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Warren’s Misleading Motivations for Tax Reform

Write-Off: The Tax Blog

Senator Warren has long pushed for a host of new taxes. Not just higher taxes, but new types of taxes unlike the ones in our current system. We and others have argued that some of these are notably bad ideas (see here, here, and here for examples). But, what is worse than a tax that is a bad idea? A tax that is a bad idea, motivated by half-truths and cherry-picked examples.

Exhibit A is Senator Warren’s recently released report in support of taxing companies’ financial accounting income, entitled “Tax Dodgers: How Billionaire Corporations Avoid Paying Taxes and How to Fix It.” The report is frequently misleading and doesn’t in any way describe how corporations avoid paying taxes. The public deserves greater context and a deeper knowledge of the facts. The report is full of these examples—we will handle just the first three sentences of the report.

First: “America’s largest corporations have rigged the tax code in their favor, employing armies of lobbyists and accountants to write and abuse the rules so they can avoid paying their fair share of taxes.” Yes, corporations do lobby Congress. For example, political action committees from Apple, Amazon, Microsoft, AT&T, IBM and Google’s parent Alphabet all have contributed more than $100,000 to Elizabeth Warren. But do they abuse the tax code? Some certainly do. However, if this were as pervasive as the first sentence suggests, shouldn’t the report be full of examples of actual abuse? Instead, it highlights companies that paid little in tax largely by obeying the law, and doesn’t provide any instances of actual wrongdoing.

Second: “In 2020, DISH Network—one of the most profitable companies in the United States—reported $2.6 billion in global profits and paid their founder and chairman almost $95 million.” In 2020, DISH was the 1,266th most profitable public company in terms of return on assets (what many people mean when they say “profitable”) and had the 234th highest pre-tax profits. That doesn’t qualify as “one of the most profitable.” And yes, the founder and chairman indeed had total compensation of nearly $95 million in 2020. But this same individual received $2.4 million in 2019, and $3.1 million in 2018. In 2020, the CEO received $5.3 million, and the CFO $1.5 million. So, $95 million is not normal for the founder, the CEO, or the CFO. DISH is a cherry-picked example in a cherry-picked year. Further, what does compensation paid to a founder have to do with taxes?

Third: “But the company [DISH] paid no federal income tax and even received a $231 million tax refund from the U.S. government.” DISH likely paid no federal income tax in 2020, but this is misleading. In 2019 they had $173 million of current federal tax expense, and between 2010 and 2019, DISH has averaged $141 million of current federal tax expense per year. The report’s number represents a one-time dip. Again, another cherry-picked example. As for the refund, negative $231 million is indeed the amount of current federal income tax expense, but DISH’s financial statements also show that it paid $151 million in total income taxes in 2020 and had a 27.1% GAAP effective tax rate. Incidentally, one of the reasons DISH didn’t pay any tax in 2020 was because Congress, including Senator Warren, passed the CARES Act, which increased companies’ ability to use net operating losses to offset income. How do these facts fit into the report’s narrative? Finally, Senator Warren cannot know exactly how much DISH paid in federal income taxes or received in a refund, and, if she did, based on IRS data, it would be a crime for her to disclose it.

There are serious problems with our tax code. Reasonable people can disagree on how to fix those problems. But it is not useful to motivate a discussion of tax policy with non-representative, cherry-picked, and sometimes misleading statements.

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