H&R Block reported $527 million in U.S. profits in 2025. Setting aside some “GILTI” tax the company paid related to undertaxed foreign income, the company paid no federal income tax. The first question this raises is how a corporation is able to generate large profits from American taxpayers who are simply trying to comply with the law, filing their taxes by April 15. The second question is how the company itself avoids paying taxes on these profits.

The first question, how H&R Block makes money, is answered in part by the favor provided to the company by the Trump administration in ending the popular Direct File program, which allowed millions of Americans to file their taxes directly with the IRS for free.

Lobbyists for the tax-prep industry argued that the program was too costly for the federal government to maintain. This is despite another tax-prep giant, Intuit, receiving more in federal tax subsidies than the cost of the entire Direct File program.

The company has also acknowledged in the recent past that the new Trump tax law has created enough complexity to drive more people to need help with tax preparation, which is always good for its bottom line. Even in cases where the company doesn’t make any money off those customers in the current year because those taxpayers can access free services, their executives have repeatedly expressed desire to draw those filers in as potential paid customers in the future.

During last week’s earnings call, H&R Block’s CEO told a very different story, claiming that the 2025 tax law “gave taxpayers more confidence that they could do their taxes on their own” meaning not literally on their own but paying to use the company’s software rather than paying an actual person with an office in a strip mall to do their taxes for them.

All this skirts around the real reason H&R Block is making a killing. These days when you interact with the federal government, for example if you want to apply for Social Security or Medicare, you can do so online. But tax filing is different because the tax prep industry has successfully lobbied to virtually require Americans to use their services to file taxes. Direct File was an attempt to align tax filing with the other ways we interact with the federal government, and the Trump administration ended it.

The second question is how H&R Block avoided paying federal income taxes on its profits in 2025. This is partly explained by filings made not in the U.S., but rather in the European Union. Specifically, it appears that the company is taking advantage of holding companies in Ireland to disguise a large portion of its income. In 2024, the company reported three subsidiaries as Irish holding companies. Holding companies are not actual businesses producing goods or services but are instead legal and accounting fictions that hold stock or intangible assets like intellectual property, often in offshore tax havens.

In this past year, H&R Block reported an entire third of their worldwide income in Ireland. This is interesting considering the company doesn’t offer any tax-prep services in Ireland.

Perhaps it has a large number of employees in Ireland? To the contrary, it reports only 15 full-time employees in Ireland, less than 1 percent of the global H&R Block workforce. The company has substantial workforces in India and Canada, but records very little income in those countries.

Based on this financial reporting, each employee in Ireland produced about $16 million in profit for H&R Block.

Some readers might note the supposed productivity of their 15 Irish employees and say, “Fair play, lads. Ye deserve a few extra quid!” Others might use a more common American expression: “Bullshit.”

The stunning size of the federal income tax breaks corporations claimed this year dwarfs past corporate tax breaks, themselves sizeable. Microsoft received $18.7 billion in federal income tax breaks, a record high for single-year federal tax breaks for one publicly traded company. Alphabet claimed a staggering $18.4 billion, and Amazon walked away with $17.4 billion in tax breaks. Meta received $13.7 billion, JPMorgan Chase received $8.3 billion, and Nvidia received $6.8 billion.

Download Figure 1

Together, the tax breaks for these six companies account for more than 40 percent of the total in 2025. Or put another way, the $83 billion in tax breaks these six corporations collected in a single year exceeds the entire annual discretionary budget of the U.S. Department of Education, which is $82.4 billion.

To put these enormous tax breaks in context, the largest single-year tax break ITEP’s work has documented for any corporation before 2025 was J.P. Morgan’s $5.2 billion haul in 2024. Two companies had tax breaks triple that size in 2025, and four had breaks more than double that size.

The concentration is even more striking for the four tech companies at the top. Microsoft, Alphabet, Amazon, and Meta collectively received $68 billion in federal income tax breaks – which represents roughly 33 percent of the overall total.

These figures show what Americans intuitively know: corporate profits and economic power are increasingly concentrated among a relatively small number of extremely large companies. The presence of half a dozen tech CEOs at Donald Trump’s January 2025 inauguration was a stark reminder that the economic leverage these companies are gaining is being translated into political power as well. That makes the tax treatment of these companies especially important.

