Q&A of the Day – Are businesses paying their fair share of taxes?
Each day I’ll feature a listener question that’s been submitted by one of these methods.
Based on the narrative that large companies do not pay their share portion of taxes, can you find some facts to this? For instance, every withheld payroll tax in this country out of your paycheck is sent by the businesses to the government. But they also have to be matched by the businesses and also pay the same amount to the government for I believe unemployment, which they can deduct 100% at the end of the year.
Bottom Line:This is a great point. It’s been years since I covered this topic and it’s an important one. While most of the focus is on what we pay in taxes – very little is when it comes business taxes – with the exceptions being the stories of an Amazon.com finding a way around federal income tax. Based on 2018’s updated tax policy – here's what the average business is paying in effective tax rates using CBO & Tax Foundation info:
- Small: 19.8%
- Large: 25.7%
In 2018, using information from the Congressional Budget Office on total tax revenue (which includes payroll taxes, Medicare, Social Security, etc.) here’s the split on where tax revenue was derived:
- 51% Individuals
- 49% Businesses
What’s interesting is that by simplifying the tax code and reducing rates on individuals and corporations, but with fewer deductions for both as well, we saw a near even split in where tax revenue came from to the federal government. Now, when it comes to business taxes every state’s different based on their state corporate taxes and here’s the average tax rate for businesses across all sizes...
- Florida: 25.3%
And the overall individual effective tax rate:
So, here’s the bottom line on all of this. Despite the outliers like Amazon that still found loopholes to avoid paying corporate income tax last year, they did still have to account for payroll and other employer taxes that aren’t specific to income,and the average large business did have a larger tax burden than the average small business. Also, the new tax policy has created a near even balance for tax revenue being generated by individuals and businesses for total burden. In Florida, you can anticipate that if you’re profitable, just over a quarter of what your business earns will be paid in taxes. And finally, the average corporate effective tax rate is about 6% higher than the average individual effective tax rate.
Here’s something to remember regardless. Businesses, regardless of size, don’t pay taxes – we do. It’s factored into the cost of products and services.