Twenty-three major American financial firms – including Goldman Sachs, JP Morgan Chase, State Street, PNC Bank, and Wells Fargo – received over $95 billion in tax benefits from 2008 to 2015, according to a new study. Loopholes in federal policy lowered their effective tax rate from the headline 35 percent to below 20 percent – a reduction that increases the fiscal burden on everyone else.
The Institute for Taxation and Economic Policy examined taxes paid by 258 Fortune 500 corporations over the past eight years, and how these taxes compared to what would be paid if these companies paid the full corporate tax rate of 35 percent.
The institute found that these companies enjoyed huge tax subsidies that lowered their tax rates far below the 35 percent rate set in the law,.
The 23 financial firms in the study – including such major banks as Goldman Sachs, JP Morgan Chase, State Street, PNC Bank, and Wells Fargo – received over $95 billion in total tax benefits over the study period.
Some $69 billion of these tax benefits were received by just four highly profitable banks: Wells Fargo, JP Morgan Chase, PNC Bank, and Goldman Sachs.
A few banks, such as State Street and PNC Bank, paid tax rates well under 10 percent. We do not have the data to determine precisely which tax loopholes created these massive benefits, although the ability to move profits to lower-tax foreign jurisdictions likely played a role. But one tax loophole that clearly was highly beneficial to many financial institutions was the ability to write off the giant stock option payments made to their top executives.
Goldman Sachs, for example, reduced its 8-year tax bill by almost 20 percent just using this one loophole.
As large as it is, this tax subsidy of nearly $100 billion is certainly a major underestimate of the tax benefits flowing to the financial sector.
Only 23 financial firms were included in the study, because it was limited to Fortune 500 public companies that had made profits — and therefore had tax liability — over every year in the study period. This rule meant that major banks like Citibank, Morgan Stanley, and Bank of America weren’t included in the study, to say nothing of numerous other companies that were either private companies or too small to be included.