Avoiding taxes

Companies have an obligation to keep costs low. Our corporations have looked to lowering their taxes, as well as other costs. One technique is inversion, where companies claim tax residence in a lower-tax jurisdiction. This was a popular technique until the Treasury took some steps to make the process more difficult. Still, 54 of the S&P 500 have their tax home overseas.

The latest tax-avoiding technique are master limited partnerships, which don’t pay the corporate income tax and instead pass on tax liability to their investors. Then you have REITs, which the Internal Revenue Service doesn’t treat as corporations. 

These techniques can either eliminate a company's US tax burden, or more commonly, lower it from 35% to 10%. The Congressional Budget Office predicted in January that these techniques, by eroding the tax base, would contribute to a drop in U.S. corporate receipts, from 2.3 percent of gross domestic product in 2016 to 1.8 percent in 2025. By then, receipts will be about 5 percent, or $27 billion a year, lower than they would be without the anticipated erosion, the CBO estimates.