Corporate tax rates continue to decline under the policies backed by President Trump and Congressional Republicans. ITEP’s most recent analysis found that at least 88 large, profitable corporations paid no federal corporate income tax in 2025 despite collectively earning more than $105 billion in U.S. pretax income.

But the concentration of tax breaks among a small group of companies raises another important question: What happens when some of the country’s most profitable companies are also among the biggest beneficiaries of the tax code?

The answer matters for federal revenue. It also matters for how policymakers think about the corporate tax system at a time when a handful of companies have enormous influence over the economy. To put that in perspective, the $83 billion handed to just six companies represents nearly 18 percent, or almost $1 out of ever $5, of total federal corporation tax collections according to the Congressional Budget Office.

Those companies benefited from a combination of tax breaks, including accelerated depreciation, research and development provisions, tax credits, and deductions related to stock options. According to SEC Form 10-K annual filings, the top tech recipients hold over $460 billion in liquid cash reserves, allowing them to fund massive AI buildouts and stock buybacks without needing federal subsidies to drive their strategy.

The point is not that every corporate tax break is unjustified. Tax provisions can be designed to encourage investment or other activities policymakers consider beneficial. But when billions of dollars in tax benefits flow to a small number of already highly profitable companies, policymakers should take a close look at whether those provisions are achieving their intended goals and whether their costs are justified.

These are companies that also have outrageous amounts of cash on hand. Amazon had $86.8 billion in cash at the end of 2025, and Alphabet and Microsoft collectively sat on $51.6 billion between the two of them.

As corporate profits become more concentrated, ensuring that the largest and most profitable companies contribute an appropriate share of federal revenue becomes increasingly important. The corporate tax system should not be judged only by its overall cost. It should also be judged by who benefits from it.

Yet the rollout of this new tax has been pilloried as “doxxing,” “confusing” and as a “freakout” – all on behalf of some of the wealthiest property owners (or prospective property owners) in the city. The city, in response to a broken website and the coverage of the rollout, delayed the deadline to file for exemptions until September.

The news coverage of the second home tax has been disconnected from the real living conditions for the millions of New Yorkers who don’t own a second (or third, or fourth) home. The 2024 American Community Survey shows:

• 8.5 million New Yorkers live in an estimated 3.7 million housing units; 1.1 million of those units are owner-occupied.

• The majority of New Yorkers – 5.3 million people, representing 62 percent of the city’s households — are renters who will never pay this tax.

• Of the remaining 3.2 million New Yorkers who live in owner-occupied homes, most don’t own a home that would be eligible for the tax, even without the residency requirement. The median owner-occupied unit is valued at $778,000, with fewer than 31 percent of all owner-occupied units valued at more than $1 million.

Despite these figures, major media outlets are writing breathless stories about over…17,000 properties that may have to pay the tax? Perhaps closer to 12,000 if all the exemption applications are completed – that is, one out of every 300 housing units? The real estate market in New York City is large enough and strong enough to withstand the effects on a few thousand properties owned by the wealthiest residents.

What became obvious over the weekend was that the frenzy over this was in part due to taxpayers who admitted to avoiding the city’s local income tax. Commentators online were quick to note the irony. The entire point of owning a pied-à-terre is that you are not a full-time resident who is otherwise liable for the city personal income tax. Owners avoiding the personal income tax by claiming residency in the suburbs or another state are not contributing to city services that they use most of the time. Gov. Kathy Hochul’s office announced the state will be monitoring the exemptions filed for cases of residency fraud since those taxpayers may also be avoiding state income tax.

Part of the privacy concern from taxpayers was around a city data release that identified high-value properties that may be eligible for the tax. This property and owner data is already public information, as even Fox News admitted. Estate planning lawyers, to their credit, used the release of already public data to fearmonger new clientele to establish LLCs and trusts. Though there are legitimate reasons to put properties into LLCs or trusts, most of those reasons are to protect properties from things like deed theft or mortgage scams. LLCs and trusts are also liable for the pied-à-terre tax – using these tools will not result in a lower tax bill.

