Tesla and 113 other companies paid no current federal income tax, but they still aren’t the biggest threats to the federal deficit, think tank warns | Fortune

The current effective corporate income tax rate in the United States has reached its lowest point in decades, leading to rising concerns among policy analysts regarding the revenue available to the federal government. A report from the Institute on Taxation and Economic Policy (ITEP), a progressive think tank, reveals that over 700 profitable corporations collectively paid an effective federal income tax rate of just 10.4% last year, significantly lower than the statutory rate of 21%. Among these, more than 250 companies had effective tax rates below 7%, and notably, 114 companies—including prominent names like Tesla, Walt Disney, United Airlines, and DoorDash—did not pay any federal income taxes during the period.

ITEP's analysis was based on annual financial statements submitted to the Securities and Exchange Commission (SEC), rather than Internal Revenue Service (IRS) data, which tends to lag behind SEC disclosures. The decline in corporate tax revenue has been particularly pronounced since the Trump administration, which implemented a series of tax cuts aimed at stimulating capital investment, even as corporate profits have surged. Recent data from the Treasury Department indicates a 15% drop in corporate income tax revenue, amounting to roughly $70 billion, bringing total revenue down to $381 billion for the fiscal year ending on September 30. This decline is part of a broader trend, with corporate tax revenue down more than 25% since 2024, during former President Joe Biden's administration.

The decrease in corporate tax revenue has raised alarms among some experts, who worry about a growing federal deficit and the government's capacity to sustain itself financially. The Congressional Budget Office has projected that President Trump’s One Big Beautiful Bill Act (OBBBA) could increase the federal deficit by $3.4 trillion over the next decade, primarily due to a $4.5 trillion decrease in revenues, offset by a $1.1 trillion reduction in spending. Meanwhile, corporate profits have reached a record high of $4.7 trillion over the past year, reflecting a 17% rise from the previous year.

However, rather than focusing on the 114 corporations that paid no federal income taxes, ITEP senior fellow Matt Gardner emphasized that the larger issue lies with the hundreds of firms that benefit from reduced tax rates. Last year, the 706 companies that paid lower rates collectively saved $198 billion due to corporate tax breaks, while the 114 companies that paid no taxes accounted for a small fraction of this total. “There’s a real concentration of profits at the top, and when those companies pay anything less than 21%, that’s really what is knocking a hole in our corporate tax laws right now,” Gardner stated. “Their profits were so huge that their tax avoidance is way more consequential for the federal government’s capacity to function than the zero tax corporations are.”

Corporate tax breaks have been utilized for decades, but the Trump administration has made significant cuts to these taxes, beginning in 2018 with the reduction of the federal corporate income tax rate from 35% to 21%. The OBBBA, passed in July, extended the 21% rate and made several tax breaks permanent, including provisions for immediate expensing of domestic research and development costs, as well as 100% bonus depreciation for qualifying property acquired after January 2025. Gardner noted that companies have particularly capitalized on these breaks, with the four largest beneficiaries—Alphabet, Microsoft, Amazon, and Meta—collectively saving $46 billion through these incentives to fund extensive AI infrastructure developments.

Meta has faced scrutiny for its use of the R&D tax break, as reports suggest the company classified its AI data centers as experimental "pilot models" to qualify for the tax benefit. Senators Ron Wyden, Sheldon Whitehouse, Elizabeth Warren, Catherine Cortez Masto, Maggie Hassan, Ben Ray Luján, and Peter Welch have requested clarification from Meta CEO Mark Zuckerberg regarding how the investments Meta claims for tax breaks differ from standard data center expenses, with a deadline set for October 31. In their letter, the senators acknowledged that while the federal research credit supports innovation, subsidizing AI data center construction does not meet this standard.

In response, Meta defended its position, stating that it has invested over $200 billion in R&D in the U.S. over the last five years, including $57 billion in the last year alone. A spokesperson for the company argued that AI-optimized data centers are fundamentally new and require significant testing and experimentation, which aligns with the intent of the tax incentives established by Congress. Gardner anticipates that the trend of relying on depreciation and R&D bonuses will persist, given the permanent features of the tax laws enacted during Trump's presidency.

There are differing perspectives on the issue of corporate income taxes. Some argue that increasing corporate taxes could generate more revenue, thereby reducing the deficit and potentially lowering interest rates, which could foster economic growth. Conversely, other experts contend that raising corporate taxes could discourage investments and diminish the United States' competitiveness in the global market, ultimately stifling economic opportunities.