In recent years, CTJ and ITEP’s work on corporate tax

avoidance has made headlines again and again. We’ve

highlighted tax avoidance by profitable companies

f rom Apple to General Electric to Honeywell to Veri-

zon—and helped to make these companies synonymous

with shady tax dodging in public discourse. Already in

2014, we’ve released two new reports that take a com-

prehensive look at the income taxes paid (and, more

f requently, not paid) by the most consistently profit-

able Fortune 500 corporations. A February CTJ/ITEP

report, The Sorry State of Corporate Taxes, looks at 288

Fortune 500 companies that were consistently profit-

able between 2008 and 2012 and shows that many of

them have been phenomenally successful in avoiding

federal income taxes on their profits. A March report,

90 Reasons We Need State Corporate Tax Reform, looks

at the extent to which many of the same companies are

avoiding state corporate income taxes across the na-

tion. Both studies paint a bleak picture of the state of

our corporate tax system.

The main finding of The Sorry State of Corporate Taxes

is that a shocking number of big, profitable corpora-

tions are finding ways to completely avoid the feder-

al income tax. Of the 288 companies included in our

study, 111 of them managed to pay zero—or less—in

at least one year out of the last five. Twenty-six of

these companies actually managed to pay zero for the

five-year period taken as a whole, despite logging huge

profits in each year.

This finding may have lost its capacity to shock: after

all, our conclusions are quite similar to those found

in a long series of CTJ/ITEP studies of Fortune 500

corporate tax avoidance going back over 30 years. But

the new report flies in the face of an emerging conven-

tional wisdom among members of Congress that our

federal corporate tax is somehow “too high.” Leading

tax writers f rom both political parties—and President

Barack Obama—have made cutting the statutory cor-

porate tax rate a central part of their plans for corpo-

rate tax “reform.”

Our February report shows just how misguided this

goal is. Corporations and their lobbyists complain that

the statutory corporate tax rate is 35 percent, among

the highest in the developed world, but our study dem-

onstrates that the effective tax rate (the percentage

of profits that corporations actually pay in taxes) is

around half of that because of the various tax loopholes

they enjoy.

Continued on page 2

The Sorry State of Corporate Taxes

Citizens for Tax Justice • Institute on Taxation & Economic Policywww.ctj.org • www.itep.org • 202.299.1066

The ITEP & CTJ Newsletter Spring 2014

Our February report contains another vital finding

that turns the Capitol Hill conventional wisdom

on its head: for the companies who are meaning-

fully “multinational,” doing business both in the

U.S. and abroad, our corporate tax system actually

looks quite favorable compared to the tax regimes

facing these companies in other nations. We found

that of the 125 multinational companies included

in our sample, fully two-thirds paid a lower U.S.

tax rate than the rate they paid to foreign govern-

ments on their foreign profits. On average, these

companies paid a foreign effective tax rate that

was 12 percent above their U.S. effective tax rate.

In other words, in most of the coun-

tries where there are real consumer

markets and investment opportunities

for American corporations, corporate

income taxes are higher than ours.

The report also makes it clear that

corporate tax breaks are enriching a

relatively small number of corpora-

tions—at the expense of smaller busi-

nesses and middle-income families. Of

the $362 billion in federal tax breaks

enjoyed by these companies over the

past five years, almost half—$174 billion—went

to just 25 of the biggest companies. Wells Fargo

alone enjoyed $21 billion in tax breaks.

The report paints a straightforward picture of

what corporate tax reform should seek to achieve,

and how to get there. Congress and the Obama

Administration should insist on revenue-raising

corporate tax reforms that will bring our histor-

ically low corporate taxes more in line with the

(higher) effective tax rates found in other devel-

oped nations. The most straightforward way of ac-

complishing this goal would be to repeal the rule

allowing U.S. corporations to indefinitely “defer”

their U.S. taxes on their foreign profits so that

there will be no incentive for these firms to shift

profits to offshore tax havens. Paring back tax

breaks for stock options and accelerated deprecia-

tion would also help restore the corporate tax to

sustainable levels while creating a more level play-

ing field between Fortune 500 corporations and

small businesses.

Our March follow-up report, 90 Reasons We Need

State Corporate Tax Reform, paints an equally bleak

picture of the scope of state-level corporate tax

dodging by many of the same companies. The re-

port identifies 90 companies that have found ways

to pay zero or less state income taxes in at least

one profitable year since 2008, and shows that as a

group these companies paid an effective tax rate of

under 3.1 percent between 2008 and 2012—rough-

ly half the average statutory corporate

tax rate in place at the state level.