Second-home taxes make complete sense in a city like New York. With one of the highest costs of living in the country, valuable real estate, and more wealthy people than any other city in the world, the tax is a valuable tool to access part of the source of that extreme wealth. If wealthy New Yorkers would like to avoid the pied-a-terre tax, I have some free advice: don’t lie to the tax authorities about where you really live.

Otherwise divided voters were united in rejecting redistributing taxes away from the wealthy, with just 17 percent of voters casting their ballots in favor. Despite a well-funded campaign and no signs of wholesale rejection of their elected leaders, Missourians across the state rejected their governor’s biggest priority.

Taxing the wealthy remains popular and the results in Missouri clearly reflect that voters broadly understand the need for a fair tax system across the political spectrum. Proponents of cutting taxes for only the wealthy have to spend significant resources to overcome voters’ core opposition and, as was the case in Missouri, voters can still mobilize to protect their own interests.

ITEP’s analysis found that replacing Missouri’s individual income tax with higher or broader sales taxes would have increased taxes by an average of $535 a year for households earning approximately $49,000 to $80,000. Missourians earning between roughly $24,000 and $49,000 could have paid about $850 more each year, while the richest 1 percent would have received an average annual tax cut of nearly $40,000.

Seniors also had a great deal at stake. Because Social Security benefits are already exempt from Missouri’s income tax, many seniors would have received little or no income tax cut while paying more on everyday purchases. ITEP estimated that seniors would have paid approximately $335 million more each year under the proposed tax shift.

Missouri’s tax system already asks its lowest-income families to pay a larger share of their earnings in state and local taxes than the richest 1 percent. Amendment 5 would have made that imbalance worse while jeopardizing a revenue source that supplies roughly 64 percent of the state’s general fund.

Lawmakers should respect the voters’ decision and abandon efforts to shift taxes away from wealthy households and onto families who spend most of their income on necessities. Missouri needs tax policies that make life more affordable, adequately fund public services, and ask those with the greatest ability to pay to contribute their fair share.

Microsoft’s $101 billion of pretax U.S. income dwarfs its previous all-time high of $65 billion, recorded the previous year. And instead of paying $21 billion of current federal income tax, as the 21 percent statutory federal income tax rate should require, Microsoft reports just $2.46 billion of current federal tax. That’s an effective federal income tax rate of 2.44 percent. This means the company reduced its federal income taxes by $18.7 billion last year.

Fully two-thirds of the company’s tax breaks last year are due to one provision, accelerated depreciation. This tax break was turbocharged by the “bonus depreciation” measure passed initially by Congressional Republicans and President Trump in 2017 and made permanent by Republicans as part of Trump’s 2025 corporate tax cuts.

While Microsoft does not disclose how much of these depreciation tax breaks are tied to its AI investments, there is no doubt that many are tied to new data centers, chips, servers, and other such property. This all comes at a time when many workers are being displaced due to advancing AI capabilities, and when Microsoft itself is laying off thousands of workers.

The other one-third of Microsoft’s 2025 tax breaks are due to a mix of new and old tax provisions. The R&D expensing provision pushed through by Congress last year saved Microsoft $1.5 billion, and R&D credits reduced its income taxes by close to $1.5 billion as well. The “Foreign Derived Intangible Income” deduction created by the 2017 Trump tax cuts saved the company $600 million.

Thanks to the new detailed disclosure requirements implemented by the Financial Accounting Standards Board earlier this year, Microsoft is forced to disclose that it reduced its worldwide tax rate by 2.6 percent last year by booking income in Ireland. Its Irish tax savings of $4.3 billion come as little surprise in the wake of the company’s new EU tax disclosure, which shows the company booked 38 percent of its worldwide income in Ireland in 2025 despite having only 3 percent of its employees there.

Microsoft also appears intent on continuing to conceal its use of a dizzying array of offshore subsidiaries from its shareholders. As it did in its fiscal 2025 annual report a year ago, the company disclosed the existence of only eight subsidiaries worldwide. But the company’s initial filing under the European Union’s new “country by country” reporting requirement, submitted less than one month ago in accordance with the new EU rules, identifies 201 subsidiaries, 193 more than are acknowledged in Microsoft’s new report to shareholders. Among the 193 subs that appear to have slipped Microsoft’s mind are 19 Irish companies, six in Luxembourg, eight in Malta, 21 in the Netherlands and one each in Cyprus and Trinidad and Tobago, all known tax havens.

