Big Business Catches a (Tax) Break--Again

It's no secret that most markets are dominated by only a few large firms: think Lowe's and Home Depot when it comes to home improvement, Target and Walmart when it comes to discount stores, or Delta, United, American, and Southwest when it comes to airlines. Or at least it shouldn't be a secret. Economists and other observers have been pointing that out since at least the 1930s, when economists such as Joan Robinson and Edward Chamberlin began identifying so-called imperfect or monopolistic competition.

The last few years have seen a renewed attention to the subject. In 2017 and again in 2018, for example, the business school at the University of Chicago held two conferences on the dangers posed by oligopoly, the technical term for a market dominated by only a few companies. That such events were held at Chicago is notable in itself: Chicago has long been identified with an approach to economics that emphasizes that people make good decisions. If oligopoly exists, it must be because consumers deem it good for themselves.

Missing from recent discussions, however, has been taxation. That's where an article in the June 2020 issue of Politics & Society comes in. The article, titled "The Tax Advantage of Big Business: How the Structure of Corporate Taxation Fuels Concentration and Inequality," is by two political economists in London, Sandy Brian Hager and Joseph Baines. Hager and Baines show that the taxes paid by the biggest corporations have declined over the past forty years to the point where the biggest now pay a smaller percentage than those below them.

In other words, taxation, when it comes to corporations, is regressive. According to Hager and Baines, in the mid-1970s, the biggest corporations had an effective tax rate of 37%. Today, the rate is 28%. At the same time, the rate for all other corporations has risen from 34% to 41%.

Hager and Baines are the first researchers to "map" the effective tax rates of corporations. They are able to take into account and distinguish among domestic, foreign, state, and federal tax rates. Their sample consists of US corporations, and it numbers anywhere from more than 1,300 to more than 5,000 companies.

Hager and Baines argue that the regressive tax rates on the largest corporations is all of a piece with the trend toward regressive tax rates overall. Corporate concentration, income inequality, employers who reward their stockholders rather than their workers—as the authors conclude, their results give an emphatic lie to the idea that cutting taxes on the rich frees up money that is then invested in the rest of us. No such thing is happening. Instead, the rich simply keep getting richer.