This means that as a group, profitable

Fortune 500 corporations are finding

ways to shelter more than half of their

U.S. profits f rom state income taxes—

a massive tax dodge that robbed state

governments of $73 billion in needed

revenue over the past five years. This

huge revenue loss is attributable to

three factors: the automatic linkage of

state corporate taxes to federal rules

(which means that when Congress cuts the federal

tax, state taxes usually shrink as well), the con-

tinued tendency of state lawmakers to offer com-

pany-specific tax incentives, and a sophisticated

strategy of “profit shifting” into tax haven states

that allows multi-state corporations to create their

own tax breaks even when state lawmakers haven’t

enacted them.

But the report also shows that virtually every state

has sensible tax reform options at its disposal that

could help to bring state tax dodging to an end.

Enacting “combined reporting” could bring prof-

it shifting to a screeching halt in more than 20

states, and virtually every state could productively

follow in the recent path of Oregon and Montana

by forcing companies to subject their foreign tax-

haven profits to state taxes. -Bob McIntyre

2

The Sorry State of Corporate Taxes (continued from page 1)

3

CTJ Reports Explain Obama’s Budget Tax ProvisionsEven with a divided Congress averse to enacting

any significant legislation in an election year, the

proposals laid out in March in President Barack

Obama’s latest budget plan could have quite an

impact. This is particularly true of those budget

proposals that would change the tax code, which

are often incorporated into bills put forth by

members of Congress. These provisions also pro-

vide valuable ammunition to advocates of public

investments like education, health care, and nu-

trition who hold up revenue-raising proposals as

proof that slashing such federal spending is not

the only way for Congress to control the budget

deficit.

That ’s why Citizens for Tax Justice released two

reports that explain, in plain English, the tax

proposals in the President ’s fiscal blueprint just

before Treasury Secretary Jacob Lew testified on

them before the Senate Budget Committee.

The first CTJ report explains the tax provisions

that would benefit individuals, along with provi-

sions that would raise revenue. The second CTJ re-

port explains business loophole-closing provisions

that the President proposes as part of an effort to

(unfortunately) reduce the corporate tax rate.

Both reports provide context that is not altogether

apparent in the 300-page Treasury Department

document explaining these proposals.

For example, the Treasury describes a “detailed set

of proposals that close loopholes and provide in-

centives” that would be “enacted as part of long-

run revenue-neutral tax reform” for businesses.

What they actually mean is that the President,

for some reason, has decided that the corporate

tax rate should be dramatically lowered and he

has come up with loophole-closing proposals that

would offset about a fourth of the costs, so Con-

gress is on its own to come up with the rest of the

money.

To take another example, when the Treasury ex-

plains that the President proposes to “conform

SECA taxes for professional service businesses,”

what they actually mean is, “The President pro-

poses to close the loophole that John Edwards and

Newt Gingrich used to avoid paying the Medicare

tax.”

And when the Treasury says the President pro-

poses to “ limit the total accrual of tax-favored re-

tirement benefits,” what they really mean to say

is, “We don’t know how Mitt Romney ended up

with $87 million in a tax-subsidized retirement

account, but we sure as hell don’t want to let that

happen again.”

Even some of the President ’s bad budget ideas

can be reconfigured into good ideas. For exam-

ple, in the past, Senator Carl Levin of Michigan

and Representative Lloyd Doggett of Texas have

taken corporate loophole-closing proposals f rom

the President ’s budget and incorporated them into

legislation that would raise badly needed revenue

rather than using all the resulting revenue sav-

ings to offset a cut in the corporate tax rate (as

President Obama proposes). We hope our f riends

in Congress will find even more material to work

with given the many brand new tax proposals in-

cluded by the President in his plan this year.

-Steve Wamhoff

If you live in a state where temperatures often dip

below f reezing, chances are you’ve seen more than

a few potholes so far this spring. Ideally, our gaso-

line tax rate would be high enough that we could

afford to fix those potholes right away. But that ’s

almost never the case.

Roughly half the states have gone a decade or more

without raising their gas tax and sixteen states

have actually gone two decades or more. And with

Congress experiencing even more gridlock than

our nation’s roads, it might not be terribly surpris-

ing to hear that our last federal gas tax increase

was all the way back in the first year of President

Clinton’s Administration.

The result of all of this gas tax procrastination has

been twofold.

