| Abstract: |
EXECUTIVE SUMMARY *** Concerns about the market power of large corporations
are growing. There are good reasons why monopoly now features so prominently
on the political and economic agenda. Mounting evidence shows that corporate
concentration stifles innovation and investment, resulting in lower-quality
goods and services and less economic dynamism. Concentration is also a
catalyst for rising wealth and income inequality, as monopolistic firms are
able to suppress workers’ wages and charge consumers higher prices. *** Most
of the public policy debate has been focused on the role of antitrust law in
combating the monopolistic practices of large corporations. But recently, the
focus has shifted somewhat, as more and more people come to recognize the role
of federal and state-level taxation in understanding corporate concentration
in the US. Yet, there are still many questions about the effect of taxation on
market structure: Is there a tax advantage associated with bigness, as
measured by revenues? If so, is this advantage confined to a few “bad apples”
or is it widespread among large corporations? What role do the domestic and
foreign tax systems play in encouraging monopoly power? What does an analysis
of the relationship between tax and monopoly tell us about wider macroeconomic
shifts in the US economy over the past few decades? *** The purpose of this
brief is to address these questions by analyzing and comparing the overall
effects of the US tax code on the profit share of large and smaller
corporations. *** Our analysis reveals a striking tax advantage for big
business in the US. Specifically, we find that the total post-tax profit share
of the top 10 percent of listed corporations since the mid-1980s is
consistently and significantly higher than their total pre-tax profit share,
indicating that the overall tax structure (domestic and foreign) fuels profit
concentration at the top of the corporate hierarchy. For example, in the most
recent period covered in our analysis, 2019–2022, the overall tax structure
has boosted the post-tax profit share of large corporations by 2.32 percentage
points relative to their pre-tax share. We then assess the contribution of
different tax jurisdictions to concentration by estimating the pre-tax and
post-tax profit shares of large corporations, domestically and
internationally. Here, our analysis reveals that the domestic tax structure is
especially influential in driving concentration. Over the past four decades,
the domestic post-tax profits of large corporations have been much larger than
their pre-tax share, with the domestic tax structure augmenting the profit
share of large corporations by 3.79 percentage points in 2019–2022. The effect
of the foreign tax structure on profit concentration is more ambiguous. In
most periods it is either slightly positive or slightly negative. For
2019–2022, the foreign post-tax profit share of large corporations was 0.87
percentage points higher than their pre-tax share. Based on these findings, we
argue that the tax structure, especially the domestic tax structure, plays a
crucial but still underappreciated role in exacerbating the monopoly problem.
*** We go on to consider the wider consequences for the US economy of big
business’s tax advantage. The political justification for corporate tax
cuts—including those that were part of the Tax Cuts and Jobs Act (TCJA) of
2017—is that they would free up money for companies to invest in productive
capacity, in turn generating higher employment and wages. But as our analysis
shows, the capital expenditures of large corporations tend to decrease, not
increase, when their tax advantage grows. Instead of fueling productive
investment, the tax savings of large corporations are principally used to pay
out dividends and buy back their own stock. This means that large corporations
are less disposed to investments that may indirectly benefit ordinary workers
and more disposed to shareholder value enhancement that directly benefits the
asset-rich. Overall, we find that the tax system contributes in crucial ways
to rising corporate concentration and to widening inequality among households.
*** With the objective of leveling the playing field, our findings offer
powerful justification for the restoration of graduated statutory corporate
income tax rates in the US alongside a global minimum effective tax rate of 25
percent and a graduated excise tax on share buybacks. The monopoly problem has
become endemic to US capitalism, and corporate tax reform on its own will not
solve it. Yet one clear advantage of taxation is that it has a direct, and
therefore much more easily discernible, effect on distributive outcomes
compared to other policy measures. A more holistic approach, combining
corporate tax reform with more robust antitrust regulation, the strengthening
of workers’ rights, and increased public ownership in key sectors, is needed
to build an economy based on equity, fairness, and prosperity for all. |
| Keywords: |
big business, centralization, concentration, corporation, distribution, dominant capital, production, inequality, power, profit, shareholders, tax, United States |