The U.S. House of Representatives and Senate are both working to pass tax reform that has President Trump’s 20% corporate tax rate goal. It is touted that since the U.S. tax rate is 35% and is higher than pretty much every other country the U.S. needs to drop it. However when various deductions are used as you will see the reported and actual cash paid in taxes is much less than 35% and in many cases less than 20%.
And keep in mind that the taxes that are reported in the income statement and the actual cash taxes paid (which can be found at the end of the cash flow statements in the SEC 10-K filings) are all the taxes being paid, not just U.S. federal taxes. So even though some of the tax rates are above 20% I feel pretty safe in saying that almost all of these companies are paying less than 20% in U.S. federal taxes.
I have developed a Google Doc that has the pre-tax income, reported taxes, its tax rate, cash taxes paid and this tax rate for these companies. Below are some of the highlights for the past three fiscal years for Apple, Cisco, Google/Alphabet, Microsoft and Oracle.
Apple
- Its reported tax rate has averaged about 25.5% the past three years
- The percentage paid in taxes has been less than 20% in all three years
Cisco
- Its reported rate has been as low as 16.9%
- In the last two years its cash tax rate has been just above 20%
Google/Alphabet
- Its reported tax rate has been below 20% the past two years
- Its cash tax rate has been below 20% all three years and was just 6.8% last year
Microsoft
- Its reported tax rate fell from 34.1% in fiscal 2015 to just 8.4% in fiscal 2017
- It does not report the amount paid in cash
Oracle
- Its reported and cash paid rates were a bit above 20% two and three years ago
- In fiscal 2017 they both fell below 20%
What is unknown unless one has read the details of what is being proposed (and I don’t think many of those in Congress have done this) is what deductions are being eliminated that could offset the drop from 35% to 20%. However I doubt the law is being written so that many businesses will lose so many deductions that their rate would increase.
While this is a small sample and they are all large multi-national companies it does raise the question, “Is the U.S. federal business rate really that much higher than other countries?”