First, we’ve fallen behind in terms of the qual-

ity of our transportation inf rastructure because

our 18.4 cent gas tax just can’t pay for as much

roadwork as it did back in 1993. Each year we’re

wasting 5.5 billion hours and 2.9 billion gallons

of fuel stuck in traffic—problems that could be

reduced dramatically if we invested more in both

roads and transit. At the same time, many of us

are spending big bucks to repair cracked suspen-

sions, replace blown-out tires, and perform other

maintenance on our vehicles that could have been

avoided if the roads were in better shape. And in

the long run, we’ve created a lot more work (and a

lot more expense) for ourselves because roads and

bridges that could have seen their lives extended

through regular maintenance will now have to be

completely rebuilt.

But crumbling inf rastructure isn’t the only result

of a gas tax that ’s too low. The second problem is

that a growing number of states have decided to

transfer money away f rom schools, human services,

and other vital areas in order to plug holes in their

transportation budgets created by sluggish gas tax

revenue growth. Some conservatives view this as

a good way to shrink the amount of spending on

programs they don’t particularly like, but there’s

no doubt that this revenue shell game will be a bad

deal for most Americans.

Against this backdrop, ITEP staff have been busy

these last few years conducting research that dem-

onstrates the need for a higher gas tax, and ex-

amining how gas taxes could be reformed to im-

prove their long-run sustainability. Last year we

released several reports and a policy brief looking

at the problems facing state and federal gasoline

taxes, and we were in f requent contact with jour-

nalists around the country to explain why gas tax

reform is needed. Ultimately, six states and the

District of Columbia enacted gas tax increases or

reforms in 2013 that can serve as a model for law-

makers everywhere.

While we’re not likely to see that same level of

legislative activity this year, the gas tax is not an

issue that ’s going away any time soon. In just

the first ten weeks of this year, ITEP appeared

on CNBC and NPR’s Marketplace, as well as in

USA Today, The Washington Post, Bloomberg BNA,

and media outlets based in Kansas, Missouri, New

Jersey, and New Hampshire to talk about the gas

tax. The American Society of Civil Engineers—

an influential group on transportation issues that

boasts more than 140,000 members—also featured

ITEP’s research prominently in the February 2014

edition of its Civil Engineering magazine.

In the months ahead, ITEP plans to engage in the

gas tax debates occurring right now in states like

Delaware, Iowa, Kentucky, New Hampshire, and

Utah. We’ ll also be releasing a series of short re-

ports designed to update lawmakers, the public,

and the media about some of the most important

and innovative developments that have occurred in

state gas tax policy these last few years. Our in-

f rastructure budget is on shaky footing, but things

are slowly moving in the right direction and we’re

going to continue to provide the kind of high-

quality research that ’s needed if more progress is

going to be made at the national and state levels.

-Carl Davis

4

Driving the Debate Over the Gas Tax

Greetings f rom the thawing polar vortex! We’ve had

quite the winter in Wisconsin, filled with snow, ice,

and horribly low temperatures. Unlike the weather,

tax policy debates in the nation’s “fly over” states

are heating up and keeping us quite busy in ITEP’s

Midwest Office. This legislative season has been a

brutal one for tax fairness. We’ve been very engaged

in working to stop the tax cutting fervor in states

like Missouri, Ohio and Wisconsin, by providing in-

formation to state groups, legislators and the media

about the impact proposed tax changes will have on

people across the income spectrum. Here’s a quick

round up of our actions in these states. Last year,

Missouri Governor Jay Nixon vetoed a regressive

tax cut package passed by Republican lawmakers

that would have cost the state $700 million annu-

ally. In his veto message the Governor said the leg-

islation would “undermine our state’s fiscal health

and jeopardize basic funding for education and vital

public services.” His veto withstood an attempted

override by the legislature. Yet this year he seems

poised to accept a repackaged tax cut plan as long

as certain budget conditions are met. But an ITEP

analysis found that the tax cuts being discussed, and

backed by Governor Nixon, would overwhelmingly

benefit the wealthiest Missourians. In fact, three

out of every four dollars handed out under the tax

cut would flow to the wealthiest 20 percent of Mis-

sourians. We helped the Missouri Budget Project

(MBP) understand the implications of the proposal

and they made an infographic using ITEP data. At

press time, this tax cut (and several others) are still

being debated in the legislature.

Late last year, Wisconsin Governor Scott Walker

said that he was exploring the idea of eliminating

the income tax. Hearing this f rom a state leader sent

shivers up our spines, so we quickly got to work on

an analysis and found that replacing the revenue lost

by such a move would require a sales tax rate of 13.5

percent—the highest in the country. Unsurprisingly,

this swap would raise taxes on people throughout

the bottom 80 percent of the income distribution.

