Introduction to the Tax Cuts and Their Consequences

In the wake of the Tax Cuts and Jobs Act (TCJA) enacted during Donald Trump’s presidency, the discourse surrounding corporate tax rates and their implications for everyday Americans has come to the forefront. Recent analysis by the Groundwork Collaborative highlights how these tax cuts, while intended to stimulate growth, have resulted in significant enrichment of corporations at the expense of consumers.

Profit Trends Among Major Corporations

The report from Groundwork Collaborative focused specifically on 11 major corporations that offer essential goods and services, including well-known entities like General Mills, AutoZone, and Comcast. Since the implementation of the TCJA which reduced the corporate tax rate from 35% to 21%, these companies have recorded approximately $500 billion in combined profits. Notably, shareholder returns within this group surpassed $463 billion owing largely to practices like stock buybacks, while the total federal tax contribution was only $140 billion.

Shifts in Corporate Tax Rates and Profitability

Trump has suggested further reducing the corporate tax rate to 15%, despite the current rate not being set to expire. Elizabeth Pancotti from Groundwork Collaborative pointed out that for every dollar paid to the federal government, these corporations have returned more than $3 to shareholders. In contrast to profitability trends prior to the TCJA, the report indicates that the effective tax rates for these companies plummeted by 39% even as their profits more than doubled.

Case Studies: Corporate Pricing Strategies

AutoZone’s Pricing Tactics

For instance, AutoZone has seen a 116% increase in profits while simultaneously lowering its effective tax rate by 37% compared to the two years preceding the TCJA. Evidence of questionable pricing strategies emerged during a company earnings call where executives acknowledged that they adjusted prices even before experiencing cost increases, highlighting a trend of inflation as beneficial for pricing.

PepsiCo’s Profit Increases

Similarly, PepsiCo has reported a reduction of 11% in its effective tax rate while enjoying profits that are 58% higher following the TCJA. The company raised prices significantly over multiple consecutive quarters, cementing its profitability while contributing to rising costs for consumers. A representative mentioned that Frito-Lay, a subsidiary of PepsiCo, reduced product sizes which they attributed to inflationary pressures.

Impact on Consumer Pricing and Living Costs

The Groundwork Collaborative report emphasizes that the increasing cost of living, particularly in essentials such as food and healthcare, has been exacerbated by corporate decisions to increase prices and reduce product sizes. An analysis from the Economic Policy Institute indicates that a substantial portion of the price increases experienced between late 2019 and mid-2022 can be traced back to rising corporate profits.

Pancotti concluded that the continued push for additional tax cuts by Trump and Congressional Republicans could further enable corporations to maintain practices that negatively impact working families.