United States more competitive with lower-tax nations around the world.

For comparison purposes, however, if this S&P 500 group were its own country with a statutory tax rate of 22.8 percent, they would place in the middle of tax rates among the 35 countries in the Organization for Economic Cooperation and Development. (The United States’ statutory 35 percent rate does place it highest among the OECD.)

Granted, companies can only achieve those lower tax rates thanks to aggressive pursuit of tax deductions, exemptions, and other financial maneuvers—and the art of claiming all those items does carry a cost in manpower and consulting. The question is whether those tax management costs, plus the lower tax rates companies pay, equal what companies would pay at the full 35 percent statutory rate without any tax management, deductions, or other exemptions.

If Congress simply cuts statutory tax rates without reforming credits, deductions, and other tax management techniques, businesses will pay even less in taxes, with unclear consequences for the federal deficit. If Congress cuts statutory rates to 20 or 25 percent, and does also eliminate various deductions and tax management techniques, that would simplify the tax code for corporations without any adverse risk of higher deficits.

You can download and read our full paper on the Calcbench Research page. We also look at the spread of tax rates among the S&P 500 in 2016 (a lot of companies paid much less than 22.8 percent), and list the firms with lowest tax rates overall. We also list the 10 companies with the most earnings before taxes, and the tax rate each one paid.

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