Nike’s tax contributions, or lack thereof, are once again in the spotlight as President Joe Biden calls for the Oregon company and the 54 other major corporations named in an April report to pay “their fair share” in corporate taxes.
“You have 55 corporations, for example, in the United States of America, making over $40 billion—don’t pay a cent, not a single little red cent,” Biden said in a video posted to his personal Twitter account Friday. “Now, I don’t care—I’m a capitalist—I hope you can be a millionaire or a billionaire, not a problem. But at least pay your fair share. Chip in a little bit.”
The post followed a similar tweet that the president published to the official POTUS Twitter Wednesday. That message—which compares the taxes paid by companies like FedEx and Qurate Retail Group to the price of a cup of coffee—has garnered more than 170,000 likes and 25,000 retweets.
The data Biden is referencing were published by the Institute on Taxation and Economic Policy (ITEP) in early April. The report identifies 55 corporations that it found had paid no federal corporate income taxes in their most recent fiscal year. Citing the companies’ annual financial reports, ITEP said they together earned $40.5 billion in U.S. pretax income in 2020. Considering the federal tax rate for corporate profits stands at 21 percent, they would have paid a total of $8.5 billion in corporate taxes. Instead, ITEP claimed they received $3.5 billion.
“If you paid $120 for a pair of Nike Air Force 1 shoes, you paid more to Nike than it paid in federal income taxes over the past 3 years, while it made $4.1 billion in profits and Nike’s founder, Phil Knight, became over $23 billion richer,” Sen. Bernie Sanders (I-Vt.) wrote on Twitter in early April.
In a post published a couple weeks after its initial report, ITEP specifically addressed how Nike defended its tax payments, noting that the footwear giant did not dispute the fundamental claim that it paid $0 in federal income tax. Rather, the company asserted that it paid “significant” federal, state and local “direct and indirect taxes” every year. Including custom duties, it said it paid more than $9.1 billion U.S. taxes since 2016. Nike reported a net income of $5.7 billion in fiscal 2021, a period that ended May 31.
Of that $9.1 billion total, ITEP concluded that Nike’s current federal income tax expense totaled $1.8 billion. That number, it said, includes $1.1 billion in “transition tax” expense. Added to the U.S. tax code with former President Donald Trump’s 2017 Tax Cuts and Jobs Act, the transition tax requires U.S. shareholders to pay a tax on untaxed foreign earnings. Based on the available information, ITEP concluded that Nike paid a foreign tax rate of about 1.4 percent on certain offshore cash.
A global corporate tax agreement agreed to by 136 countries earlier this month could potentially disincentivize companies like Nike shifting its profits overseas. The deal, which will require each country to pass legislation formally implementing the agreement before it takes effect, would scrap digital services taxes in favor of member countries agreeing to a minimum 15 percent corporate tax rate. Even recalcitrant nations notorious for their low rates have agreed to the deal.
Among those countries that have signed the deal is Bermuda. As of 2013, Nike was reported to hold 12 offshore subsidiaries in the island territory. In 2017, ITEP said that list had been whittled down to just two. In 2019, however, the Portland Business Journal reported that Nike had shifted as much as $10 billion in European profits to Bermuda. This July, the European Union’s general court ruled against a request from Nike to end an ongoing investigation into claims the Netherlands illegally gave Nike state aid by letting it shift European profits to Bermuda.
Biden’s decision to once again raise the April ITEP report half a year later is no doubt tied to his ongoing push to get his Build Back Better bill through Congress. After months of supposed negotiations between Democratic leaders and the party’s more center-leaning wing, politicians have finally begun signaling what the ambitious bill will likely end up dropping.
Though an increase in the corporate tax rate was once a central element of the legislation, recent reports indicate it may be dropped. On Friday, The New York Times reported that Arizona Senator Kyrsten Sinema’s unwillingness to raise tax rates on major corporations and high earners was leading Democrats to pursue alternate means of raising revenue, including a so-called “billionaires’ tax.”
One other way Democrats have looked to pay for social spending has been by reforming the nation’s inheritance tax policies. Though Democrats appeared to have abandoned that strategy in September, Bloomberg Businessweek once again raised the issue Thursday by looking at the tax avoidance strategies of one individual—Nike co-founder Phil Knight.
Described as “an inside look at how Nike founder Phil Knight is giving a fortune to his family while avoiding billions in U.S. taxes,” the report looks at the various ways billionaires like Knight can avoid statutes intended to tax the generational transfer of wealth. In one case, Bloomberg said it found an instance where Knight was able to transfer what was essentially a $215 million tax-free gift to his son.
According to Bloomberg’s most recent data, the now-retired executive and his family are worth a combined $61 billion dollars. Year-to-date, they have reportedly seen their wealth increase $7.12 billion.