The Tax Advantage of Big Business: How the Structure of Corporate Taxation Fuels Concentration and Inequality

• Author: Sandy Brian Hager,Joseph Baines
• Published date: 01 June 2020
• DOI: 10.1177/0032329220911778
• Date: 01 June 2020
• Subject Matter: Articles

https://doi.org/10.1177/0032329220911778

Politics & Society

2020, Vol. 48(2) 275 –305

© The Author(s) 2020

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DOI: 10.1177/0032329220911778

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Article

The Tax Advantage of

Big Business: How the

Structure of Corporate

Taxation Fuels

Concentration and

Inequality

Sandy Brian Hager

City, University of London

Joseph Baines

King’s College London

Abstract

Corporate concentration in the United States has been on the rise in recent years,

sparking a heated debate about its causes, consequences, and potential remedies.

This article examines a facet of public policy that has been neglected in the debate:

corporate taxation. Developing the first empirical mapping of the effective tax rates

of nonfinancial corporations disaggregated by size and broken down by jurisdiction,

the article reveals a striking tax advantage for big business at home and abroad. The

analysis goes on to show how persistent regressivity in the tax structure is bound

up with the increasing relative power of large corporations within the corporate

universe, as well as a shift in firm-level power relations. As large corporations

become less disposed to investments that may indirectly benefit ordinary workers,

they become more disposed to shareholder value enhancement that directly benefits

the asset-rich. What this means is that the corporate tax structure is connected not

only to rising corporate concentration but also to widening household inequality.

Keywords

corporate taxation, concentration, inequality, capital as power, financialization

Corresponding Author:

Sandy Brian Hager, City, University of London, Northampton Square, London, EC1V 0HB, UK.

Email: Sandy.Hager@city.ac.uk

911778PASXXX10.1177/0032329220911778Politics & SocietyHager and Baines

research-article2020

276 Politics & Society 48(2)

Over the past few decades the largest corporations in the United States have taken

greater shares of net income, revenues, assets, and market capitalization.1 The studies

that have unearthed increasing concentration have also shown that big business charges

higher prices while lowering wages, providing lower quality goods and services, and

restricting output.2 In the aggregate, corporate concentration has been blamed for the

slowdown in productivity growth and a sluggish economy.3 A recent paper by Germán

Gutiérrez and Thomas Philippon even argues that the United States, once the poster

child of economic dynamism, has lost its competitive edge relative to Europe because

of its failures to combat concentration.4 In addition to stifling competition, concentra-

tion has also been linked to rising inequality and the increasing political clout of big

business.5 With a growing number of people feeling the system is rigged in favor of

elites, the concentration of wealth and power in the hands of a few giant corporations

adds more fuel to the already seething flames of populist discontent.6

How did we get into a situation where a few “superstar” companies dominate?

Market processes of globalization and technological change are identified as two of

the main drivers.7 The former allows multinationals to expand the scope of their opera-

tions and to lower costs, while the latter entails network effects that may encourage

“winner take all” dynamics.8 Digital platforms tend toward monopoly. Social media

users derive no clear benefit from having their contacts spread across various sites; the

whole point is to connect everyone together in one network. Yet in the United States

growing concentration has been pervasive in domestically oriented, brick-and-mortar

sectors as well as globalized, high technology ones.9 The ubiquity of oligopolistic

giants throughout the US corporate landscape suggests that something more than just

market processes is at play. That something is politics and, in particular, public policy.

As large corporations command ever-greater shares of resources, regulatory bodies

such as the Federal Trade Commission and the Department of Justice have come under

fire for enabling concentration through lax antitrust policies and lenient merger

enforcement.10

Not long ago it was common for mainstream economists and policymakers to fol-

low the Chicago School and downplay the consequences of corporate concentration.

Growing size, they argued, simply reflects the growing efficiencies of large corpora-

tions relative to their smaller competitors.11 In large part because of their abilities to

exploit economies of scale, corporate behemoths are credited with boosting competi-

tion and improving consumer welfare.12 But that view has come under fire, even

within the Chicago School itself. In 2017 and 2018 the University of Chicago’s Booth

School of Business held two events on the threats posed by corporate concentration.

As the Economist magazine quipped, “Until recently, convening a conference support-

ing antitrust concerns in the Windy City was like holding a symposium on sobriety in

New Orleans.”13

The political aspects of corporate concentration have not been lost on politicians.

Still reeling from the presidential election defeat in 2016, the Democratic Party

announced a “Better Deal” strategy for the 2018 midterms. A throwback to New Deal

progressivism, Democrats vowed to tackle oligopolistic market structures through

antitrust reforms that would empower regulators to break up monopolies and make it