Thankfully, this radical proposal has been put on

the back burner, but the Governor is hardly staying

quiet on the issue of taxes. Instead, this legislative

session he pushed through $537 million in perma-

nent tax cuts over the next two years that will sup-

posedly be paid for by temporary surpluses in state

revenue. The Governor has also pledged that if he

is reelected, property taxes wouldn’t increase during

his second term.

Tax cuts are nothing new in the Buckeye State, and

this year Ohio Governor John Kasich has introduced

yet another tax cutting plan (partly offset with some

revenue raisers) that includes: lowering income tax

rates, increasing the state’s small non-refundable

Earned Income Tax Credit, higher exemptions for

low-income families, and a cigarette tax increase.

An ITEP analysis of this plan found that the ben-

efits of the proposal fall overwhelmingly to the

wealthiest Ohioans. ITEP also looked at the impact

of reducing the top rate below 5 percent (a goal the

Governor had announced ahead of releasing the de-

tails of his tax package) to demonstrate what that

change would mean for Ohioans. ITEP found that

the top 1 percent of Ohio’s taxpayers would receive

an average tax cut of $2,515 a year.

The middle fifth of taxpayers, who make between

$34,000 and $54,000 a year, would average a tax cut of

$48, while the lowest fifth of taxpayers would get $2.

Continued on Page 6

ITEP’s Busy (Cold) Midwest Winter

5

Midwest Update (Continued from Page 5) Our f riends at Policy Matters Ohio released the data

with an eye toward the dinner table saying, “that [tax

cut] may allow low-income Ohioans to buy a slice

of pizza a year, on average. Middle-income Ohioans

could purchase a cheap pizza maker. For the state’s

most affluent taxpayers, on average it would cover

round-trip airfare for two to Italy, with some money

left over to pay the hotel bill and buy some real

Italian pizza.” The analysis had quite the impact in

Ohio’s political sphere and Governor Kasich’s likely

opponent in November’s gubernatorial election ac-

tually delivered

pizzas to key

reporters across

the state “to re-

mind you that

John Kasich’s in-

come tax cut plan

only amounts to

a couple of piz-

zas for middle-

class families.”

As the weather

(hopefully) begins to warm up, we anticipate that

tax battles in other states like Illinois, Kansas,

and Kentucky will get underway, while debates in

Missouri and Ohio will reach a resolution. ITEP

staff will continue to stay engaged in these debates

and in those occurring in states across the nation.

-Kelly Davis

6

Stay in Touch with CTJ & ITEP

Sign up to receive CTJ’s Tax Justice Digest, our weekly email summary of state and federal tax fairness news, by visiting www.ctj.org/digest_signup.php

Or, like us on Facebook or Follow us on Twitter:

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Help Us Improve Just TaxesPlease let us know what information you would like to see in future editions of Just Taxes and in what format

you would like to receive your copy in the future. Please email dave@ctj.org to offer suggestions for future ar-

ticles or to opt-in to our .pdf version

Fundraising: 2013 Donors Set a Record 2013 was a banner year for CTJ and ITEP on many

f ronts. We released our latest version of Who Pays?;

engaged in groundbreaking immigration work; is-

sued many reports highlighting corporate tax abus-

es; played a critical role in shaping and informing

tax policy debates in 46 states; and thanks to you,

2013 was our most successful fundraising year in

recent memory. Over 1,000 donors made contribu-

tions last year allowing us to have the resources we

need to engage our much more well-funded oppo-

nents on the right.

With that said, we need to set a new record this

year. Every day a new tax threat emerges—or op-

portunities for real progressive change present

themselves—at the state and national level and we

need to make sure we are able to respond to all of

them. Even in the deepest of red states, our work is

being regularly used to fight back against regressive

tax plans. Already this year, our work has been part

of high profile tax debates in Ohio, Michigan, Ne-

braska, Wisconsin, Missouri and New Jersey. Your

support of CTJ and ITEP provides us with the re-

sources, and quite f rankly, the inspiration to engage

in these often difficult battles with well-funded

groups peddling tax cuts at every opportunity.

Giving to CTJ and ITEP in 2014 could not be any

easier: You can return the enclosed card and enve-

lope, contribute online at itep.org/donate or ctj.org/

donate, or call us at 202-299-1066. Additionally,

you can now make your gift recurring at monthly,

quarterly or annual intervals.

