March 25, 2021

At Hearing, Warren Makes Push for Big, Profitable Companies to Pay Their Fair Share in Taxes

She will Introduce a Real Corporate Profits Tax to Ensure Tax Avoiding Companies Contribute

Video of Hearing Exchange (Youtube)

Washington, DC - In a Senate Finance Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) made the case for the need to tax America's largest and most profitable companies by highlighting corporations' ability to game the tax system to drive down their tax liability. She also announced her plans to introduce legislation to make a tax on book profits for the largest, most profitable companies in America.

Between 2018 and 2020, the corporate tax rate was 21 percent, but Amazon paid only a 4.3% effective tax rate through various loopholes, deductions, and profit- shifting schemes despite earning over $40 billion during that three year period. 

In response to Senator Warren's questioning about whether this kind of tax avoidance is unusual, Dr. Kimberly Clausing, the Deputy Assistant Secretary (Tax Analysis) at the Department of the Treasury, said that there's a "wide recognition" that these kinds of loopholes are "very common."

Senator Warren concluded by saying that a small flat tax on book profits would ensure that even the companies that are most skilled at gaming the tax code would have to contribute their fair share. She also noted that President Biden agrees and has proposed a similar tax on book profits. 

Transcript: How U.S. International Tax Policy Impacts American Workers, Jobs, and Investments 
U.S. Senate Committee on Finance
Thursday, March 25, 2021

Senator Warren: Thank you, Mr. Chairman. 

So we've got a lot of work to do to fix the international tax system, and I'm looking forward to working with my colleagues here to do that.

A good place to start is to be clear about the extent to which giant corporations who are already manipulating the tax code to avoid paying their fair share.

Dr. Clausing, between 2018 and 2020, what was the corporate income tax rate?

Dr. Clausing: Corporate tax rate was 21 percent at the regular rate. 

Senator Warren: Okay. 21 percent.

So, Dr. Clausing, how much profit did Amazon make and what tax rate did Amazon pay during that same 3-year period? 

Dr. Clausing: So there was a recent high tech study that looked at this, and Amazon earned over $40 billion dollars over that three year period, and paid about 4.5 % tax rate. 

Senator Warren: Oh, okay. So how is it possible that Amazon was able to rake in profits like that and pay only a 4-- I think it's about a 4.3% tax rate when the corporate income tax rate was 21%?

Dr. Clausing: Yeah. So there are lots of reasons that we've discussed in this hearing today about why U.S. companies end up with very low tax burdens. And I think that the one that we focus on here the most is the international profit shifting problem. And Amazon, as well as many other companies, have benefitted from the favorable treatment that our tax code provides for international profit shifting. There are also other reasons why companies pay less in tax. Those might include receiving large R&D credits. Or having losses in past years that might reduce their tax liability. Or on paying a lot of documentation, which is favorably treated in tax laws as well.

Senator Warren: Okay, so you've given us the technical names that I think probably the rest of us would call them loopholes and tax shelters that they've used to drive down their liability. But let me ask. Is this kind of manipulation that Amazon used unusual? 

Dr. Clausing: Yeah. I would say there's a wide recognition that the kinds of loopholes that we've been talking about today are very common, and there's a lot of agreement on this. So, some of our witnesses have focused on disagreement, but I would point out that the American Enterprise Institute, the Tax Policy Center, economists at OTA, at the Treasury, and economists at the JCT. They all agree that-- that profit shifting is a very large problem, and they put out revenue estimates that suggest very similar magnitudes across all those different organizations. So this is a very common and a very large problem, and I think that's why it's so important to have this hearing today is to be able to address--

Senator Warren: Good.

Dr. Clausing: You know, this rampant avoidance of tax. 

Senator Warren: So-- So let me ask then, Ms. Huang. If we applied just a flat 7% tax on the more than $20 billion dollars in profits that Amazon reported to investors in 2020, Amazon would have paid nearly $1.5 billion dollars more in taxes. If we applied a 7% flat tax to the more than 1,000 corporations that reported more than $100 million in profits, would that help ensure that big companies paid their fair share-regardless of loopholes and other tax avoidance schemes?

Ms. Huang: Senator, that's an idea that just makes so clear how easy it is for companies to control what they report on paper. Whether it's for tax purposes or whether it's the financial reporting purposes. And as you're pointing out, sometimes neither of those pieces of paper can reflect what's going on in the real world. In fact, (inaudible) get at that by making them both look more like the real world. Or as in your proposal, you can target the gap between them which would also (inaudible) backstop on the first approach. So I think that makes crystal clear what the problem is. 

Senator Warren: Yea. Well, you know, something has to change. And I'm all for raising the corporate tax rate. I'm all for closing loopholes. I'm all for shutting down tax havens.

But we also need to recognize that corporations will never stop trying to bend the rules. You know, when you plug one loophole, they're going to bring in armies of lawyers, and lobbyists, and accountants to try to find another one.

A small tax on profits - like the number that CEOs like to brag about: their book profits - would ensure that even the companies that are most skilled at gaming the tax code would have to contribute a fair share. President Biden agrees, and he has proposed a similar tax on book profits. And in the coming weeks, I'm going to be introducing legislation to make a tax on book profits for the largest, most profitable companies in America a reality. I think it's time for this.

Thank you, Mr. Chairman.