Corporate tax disclosures reveal that five profitable airlines paid almost nothing in federal income tax last year. In 2025, the effective federal income tax rates of these airlines ranged from 1.07 percent to below zero.

The primary reason: enormous tax breaks dramatically reduced what these companies owed.

Corporations use a variety of tax breaks to reduce their payments, but in the case of airlines, the biggest culprit is accelerated depreciation tax breaks. Usually, corporations are allowed to deduct the cost of capital investments, such as airplanes, over the time the asset is in use. But accelerated depreciation allows businesses to deduct the cost of capital assets faster than the assets wear out, effectively lowering their corporate tax liability. The 2017 Trump tax law created an extreme version of this tax break, 100 percent “bonus depreciation,” allowing businesses to write off the entire cost of equipment in the year it is purchased. And the so-called “One Big Beautiful Bill Act” (OBBBA) passed last year extended this provision permanently.

This giveaway offers hugely profitable corporations tax breaks for doing what they were going to do anyway, with the lion’s share of the benefits going to just a handful of the very largest corporations.

In 2025, the pattern among profitable airlines was remarkably consistent.

These low tax rates were not simply the product of tumultuous pandemic years and writing off net operating losses from prior years. Instead, these airlines paid next to nothing in taxes because our tax code allows them to dramatically reduce what they owe even while they report record profits.

• Delta Air Lines earned more than $6 billion in U.S. profits in 2025 but paid only about $10 million in federal income tax. That’s an effective tax rate of just 0.16 percent. Nearly $800 million in depreciation tax breaks led to that outcome.

• Southwest Airlines reported more than $500 million in U.S. profits while receiving a net federal tax rebate, producing a negative effective tax rate. Depreciation deductions accounted for most of the company’s tax reduction.

• United Airlines followed a similar pattern. Despite reporting more than $4.2 billion in U.S. income, it also recorded a negative effective federal tax rate. Company disclosures indicate depreciation deductions, along with interest deduction carry forwards, largely explain the result.

• SkyWest offers another notable example. The company ultimately paid a small amount of federal income tax mostly because executive compensation limits prevented it from reducing its tax bill even further. Without those limits, its effective tax rate would have been even closer to zero, according to the company’s 2025 annual report.

Proponents of accelerated depreciation argue that it’s a way to encourage investment. But research has repeatedly questioned whether these tax breaks generate enough additional investment to justify their cost. Meanwhile, they substantially reduce the taxes owed by some of the largest, most profitable companies.

The airline industry illustrates how these provisions work in practice. Even companies generating billions in profits can reduce their federal income taxes to nearly zero through a tax code that caters to them.

Airlines were far from the only profitable corporations paying incredibly low federal income tax rates in 2025, but they provide one of the clearest examples of how accelerated depreciation continues to shape corporate tax bills.

When five profitable airlines report effective federal tax rates between 1 percent and below zero, the question is not whether they followed the law. They did. The question is whether the law should continue allowing some of the nation’s most profitable companies to reduce their federal income taxes so dramatically.

But no — administration officials appear far more concerned about the public knowing too much about how U.S. corporations shift their income into offshore tax havens. That’s the urgent message a Treasury official sent to attendees of an international tax conference last week at a panel discussion of a newly implemented European Union (EU) law requiring large corporations to make detailed public disclosures designed to help identify corporate tax avoidance.

The new disclosures in question are the result of an EU law, enacted in 2021, that has been binding on U.S. multinationals only since the end of June. The new law requires large companies to give their shareholders basic information on the amount of income, income tax, and full-time employees the company has in EU member countries, as well as certain known non-EU tax havens.

Assistant Treasury Secretary Rebecca Burch told conference attendees she’s concerned that the publication of these country-by-country data points will “allow people to make assumptions” about corporate malfeasance and will ultimately create a “culture of damnation” as these companies are convicted in the court of public opinion.

