Biggest Firms Receive Biggest Tax Breaks

 

Small businessmen who argue that the U.S. tax system favors investment in large companies rather than small ones have support from a study by the California Department of Economic and Business Development. Comparing the pre-tax and after-tax returns on stockholders' equity of manufacturing firms of all sizes between 1977 and 1980, the study showed that relative to small firms, the big companies look better after taxes than before taxes.

The agency found that manufacturers with $1 billion and more in assets showed the lowest return on equity among all size-classes of companies until they took advantage of accelerated depreciation, investment tax credits, and foreign tax credits. These and other tax breaks turn the poorest pre-tax earners into the second best after-tax earners.

The study also supports the argument that the tax cuts in the form of accelerated depreciation proposed by the Reagan Administration will increase the relative earnings position of the biggest companies, which increasingly control the bulk of business capital assets.