Too Big to Play Fair: How Corporate Tax Advantage Contributes to Harmful Market Concentration

New analysis from the Roosevelt Institute shows how current US tax code has allowed corporate behemoths to harm our economy and undercut our democracy

December 14, 2023
Anthony Thomas
(202) 412-4270

New York, NY — Corporate tax reform is desperately needed on both a domestic and global scale to mitigate the harm that large corporations are having on the economy. Mounting evidence shows that the current market concentration is allowing for a small group of dominant firms to have outsized control over the economy and, by extension, our democracy. These firms have used this control to hike prices, depress wages and good jobs, decrease productivity and innovation, and exacerbate racial injustice. While many policy discussions focus on the role of regulators and antitrust law in combating monopoly, there has been much less discussion and analysis of how corporate tax law plays into the current situation. In fact, there is a growing body of research that finds that the domestic tax structure in the United States plays a crucial but under appreciated role in the monopoly problem. 

“Does the US Tax Code Encourage Market Concentration? An Empirical Analysis of the Effect of the Corporate Tax Structure on Profit Shares and Shareholder Payouts,” a new Roosevelt Institute empirical brief, finds that the US tax system contributes to rising corporate concentration and widening inequality by giving a clear tax advantage to big business. Authored by Sandy Brian Hager, senior lecturer in international political economy at City, University of London, and Joseph Baines, senior lecturer in international political economy at King’s College London, the brief analyzes the financial statements of thousands of US corporations since the 1970s. The research finds that contrary to earlier decades, the profit share of the top 10 percent of US firms since the mid-1980s increases after factoring in their tax payments, indicating that the tax structure fuels profit concentration at the top of the corporate hierarchy. The top 10 percent of US firms now control 95 percent of profits—the highest level since the early 1970s. The authors also discover that as this tax advantage has grown, large corporations have used these savings to increase shareholder profits, rather than benefiting their workers or consumers. They then argue that corporate tax reform on both a domestic and global level is a critical course of action to curb these harms. 

“The research in our brief contributes to a small but growing body of research highlighting the centrality of corporate taxes to America’s monopoly problem. For decades now, and increasingly since the early 2000s, big business has enjoyed a clear tax advantage that reinforces its dominant position and fuels rising household inequality,” said Hager. “But enough is enough; now we need the right policy and regulation to address the unequal power relations at the heart of the tax structure.” 

To make clear the argument that a holistic approach—one that combines corporate tax reform with more robust antitrust regulation—is needed to build an economy based on equity, fairness, and prosperity for all, the brief is organized into three sections: 

  • Section 1 maps out the overall pre-tax and post-tax profit shares of the top 10 percent of listed corporations, then disaggregates this analysis domestically and internationally.
  • Section 2 examines the consequences of the uncovered tax advantages of big business. 
  • Section 3 briefly concludes with some proposals on how to redesign the tax system such that it curbs, rather than incentivizes, monopolistic tendencies by US corporations.

“The monopoly problem has become endemic to US capitalism, and corporate tax reform on its own will not solve it. If the US is to build an economy based on equity, fairness, and prosperity for all, it will need policy that combines corporate tax reform with more robust antitrust regulation, the strengthening of workers’ rights, and increased public ownership,” said Baines.

“I’m thrilled to be able to feature this new empirical research as part of Roosevelt’s Taxing Monopoly series exploring how today’s tax policies strengthen dominant, incumbent corporations at the cost of workers and small businesses,” said Niko Lusiani, director of corporate power at the Roosevelt Institute. “Where previous contributions have chronicled how the tax code has fueled market domination by specific companies, this new brief shows just how systematically big business uses tax policy to entrench its competitive advantages—at the expense of innovation and productive investment.”