This is an excerpt of ILSR’s report, Tax Dodging is a Monopoly Tactic, by Stacy Mitchell and Susan Holmberg
Local, state, and federal policymakers have systematically structured our tax system in a way that exacerbates the consolidation of corporate power. Meanwhile, smaller competitors bear their fair share of their tax burden, even as they are being crushed by outsized corporations. Making our tax system fairer would help small businesses — which are essential for robust economies, community well-being, and healthy democracies — compete on a more level playing field.
We should design policies that close monopoly tax loopholes — in part, to eliminate global and state tax shelters — and that redistribute tax obligations to level the playing field for small business and to curtail corporate concentration. This also means helping small businesses rebuild from the damage done from big-is-better policies by providing targeted support for smaller competitors. Here, we give a few examples of how to build an antimonopoly tax agenda.
One potent antimonopoly tax reform measure, which would both raise taxes on big corporations and tax excess profits, would be to implement a progressive corporate tax rate. Since 2017, when the Tax Cuts and Jobs Act was passed, the corporate tax rate has remained a flat 21 percent. This means that a corporation’s nominal corporate tax liability is capped at a rate well below the historical average. As tax law scholar Reuven S. Avi-Yonah (2020) argues, a primary reason we need a corporate tax is to limit the “power and regulate the behavior of our largest corporations,” which is the same reason the US first adopted the corporate tax in 1909. Instead of a flat tax, he proposes a steeply progressive corporate tax rate that would start very low for normal returns that reflect fair markets and then increase sharply to much higher rates for high profits indicative of monopoly rents.
We also need to more fairly tax where the bulk of profits of megacorporations go: shareholders. Shareholder payouts in the form of stock dividends and share repurchases are taxed at a lower rate than what workers pay in tax on income for their labor. The tax preference for capital should be eliminated and these different forms of income treated as equivalent by the tax code. It is also important to unlock these tax revenues on a timelier basis, as the current system fails to impose a tax until the stock is realized. Alternatively, a mark-to-market capital gains system, which would levy an annual tax on the change in the value of a high-net-worth individual’s stock, dividends, and other tradable assets, could release this revenue annually. (As a side note: The Inflation Reduction Act, enacted into law in August 2022, imposes a 1 percent excise tax on some repurchases of corporate stock by publicly traded companies. While the tax provides a clear legislative signal that stock buybacks are problematic, progressive analysts generally agree it is not enough. In fact, economists Lenore Palladino and William Lazonick [2021] argue stock buybacks should be banned altogether.)
A simple way for states to address tax dodging is to implement a “worldwide combined reporting” system, which requires companies to report their total global profits and pay a tax on the portion of those profits produced in a given state. For example, if 5 percent of a company’s global business occurs in Montana, then Montana’s corporate tax rate would apply to 5 percent of the company’s taxable profit. Only a few states — Idaho, Montana, and North Dakota — currently use worldwide combined reporting, which ensures transparency of large companies, levels the competitive playing field for independent businesses, and can help generate public revenue. Meanwhile, 28 states and Washington, DC, have adopted “water’s-edge” combined reporting only, which applies the same principles but excludes affiliates of the conglomerate that are incorporated or conduct most of their business outside of the US. Implementing worldwide combined reporting, at the state and federal level, would buttress the current reporting system by building and synthesizing transparency on the full extent of multinational corporations’ tax liabilities.
Many states have also allowed big corporations to systematically contest their property tax bills. Walmart and other large retailers have paid lawyers to implement a dubious “dark store theory” of value, challenging the valuations of thousands of their stores in multiple states on the basis that their properties would be nearly worthless if they were empty. This strategy — used against communities across the US — involves upfront legal costs that large corporations, because of their scale, can easily absorb and are far outweighed by the payout. They have managed to sharply cut their tax bills, which has led directly to funding cuts for local schools, libraries, and other services. As an example, Walmart disputed its property taxes for Sault Ste. Marie in the Upper Peninsula of Michigan, claiming that the corporation was discriminated against by the city for being a big-box store and taxed at an unlawful rate. Walmart’s property tax was reduced from $5.7 million to $2.9 million and the town was forced to repay any tax revenue already collected on the “overassessment.” Michigan legislators are developing legislation to limit the ability of chain stores to use the dark store argument.
Local businesses lack the resources to devise novel tax theories and push them through the courts, and they do not have the scale to generate enough payoff to make doing so worthwhile. Individual business owners also have a fundamentally different cost-benefit calculation: When school budgets are cut, it’s their own children who suffer, while Home Depot executives lose nothing by depriving communities of this revenue.
States should adopt legislation clarifying how tax assessors determine the property value of big-box stores. The dark store tactic that allows chains to reduce their tax liability by artificially lowering their property valuation has not only deprived local governments of billions of dollars in revenue, but it has also forced local businesses and residents to pay higher taxes to maintain public services. States can address this with a simple clarification that modern retail buildings must be valued based on their current operations and not on a theoretical future in which they have been left in disrepair.
Fair fiscal policy is also about how governments distribute incentives to different businesses. Instead of giving subsidy deals to corporations that are channeling their profits to Wall Street, local municipalities and states can use those funds to circulate dollars locally and drive long-term growth. For example, local governments can invest in real estate for commercial use and public goods like high-speed fiber networks that would help businesses operate, and provide carefully targeted loans to Black and brown entrepreneurs to close the racial entrepreneurship gap.
Local brick-and-mortar retailers not only generate a host of social and civic benefits by fostering connections and a sense of community, they also generate significant property tax revenue (often indirectly through the rent they pay), helping to fund local roads, schools, and other services. Online deliveries provide none of these civic benefits and little in the way of local tax revenue, while burdening local streets, traffic, and related services. A few jurisdictions are beginning to think about how local tax systems can be reconfigured.
In 2022, Colorado became the first state to launch a “retail delivery fee,” charging 27 cents on all deliveries — alcoholic beverages, appliances, electronics, flowers, food and more — made by motor vehicles in the state. Businesses with $500,000 or less in retail sales are exempt from the fee. Minnesota followed suit in 2024 and Washington is considering implementing one.
Local and federal policymakers have systematically structured tax policy in a way that deepens the concentration of corporate power, Stacy Mitchell and Susan Holmberg argue.
Amazon’ strategy — which includes securing tax advantages — offers a road map of how to harness the tax system to build a monopoly.
Under what has become known as the “dark store” method, big-box retailers are declaring their busy stores to be functionally obsolescent and therefore nearly worthless...
Doing so would ease budget shortfalls and restore a measure of fairnessfor small businesses, which lack access to these loopholes and end upshouldering a heavier...