Monopolists & Their Taxes
Monopolists & Their Taxes
How our tax code further entrenches concentrated corporate power.
“Today’s tax system contributes to corporate consolidation.” This is a line included in a special edition of the Tax Justice Focus Series that looks at how our tax system and monopoly power intersect. This might not seem obvious at first, but there is a rich history of corporate monopolies using the tax system to further entrench their power.
The Boston Tea Party is often remembered as an anti-tax protest seeking to push back against the tyranny of big government. In fact, the Boston Tea Party was one of the country’s original anti-monopoly protests. The Tea Act of 1773 conferred special tax treatment on the British East Indies Company, a too big to fail behemoth that was seeking a bailout to remain in operation and received a corporate handout.
Today, Amazon serves as the posterchild for monopoly abuse of the tax code. Amazon built its initial advantage over brick and mortar retailers by not having to collect sales tax on its online sales for years, but Amazon is still flush with tax goodies. State and local governments across the country have underwritten Amazon’s growing empire with over $5.1 billion in direct subsidies, which does not account for various tax exemptions they disproportionately benefit from, such as the sales tax exemption for data centers in Minnesota.
Amazon’s nationwide contest for its second headquarters several years ago showcased how egregious the situation had gotten as localities across the country went to ridiculous and very expensive lengths to try and court one company. But Amazon is not the only business lobbying for largesse nor are company specific handouts the only way monopolists tilt the tax code to their advantage, which brings me to what has the potential in Minnesota to be the most important commission you have never heard of.
Tax Expenditure Review Commission
A couple of weeks ago the House Taxes Committee held a hearing to discuss the first annual report from the Tax Expenditure Review Commission. The commission was created in the 2021 tax bill, tucked away amongst various provisions and COVID-related relief. The purpose of the commission is to review the more than 300 tax expenditures in Minnesota and evaluate the effectiveness and fiscal impact of those expenditures, which are the various deductions, exemptions, and credits in the tax code.
Every other year the Minnesota Department of Revenue tallies up the value of this preferential tax treatment and the estimated cost for the coming FY24-25 biennium is $39 billion, which is well more than double the whopping $17 billion budget surplus everyone is talking about and is worth over 60% of the total amount of revenue Minnesota is projected to generate over that period!
It is important to note that not all tax expenditures are clear giveaways to the wealthy and well-connected. For example, the Working Family Tax Credit benefits nearly 400,000 low-income Minnesota households and is a key poverty-fighting tool. It is for this reason that the commission, which did not make any recommendations in this first report, will need to take a nuanced approach to its work, but must also keep its eyes on the big picture.
Corporate Power and Taxes
While some tax expenditures have merit, when you look at the totality of this mass of carveouts, it is clear who benefits the most: wealthy individuals and large corporations.
The Minnesota House Research Department did an analysis of select tax expenditures back in 2013 and found that a third of income tax expenditures and a fifth of sales tax expenditures benefit Minnesota’s wealthiest 10% of families. Reviews of select economic development incentives by the Office of the Legislative Auditor have come to similar conclusions finding that programs benefit the largest companies, fail to spur new economic activity, or are rife with reporting issues.
A report from the American Economic Liberties Project (AELP) found that higher levels of concentration in an industry are associated with more lobbying. The AELP report points to other studies that have found direct links between lobbying and reductions in the amount of taxes a firm owes.
Focus on Power not just Dollars
The Tax Expenditure Review Commission could do wonders for sparking real tax reform that cleans up Minnesota’s tax code and levels the playing field for taxpayers. In order to do so, however, it is important that the commission focus not simply on the revenue aspects of the alphabet soup of carveouts, but understand that our tax code is a reflection of who has power at the Capitol.
For example, my father is self-employed and his accountant not only helps him with his taxes, but also has various other clients as well. No matter how talented this accountant is, she is no match for a big corporation’s tax department staffed with an army of attorneys and accountants looking for every possible way to lower that company’s tax bill. My dad also lacks a government relations department that can lobby legislators and demand meetings with agency officials.
Corporate tax expenditures might have “only” cost Minnesota $1 billion in FY22, but shrinking that amount not only means additional revenue for the state, but will help ensure that Minnesota companies are competing on the merits, not which monopolist can best manipulate the tax code.