The obvious response is that when companies publish disclosures they believe are misleading or unrepresentative, they can say so. And that’s exactly what Microsoft did by accompanying its recent country-by-country disclosure with a blog post that could have been titled “pay no attention to the man behind the curtain.”

The company explained that these data “can look unusual without context” and pointed to the cash taxes paid by Microsoft in France as an example. Microsoft’s disclosure shows it received a $96 million tax refund in France last year on a cash basis. The blog post explains that this “reflects a one-time refund of tax overpaid in an earlier year” which “makes this year an outlier.”

Microsoft’s comments are a perfectly sensible critique of the “cash income tax” concept, but this is a red herring. The new EU disclosures also include the far-more-meaningful “current income tax” concept, which is meant to reflect the tax a company pays each year on that year’s income. As the same disclosure shows, Microsoft’s current tax expense in France last year is $131 million, suggesting a healthy 27 percent tax rate on its French income. This comes as no surprise, since no one believes France is any sort of tax haven.

But Microsoft’s blog post is far more notable for what they choose not to discuss at all: namely, the astonishing apparent productivity of its Irish and Luxembourg employees.

The 3 percent of Microsoft employees based on Ireland were, according to Microsoft’s own disclosure, responsible for 38 percent of the company’s earnings last year. Unlike the French data point, these Irish findings support the long-standing and well-documented perception that Ireland has consciously chosen to act as a corporate tax haven, and that Microsoft is especially adept at using these tax havens to artificially funnel profits out of the U.S.

If Microsoft’s Irish disclosures were misrepresentative or misleading, you’d think they’d be explaining this rather than discussing the company’s French results. But they don’t say a word about Ireland and are equally silent on the inconvenient truth that just 34 Luxembourg employees managed to make $283 million for Microsoft last year. In other words, Microsoft goes out of its way to explain anomalous results that anyone would recognize to be anomalous, but when their new disclosures suggest Microsoft is shifting income into tax havens, the company says nothing at all to dispel those beliefs—presumably because the data don’t lie.

Americans overwhelmingly believe that big corporations pay too little tax and should pay more. In that sense, the “culture of damnation” the Trump administration is so concerned about already exists, and ITEP’s research has repeatedly shown that this public perception is entirely accurate.

But the new EU disclosures won’t heighten public anger about corporate tax avoidance unless big multinationals continue to engage in it. When companies like Microsoft publish country-by-country data going forward, and those data appear to show they’re engaging in tax avoidance, the companies now have a clear platform for explaining that they’re not.

Microsoft’s choice to accompany its new disclosure with an explanatory blog post shows clearly that the Trump administration’s fears are unfounded—and the company’s choice to say nothing at all in defense of its exorbitant Irish and Luxembourg profits suggests strongly that public concerns about tech company tax avoidance are right on target.

Washington’s new millionaires’ tax is a monumental development for revenue and tax equity in the state. The new policy – a 9.9 percent tax on income over $1 million (single filers) and $1.5 million (joint filers) – is projected to raise $3 billion in 2029, after it goes into effect in 2028. That revenue will pay for investments in public education and childcare and help fund a sizable expansion to Washington’s Working Families Tax Credit, the state’s EITC, boosting the incomes of low- and moderate-income families.

Washington’s tax structure has long been woefully unequal. In ITEP’s most recent Who Pays? report, it ranked as the second most regressive state and local tax system in the country, as Gov. Ferguson noted when he signed the millionaires’ tax. Once this law goes into effect, the richest 1 percent will no longer pay the lowest effective tax rate in the state – marking an important step toward making the state’s tax system more equitable.

Lawmakers in Hawaiʻi, Maine, and Rhode Island also brought balance to their tax systems and raised revenue by taxing those at the top of the income scale.

• Maine passed a millionaires’ tax – a 2 percent surcharge on income over $1 million – which is estimated to raise $100 million in new revenue each year beginning in fiscal year 2027.

• Rhode Island passed a 3 percent surcharge on taxable income over $1 million. The tax will phase in over three years, set at 1 percent next year, 2 percent in tax year 2028, and 3 percent beginning in 2029. Once fully phased in, the tax is estimated to raise more than $150 million a year.

