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Netflix Posted Biggest-Ever Profit in 2018 and Paid $0 in Taxes

The popular video streaming service Netflix posted its largest-ever U.S. profit in 2018­­—$845 million—on which it didn’t pay a dime in federal or state income taxes. In fact, the company reported a $22 million federal tax rebate.

After a year of speculation and spin, the public is getting its first hard look at how corporate tax law changes under the Tax Cuts and Jobs Act affected the tax-paying habits of corporations. The law sharply reduced the federal corporate rate, expanded some tax breaks and curtailed others. The new tax law took effect at the beginning of 2018, which means that companies are just now closing the books on their first full year under the new rules.

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On Anniversary of Tax Law, Celebrations Are in Board Rooms — Not Living Rooms

Supporters of the Tax Cuts and Jobs Act might have hoped for a more celebratory first year anniversary.  The public has not seen the kinds of benefits promised — few have seen anything close to $4000 raises, and real wage growth, accounting for inflation, continues to be sluggish.  And despite surging corporate profits, the stock market took a tumble as other factors weigh heavy on the minds of investors. Even the board room celebrations are muted at best.

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Tax Transparency Fights Tax Avoidance

Justice Brandeis once famously said that “sunlight is the best disinfectant.”  It is a quote advocates for government and corporate transparency have repeated each time we are asked if any of “this stuff” makes a difference.  For the record, it does.

The latest evidence comes from a recent report produced by two German academics looking at whether a European Union (EU) tax transparency initiative had any measurable impact on corporate behavior.

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The Paradise Papers: A Year Later

This week marks the one-year anniversary of the release of The Paradise Papers, a leak that included 13 million documents from a large offshore law firm.  The leak detailed a number of tax avoidance techniques used by the wealthy and multinational corporations to avoid taxes.  At the same time, Congress was rushing to pass the Tax Cuts and Jobs Act.

In light of the Paradise Papers revelations, we encouraged lawmakers to carefully review the information from the leak and consider whether their overhaul would address the tax dodging practices exposed.  They chose not to do so.

Unlike the earlier Panama Papers story, where Americans were notably absent, the Paradise Papers had clear U.S. connections.  There was extensive data on the tax avoidance schemes of at least 31,000 U.S. citizens, residents, and companies including household names like Apple, Nike, and Uber.  Rather than consider lessons to be learned around how policies might work in practice, lawmakers chose to ignore the warning signs.  The tax law passed just over a month later with minimal attention paid to any of the insights to be gleaned from the leak.  It should not be surprising that the law continues to encourage multinational corporations to engage in offshore tax schemes.

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