New Empirical Evidence Calls for a Return to the Antimonopoly Roots of Corporate Taxation

December 15, 2023

Today in 2023, a few thousand unelected corporate executives and shareholders make decisions that affect the way trillions of dollars move through the economy. For decades, corporate America has wielded its outsized influence to consolidate its power, resulting in a lopsided economy dominated by a small number of large, integrated firms, such as Pfizer, Amazon, and ExxonMobil. Those who control these firms make essential decisions affecting the level and type of innovation, who gets hired and fired, what gets produced—and at what cost.

Tax scholars and advocates have long called for rewriting the tax rules to tackle the extreme levels of income and wealth concentration enjoyed by a handful of households in the US. But lost under the rug of 40 years of neoliberalism is an even longer American history of using the tax code as a tool to prevent and address market concentration by big business. This tradition—beginning with the birth of the corporate tax and stretching well into the 1950s—was clear-eyed about the functions of the corporate tax to both raise revenue and restructure consolidated markets.

The latest contribution to the Roosevelt Institute’s Taxing Monopoly series shows the concrete, wide-ranging results of having lost this antimonopoly tradition in US corporate tax policy. 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, set out to answer the question posed in the title of their new brief: “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.”

In stark contrast to previous decades, the authors find big business’ tax advantage has grown significantly in the US in recent years. In fact, the profit share of the top 10 percent of US public corporations (about 350 companies) increases by over two percentage points after factoring in their tax payments since 2019. This indicates that the tax structure fuels profit concentration at the top of the corporate hierarchy. After tax, the top 10 percent of US public firms now earn 95 percent of profits—the highest level since the early 1970s.

Think about that. Just 350 US corporations control 95 percent of the after-tax profits of all publicly traded companies. This extreme concentration of corporate income far outpaces even the concentration of after-tax personal income captured by the top 10 percent of US households.

The “big is beautiful” school will argue that this pro-monopoly bias of the tax code is a feature not a bug because larger firms can more efficiently allocate their after-tax profits to drive investment and innovation. Hager and Baines dig deeper into the data to find the contrary, in fact. Since the mid-1980s, big business has increasingly paid out more to shareholders (in dividends and buybacks) and invested less in real capital expenditure than smaller firms. That is to say, the bottom 90 percent of public firms seem more immune to financialization than the top 10 percent, especially since the 2017 Tax Cuts and Jobs Act (TCJA) when the ratio of big business payouts to capital expenditure has skyrocketed.

This new brief provides strong evidence that the tax advantages of bigness are not just a matter of a few “bad apples” but a systemic, endemic problem. The US tax code is incentivizing the type of harmful market concentration which results in lower pay, worse quality, less innovation, feeble investment, weak growth, and heightened inflationary risks.

What can be done to reverse this growing trend? The sunsetting of many TCJA provisions in 2025 provides a golden opportunity to rethink and rewrite the corporate tax code. Insufficient revenue, maldistribution, and high levels of market concentration are all significant problems influenced by corporate taxation. We can meet each of these interconnected challenges through smart corporate tax design in 2025. The restoration of graduated corporate income tax rates alongside a global minimum effective tax rate, more rigorous high-end corporate tax enforcement, and ending large tax-free reorganizations all sit at the top of this to-do list to make 2024 the year we return to the antimonopoly roots of corporate taxation.