• Hawaiʻi, in response to federal cost shifts and recent, deep state tax cuts, created a new top bracket of 13 percent – effectively a 2 percent surcharge – for filers with incomes above $500,000 (single filers) and $1 million (joint filers). This change will bring in more than $70 million a year.

Beyond personal income tax changes, a handful of states and cities (Illinois, New York, and Utah) moved toward more robust taxation of businesses and second homes.

• Both Utah and Illinois joined the growing group of states choosing to tax a rapidly expanding and evolving advertising industry that is increasingly reliant on using personal data to manipulate consumer behavior through social media and other platforms. Utah will now tax targeted advertising revenue of companies that raise at least $1 million in such revenue in the state, raising more than $20 million in 2029 and annually thereafter. Illinois passed a 10 percent tax on providers of targeted advertising and a social media platform fee to be paid for by social media companies.

• New York extended the state’s corporate tax surcharge, bringing in roughly $1.3 billion a year. The extension maintains the top rate of 7.25 percent for 3 years, rather than allowing it to drop to 6.5 percent.

• New York also passed a new tax for high-value second homes (worth $5 million or more) in New York City, our nation’s largest city. The tax, similar to a law in Montana, is expected to generate $500 million in revenue in its first year.

The flurry of progressive revenue raising in the states this year has been partly in response to the deeply unpopular package of 2025 federal tax and spending cuts passed by Congress and signed into law by President Trump. As a result of that new law and other federal actions, states are facing new costs for healthcare, food assistance, and more. This is forcing them to approach their budgets more carefully than in years past. In many states, lawmakers are stepping up by declining to fold new, ineffective, costly, and regressive federal tax changes into their own codes, and by raising revenue from those with the greatest ability to pay.

This trend toward fairer state tax codes is not new, though it seems to be accelerating. Eleven states and the District of Columbia have raised revenues over the past five years to protect and enhance investments in education, childcare, healthcare, transportation, and more. The policies have varied – including increases on income tax and business tax rates, higher taxes on income from wealth, and new or higher taxes on high-end homes, to name a few. But the results are clear: deeper investment in people and communities, and meaningful improvements to the equity of those state and local tax systems.

The data show, not surprisingly, that Microsoft is booking a huge share of its worldwide profit in low-tax Ireland and is achieving this despite having a very small share of its employees there. As other companies make similar disclosures between now and the end of calendar year 2026, investors and the public will likely get a much clearer sense of how much profit corporations are hiding offshore—and how much tax they’re avoiding by doing so.

These disclosures are happening because of new European Union (EU) requirements that took effect for corporate fiscal years ending in 2025. The new EU rules mandate publication of the country-by-country data within 12 months after the end of the fiscal year. So Microsoft, which has an unusual fiscal year end date of June 30, is choosing the last possible date to comply with the new law by publishing today.

Most publicly traded companies have fiscal years that follow the calendar year, which means they won’t have to publish their EU reports until this December 31. But there are several major corporations with June 30 fiscal years, including Procter & Gamble and Sysco, that must cough up these details by close of business today.

Microsoft’s first-round disclosure raises some eyebrows, to say the least. Just 3 percent of the company’s worldwide full-time employees were in Ireland last year, but they were (for tax purposes anyway) astonishingly productive, cranking out 38 percent of Microsoft’s worldwide profits. The company discloses paying a current tax rate of just 14 percent on those allegedly Irish profits, which probably goes much further in explaining this astonishing Irish profit margin than the productivity of its Irish workforce.

Meanwhile, the 34 Microsoft employees in Luxembourg were barely enough to throw a company picnic but they managed to “earn” $283 million in profit, according to Microsoft’s new disclosure. The tax rate on those Luxembourg profits? A paltry 3 percent.

Microsoft’s leaders appear to recognize the optics of all this and took the trouble to publish a “pay no attention to the man behind the curtain” blog post discussing the new data. By contrast, Procter & Gamble is, to be charitable, less eager to publicize its CBCR data: its initial report is quietly buried at the very bottom of its “Policies and Practices” page. And it’s not hard to see why they’re so shy. P&G’s one Luxembourg employee was way more efficient than Microsoft’s small team, earning the company a cool $114 million of profit on which the tax rate was precisely zero.

