Profitable U.S. utility companies are not paying their “fair share” in taxes, according to a new report from the Institute for Policy Studies.
Nearly two dozen profitable public U.S. utility companies paid no federal income taxes last year, and the utility industry overall has the lowest effective federal tax rate of any business sector, new research shows.
The “Utilities Pay Up” report from the Institute for Policy Studies (IPS) concludes that domestic utility companies “have become expert tax dodgers at the federal and state levels.”
“Meanwhile, utilities collect taxes at the full rate from customers,” the researchers wrote. “This means customers are paying twice — once as ratepayers through the taxes in their monthly utilities bills and a second time as taxpayers when they have to make up for public service funding gaps because utilities are not paying their fair share of taxes.”
The report examined 40 publicly held U.S. utility companies that were profitable in 2015. The 40 firms collectively earned $43.9 billion in pre-tax profits last year, and they together paid $1.6 billion in federal and state income taxes.
Twenty-three of them paid no federal income taxes in 2015 and 16 paid no state income taxes, the left-leaning think tank found.
At the same time, the 23 companies that avoided federal income taxes reaped $11.5 billion in combined tax benefits last year, thanks largely to accelerated depreciation.
According to the report, accelerated depletion “allows companies to write off the cost of their capital investments, for example on building new power plants or replacing power lines, much faster than these investments wear out.
“This does not reduce companies’ long-term tax obligations,” the report continued, “but rather allows them to perpetually delay their IRS payments, essentially giving them an interest-free loan until the taxes are ultimately paid.”
The full statutory corporate tax rate is 35 percent, but few major firms actually pay that much. Utility companies had an effective federal tax rate of 2.9 percent over the 2008 to 2012 period — the lowest rate of any industry.
By comparison, the retail sector, which is similar to the utility industry in the sense that they “are tethered to U.S. geographic regions,” had an effective federal tax rate of 29.6 percent over that five-year period.
More than $14 billion in additional federal and state revenue would have been generated if the 40 utility companies paid the same effective federal tax rate as retailers and the full state-level tax rates.
“The $14.1 billion in extra revenue that could have been generated through fair taxation is nearly double the amount state governments and utilities spent on energy efficiency in 2015,” the report states. “It would be enough to create more than 88,000 energy efficiency jobs or weatherize homes for up to 3 million low-income families.”
IPS Climate Policy Director Janet Redman co-authored the report.
“Our corporate tax system is so broken that large, profitable utilities get away with not paying their fair share and instead channel money into fighting regulation to protect families and the planet from pollution,” Redman said. “It’s time for utilities to pay up.”
Ameren Illinois and ComEd are among the local utility companies mentioned in the report. Last year, their pre-tax profits in Illinois were $217 million and $706 million, respectively.
Illinois has a corporate income tax of 7.75 percent. Had Ameren Illinois and ComEd paid the full rate, the state government would have had an additional $65 million in revenue last year, according to IPS.
“This revenue could’ve covered the cost of weatherizing 13,800 low-income residences in single and multi-family buildings, reaching 17 percent of all low-income families in Illinois,” the report reads. “Sliced another way, the money could’ve created 1,000 jobs, 400 directly through clean energy projects and another 600 indirectly at suppliers and through economic ripple effects.”
IPS recommends ending “costly and ineffective tax breaks” for utility companies and argues against extending the “bonus depreciation” tax benefits slated to expire after 2019.
“Domestic U.S. utilities are even better at tax dodging than the multinationals,” said report co-author and IPS Global Economy Director Sarah Anderson. “If we denied these firms costly and ineffective tax breaks, we could substantially increase investment in sustainable job creation and energy efficiency.”
Graphic: Institute For Policy Studies