Tax Code
plan of action
Conversations about taxes usually focus on who gets what and who pays what, but we need to think much broader and design a tax system that matches our optimistic and ambitious vision for America’s future.
Adam Smith, the author of The Wealth of Nations, once said taxes should be efficient, predictable and convenient. Our current approach is the exact opposite. The U.S. tax code is arbitrary and ridiculously complicated, which makes the entire mess inefficient, unfair and outdated. It’s also super easy to cheat.
The “gross tax gap” is the amount of true tax liability that is not paid timely and voluntarily. This number provides a rough estimate of the level of noncompliance/voluntary compliance when it comes to how Americans pay their taxes. In April 2025, the IRS reported that, in 2022, the projected annual gross tax gap was $696 billion. They break the tax gap down into three components: Non-Filing (tax not paid on time by those who do not file on time) $63 billion; underreporting (tax understated on timely filed returns) $539 billion; and underpayment (tax that was reported on time but not paid on time) $94 billion. They also break it down into four types of tax: individual income tax ($514 billion); corporate tax ($50 billion); employment tax ($127 billion); and estate tax ($5 billion).
Plus, the IRS estimates that the American public reports less than half of income that doesn’t require third-party verification (i.e., a W-2). The New York Times put it this way in 2021: “Unreported income is the single largest reason that unpaid federal income taxes may amount to more than $600 billion this year, and more than $7.5 trillion over the next decade. It is a truly staggering sum – more than half of the projected federal deficit over the same period.”
The Tax Cuts and Jobs Act of 2017 was the most significant change in the U.S. tax code since Ronald Reagan’s Tax Cuts and Jobs Act of 1986.
For one, the legislation cut the federal corporate income tax rate from 35 percent to 21 percent. Without question, some sort of corporate tax reform was needed because, for decades, it had been ridiculously complicated and inefficient, and had incentivized corporations to borrow too much money, leave money in overseas subsidiaries, and/or potentially move operations overseas altogether.
Plus, the statutory tax rate was much higher than in other Organization for Economic Cooperation and Development (OECD) economies. < Note: Even though the statutory tax rate was higher on paper, relentless lobbying efforts, complex deductions, and loopholes brought the effective marginal tax rate closer to our international competition, but that only caused even greater confusion and inconsistency. >
Although we needed corporate reform, the 2017 Republican bill went way too far. Analysis by The New York Times discovered that “in the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing... FedEx reaped big savings (from the tax cut), bringing its effective tax rate from 34 percent in fiscal year 2017 to less than zero in fiscal year 2018, meaning that, overall, the government technically owed it money.”
A study by the Institute on Taxation and Economic Policy revealed that, in 2020, 55 corporations had zero federal tax liability on over $40 billion in profits. Zero. These companies included Nike, Dish Network, and FedEx. Not only did these companies not have to pay federal income taxes, but they received tax rebates of $3.5 billion, giving them an effective tax rate of roughly negative 9 percent.
As of April 2021, twenty-six of these companies had paid zero federal income tax on over $77 billion in profits since the Republican tax cut. Yet they had received almost $5 billion in rebates, making their effective three-year tax rate negative 6 percent.
Here’s more of what they found in their analysis:
The 342 companies included in the study paid an average effective income tax rate of just 14.1 percent during this five-year period, almost a third less than the statutory rate of 21 percent. Nearly a quarter of the corporations in this study (87 companies) paid effective tax rates in the single digits or less during this five-year period.
Of these, 55 (16 percent of the total 342 companies) paid effective rates of less than 5 percent. This is particularly striking given that all these companies were profitable for at least five years consecutively. Companies paying less than 5 percent include T-Mobile, DISH Network, Netflix, General Motors, AT&T, Bank of America, Citigroup, FedEx, Molson Coors, Nike, and many others.
Twenty-three corporations paid zero federal tax over the five-year period despite being profitable in every single year. And 109 corporations paid zero federal tax in at least one of the five years.
At the other end of the spectrum, 50 corporations paid effective tax rates of more than 21 percent, but most of these companies were also the beneficiaries of large tax breaks because they were paying taxes from previous years that they delayed using depreciation breaks.
This is probably not as bad as it sounds because surely FedEx, for example, expanded payroll and increased investment in new equipment and other assets in the years after its big windfall (or, as Alan Graf, FedEx’s chief financial officer, called it, a “mighty fine Christmas gift”), right!?!
Nope. The New York Times reported that “the company spent less in the 2018 fiscal year than it had projected in December 2017, before the tax law passed. It spent even less in 2019. Much of its savings had gone to reward shareholders: FedEx spent more than $2 billion on stock buybacks and dividend increases in the 2019 fiscal year, up from $1.6 billion in 2018, and more than double the amount the company spent on buybacks and dividends in fiscal year 2017.”
In fact, its analysis of data compiled by Capital IQ “showed no statistically meaningful relationship between the size of the tax cut that companies and industries received and the investments they made. If anything, the companies that received the biggest tax cuts increased their capital investment by less, on average, than companies that got smaller cuts.”
“FedEx’s use of its tax savings is representative of corporate America. [As of November 2019,] companies had already saved upward of $100 billion more on their taxes than analysts predicted when the law was passed. Companies that make up the S&P 500 index had an average effective tax rate of 18.1 percent in 2018, down from 25.9 percent in 2016, according to an analysis of securities filings. More than 200 of those companies saw their effective tax rates fall by 10 points or more. Nearly three dozen, including FedEx, saw their tax rates fall to zero or reported that tax authorities owed them money. From the first quarter of 2018, when the law fully took effect, companies have spent nearly three times as much on additional dividends and stock buybacks, which boost a company’s stock price and market value than on increased investment.”
In January 2020, the U.S. Joint Economic Committee reported that: “Since the enactment of the tax cuts, growth of business investment has averaged just 3.5 percent, substantially below the 4.6 percent average growth of the previous seven quarters. Although there was a slight bump in business investment in the first two quarters after the tax cuts took effect, it subsequently fell below its long-term trend and has contracted in the most recent quarters.”
The Federal Reserve Bank of Cleveland baked this up, reporting that business investment grew more slowly after the tax reform than before it: “The average quarterly growth rate of business investment was 2.8 percent in 2018–2019, lower than the rates in 2016–2017 (4.0 percent), 2013–2017 (3.9 percent), or 2010–2017 (5.5 percent). Even taking into account that other economic factors, such as changes in trade policy and a global economic slowdown, may have held investment down, these data suggest that the stimulus provided by the tax reform was not large.”