Unlike our opponents, we don’t have corporate

funding or shadowy, mysterious donors. CTJ and

ITEP rely on our supporters for funding. Our work

has never been so important, so please consider CTJ

and ITEP in your annual giving to help us prepare

for the tax fights ahead. -Dave O’Donnell

7

The excessive snow that hit the Northeast corri-

dor this winter has created vast potholes, and has a

whole lot of people wondering why their daily com-

mutes have become a real-life game of Atari Turbo,

and why their cities and states have not been quick

enough to repair potholes.

Our crumbling roads have shined a bright light on

how we pay for our inf rastructure and whether it ’s

sufficient. They also have prominent journalists

seeking ITEP’s expertise on the gas tax. In early

March, ITEP senior policy analyst Carl Davis ap-

peared on CNBC’s Street Signs to discuss the merits

of raising the federal gas tax. Davis went toe-to-toe

with a Cato Institute analyst who offered the same

old f ree-market rhetoric. Davis also discussed the

gas tax Feb. 28 on NPR’s Marketplace and pub-

lished an opinion piece on March 23 for The Ber-

gen Record, an influential daily newspaper in New

Jersey, which is currently debating whether to raise

its gas tax.

ITEP and CTJ also received a plethora of media

coverage around its study on corporate tax rates.

The Wall Street Journal ’s Marketwatch blog cited

a San Francisco Chronicle story about Wells Fargo’s

tax avoidance. FedEx Co. officials got pretty riled

up when The Tennessean newspaper ran a story

about the company paying no federal income taxes.

Its defense was run-of-the mill, but we liked a piece

penned by a local advocate telling FedEx, “Thou

doth protest too much.” Other local news outlets

across the country showed keen interest in how

much large corporations in their states were pay-

ing—or not—in taxes, and articles by major wire

services, including Gannett and Reuters resulted in

countless local papers and radio and television sta-

tions discussing which local companies were dodg-

ing taxes. Huff ington Post journalists decided to

give all 26 companies who failed to pay taxes over

the last five years a chance to respond to the study.

Most said they were “simply adhering to the rules.”

Their response bolsters our point.

Thanks to continual news coverage over the years

of our corporate studies, journalists and ordinary

Americans widely understand that the system is

rigged in favor of corporations, and they are asking

tougher policy questions about what lawmakers are

going to do about it.

CTJ director Bob McIntyre wrote an opinion piece

for MSNBC.com that used the release of President

Obama’s budget and Rep. Dave Camp’s tax reform

plan to highlight the corporate study and note how

policymakers’ focus on cutting the corporate tax

rate is misguided.

Our data are also helping to influence broader pol-

icy conversations about national priorities. For the

last month, Daily Show host Jon Stewart has been

on a tear about the inherent hypocrisy of extreme

right-wingers who are decrying so-called f raud and

abuse in the nation’s food stamp program. On March

13, Stewart used a segment f rom CNN, which cit-

ed our corporate data, to show that the very same

people who deplore so-called public services for

hardworking people going through tough financial

times have no problem with corporate welfare and

tax breaks for highly profitable corporations.

The issue of offshore tax havens has become a big-

ger issue as federal lawmakers hold hearings on

banks that help clients hide income or companies

that are deliberately using havens to avoid U.S. tax-

es. NPR’s Marketplace spoke to Rebecca Wilkins

on March 21 to get a simple explanation on just

how companies are able to do this.

Every day, we stay on top of state and federal tax

policies, and we weigh in on public debate with a

variety of communications tools, f rom reports, to

blog posts, to e-blasts, to traditional and new me-

dia outreach. Sometimes, we comment on obscure

tax issues that may not immediately get press. But,

as an editorial in the New York Times (The What-

Might-Have-Been Budget, March 4, 2014) that

linked to a six-month-old CTJ blog post on the

payroll tax shows us, the right people are always

paying attention to the hard work of our analysts.

-Jenice R. Robinson

CTJ and ITEP In The News

Citizens for Tax Justice

Institute on Taxation & Economic Policy

1616 P Street, NW, Suite 200

Washington, DC 20036

202.299.1066

email: ctj@ctj.org

www.ctj.org or www.itep.org

Inside this Issue of Just Taxes

• The Sorry State of Corporate Taxes — Cover story

• CTJ Report Explains Obama’s Budget Tax Provisions — Page 3

• Driving the Debate Over the Gas Tax — Page 4

• ITEP’s Busy (Cold) Midwest Winter — Page 5

• ITEP Donors Set New Funding Record in 2013 — Page 6

• CTJ & ITEP in the News — Page 7

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The ITEP & CTJ Newsletter Spring 2014

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