Does the US Tax Code Encourage Market Concentration? - An Empirical Analysis

Specifically, we find that the total post-tax profit share of the top 10 percent of listed corporations since the mid-1980s is consistently and significantly higher than their total pre-tax profit share, indicating that the overall tax structure (domestic and foreign) fuels profit concentration at the top of the corporate hierarchy. [...] Is the tax advantage confined to a few “bad apples,” or is it widespread among large corporations? What role do the domestic and foreign tax systems play in encouraging monopoly power? What does an analysis of the relationship between the tax system and monopoly tell us about wider macroeconomic shifts in the US economy over the past few decades? The purpose of this brief is to address these quest. [...] The green bars at the bottom of the figure indicate the pre-tax profit share of large corporations and the blue bars their post-tax profit share. [...] But from the mid-1980s onwards, the tax structure starts to increase concentration by reducing the tax burden of the top 10 percent at the expense of smaller corporations. [...] We see that the 5 Although outside the scope of this brief, a fine-grained qualitative analysis of the key legislative moments that enabled the domestic tax advantage of big business, from the Tax Reform Act of 1986 to the TCJA of 2017, would complement our data-driven approach.