They’re making billions and they’ve gotten hefty subsidies from ratepayers. Yet three big energy companies doing business in Ohio haven’t paid federal income tax since the 2017 Trump tax cuts, according to a new report.
In fact, Akron-based FirstEnergy, Columbus-based AEP and Charlotte, N.C.-based Duke Energy had negative effective tax rates, according to the report by the Institute on Taxation and Economic Policy, a nonprofit, non-partisan think tank.
The paper, which analyzed tax disclosures in the corporations’ annual reports, found that 55 profitable companies didn’t pay any federal income tax in 2020, and 26 hadn’t paid any in the three years since the Trump tax law, known as the “Tax Cuts and Jobs Act.”
“Now, with most corporations reporting their third year of results under the new corporate tax laws pushed through by President Donald Trump in 2017, it is crystal clear that the TCJA failed to address loopholes that enable tax dodging — and may have made it worse,” the report said.
The 2017 law cost nearly $2 trillion, in part by cutting the corporate income tax rate from 35% to 21%. Research indicates that the great majority of the benefits from the law went to the wealthiest Americans while it didn’t come close to delivering the economic stimulus that Trump promised.
President Joe Biden now is proposing to roll back part of the tax cut to help pay for infrastructure and other plans.
The new report by the Institute on Taxation and Economic Policy indicates that the 2017 tax law fell short on another promise: That it would close up loopholes as it slashed the corporate tax rate.
FirstEnergy is digging out from a massive scandal in which it and its allies are alleged to have run $61 million through tax-free dark money groups to finance a xenophobic effort to pass a $1.3 billion bailout package.
The bulk of the bailout money was intended to prop up two nuclear plants that are owned by a successor company to FirstEnergy. But tens of millions have gone to guarantee FirstEnergy revenues and more than $100 million has gone to subsidize two old, unprofitable coal plants partially owned by AEP and Duke.
While the companies have pleaded poverty in seeking the subsidies, their tax information shows healthy revenue.
FirstEnergy, for example, netted almost $3.7 billion before taxes over the past three years, yet it’s allowed to show a loss for tax purposes. That’s because the company is allowed to use “bonus depreciation” — a rule that allows it to write off the cost of a capital project immediately, as opposed to gradually through its useful life.
“Since at least 2010, the federal tax laws permitted corporations to claim bonus depreciation, allowing very capital-intensive companies, like utilities, to expense capital costs, significantly reducing current tax and deferring payment into the future,” FirstEnergy spokesman Mark Durbin said in an email. “We are not avoiding our federal tax liability; we are deferring when we pay it. In some cases, the bonus depreciation created net operating losses that the tax laws permitted companies to carry forward to be used in future years.”
AEP and Duke said that bonus depreciation allowed them to invest in renewable energy and other state-of-the art infrastructure that in turn spurs economic development.
AEP earned almost $6 billion before taxes over the past three years, but it, too, didn’t pay any federal income tax. However, Scott Blake, a spokesman, pointed out that the company paid $70 million in other federal taxes in 2020 alone.
“Federal tax programs like bonus depreciation were designed to encourage and accelerate investments that create jobs and boost the economy,” Blake said in an email. “These include capital investments that have been made to benefit our customers and communities, such as investments in renewable energy and updating aging infrastructure.”
Blake added that, because it is a regulated utility, AEP’s customers see lower electric bills when its taxes are lower.
Catherine Hope Butler of Duke also touted the benefits of bonus depreciation.
“Lawmakers developed these tax policies to encourage corporate taxpayers to make investments in economic growth, infrastructure and renewables,” she said in an email. “I’d reiterate — many of these credits were related to renewable energy and infrastructure investments which enable us to move toward a cleaner energy future. As it has for many capital-intensive companies, federal bonus depreciation caused Duke’s cash tax obligations to be deferred to future periods, but it did not eliminate them.”
The enthusiasm for renewables doesn’t square with the corrupt legislation that is providing subsidies for Duke and AEP.
Passed in 2019, House Bill 6 gutted renewable energy standards while subsidizing two 66-year-old coal-fired plants on the Ohio River. The news organization Vox called it “the worst energy bill of the 21st century.”
While nuclear subsidies and FirstEnergy’s revenue guarantees have been stopped in the wake of the scandal, the coal subsidies continue to roll in. The Ohio Consumers’ Counsel, the state’s official utility watchdog, says that so far $107 million in coal subsidies have gone to AEP, Duke and AES Ohio since the beginning of 2020. Another $233,000 rolls in each day.
Over the same period, the coal plants have spewed 13,000 tons of carbon dioxide, 13,000 tons of nitrogen oxides and 7,000 tons of sulfur dioxide into a warming atmosphere, the consumers’ counsel reported.
While Duke paid no federal income tax on nearly $8 billion in pre-tax earnings since 2017, Butler pointed out that it paid $2 billion in state and local taxes in 2020.
“Because our facilities are capital intensive, we are often the largest taxpayer in many of those communities and much of the taxes paid are directed toward local services, including education,” she said.
Spokesmen for Duke and AEP made similar statements.
“In 2020, AEP paid $1.3 billion in local and state taxes and we are often one of largest sources of local tax revenue in the communities where we operate,” Blake said.
Ratepayers in those communities, however, aren’t making billions — nor are many making the millions that electric company executives are. Yet many of them are paying federal income taxes in addition to their state and local taxes — and their electric bills.