It’s important to note that these new disclosures aren’t requiring companies to jump through any new hoops. The very large corporations that must comply with these sensible new rules are already tabulating all this information and giving it to EU member states. What’s new here is that investors and the public will now be able to evaluate who’s avoiding taxes and who is not. Consumers will be able to decide which companies deserve our hard-earned dollars, and investors will be able to decide which corporations are boosting their profits by engaging in shady tax practices.

To be sure, the new disclosures aren’t perfect. There is not (yet) a single centralized location at which they can be viewed, as is the case with the 10-K annual financial reports that publicly traded U.S. companies must file with the Securities and Exchange Commission. And these reports don’t amount to a truly worldwide set of disclosures: companies have to give country-by-country details on EU member states, and on all countries that are currently on the EU’s tax blacklist. But the rest of the world can be included in a single bucket. This means that for non-EU countries that are known tax avoidance facilitators but aren’t on the EU blacklist, like Bermuda and the Cayman Islands, the new reports aren’t likely to generate any new information. But the new EU data will provide a valuable indicator of which EU member states are facilitating corporate tax avoidance.

These new, EU-mandated disclosures are especially vital now because the public’s confidence in big corporations and the public’s confidence in the fairness of our corporate tax laws is especially (and deservedly) low. Voters recognize that corporate tax avoidance is a problem, they want Congress to fix it, and they also believe (correctly) that this Congress simply won’t do so. The more we shine a light on this problem by naming names, the more likely it is that lawmakers will be forced to fix it.

The problem for states is that incorporating Trump tax law provisions into state tax codes would neither boost state economies nor help families make ends meet. And the revenue states would lose from conforming to the tax breaks would reduce money available for services like schools, healthcare, and human services, just as the federal government is cutting support for many of those same things.

Meanwhile, the Trump tax law is delivering enormous federal tax cuts to wealthy families in every state.

In most states, the starting point for state income tax calculations is the federal definition of income, and states incorporate other federal tax rules as well. About half the states with income taxes use “rolling conformity,” meaning that they automatically adopt federal tax changes as they occur. Most of the remainder use “static conformity,” meaning that they conform to the code as of a specific date; historically, these states routinely updated their codes with little debate. Either way, the outcome from conformity to much of the Trump law would be significant loss of revenue.

Several states simply accepted that loss of revenue with relatively little debate. In many other states, however, the degree and nature of conformity to the new federal law is complex. States, if they choose, can order a la carte from the new federal law’s provisions, conforming to some but not others. Many states appear to be doing just that, sometimes in surprising ways. So 12 months after the Trump tax law’s passage, the landscape of state conformity choices is still in flux. A few patterns are emerging, though.

• Many states are rejecting some or all the federal bill’s new corporate tax breaks. The decision to reject the corporate tax breaks crosses party lines. Republican-led states like Florida, Georgia, and Idaho have joined states led by Democrats, like California and Maryland, in rejecting the corporate tax breaks.

• Some states are using this moment to strengthen their corporate taxes through more thoughtful conformity to the shifting realities of the federal corporate income tax. New Mexico and Vermont each adopted innovative approaches to cracking down on corporate profit shifting, while Vermont also repealed a nonsensical deduction for foreign export profits.

• The federal deductions for up to $25,000 in tipped income, for a similar amount of overtime pay, and for some auto loan payments have not been widely adopted by states. As of late June, only 10 states – a quarter of the states with personal income taxes — have decided to allow the tipped income deduction for tax year 2026, and just nine are allowing the deduction for overtime. Even in states that adopt these rules, many workers who receive these types of income will not benefit from the tax breaks, because their overall incomes are too low to have any income tax liability against which to claim the deductions.

Download Figure 1

Download Figure 2

Download Figure 3

The result is a patchwork of conformity across states as different states conform to different combinations of provisions. For example:

• Michigan, New York, and Oregon will allow taxpayers to deduct tips, as the new federal law does, but they will bar corporations from claiming the Trump law’s immediate write-offs for research and development expenditures and for certain manufacturing plants.

• By contrast, Massachusetts, Ohio, and West Virginia are taking the opposite approach. Each of these states has declined to adopt the tips deduction but is allowing those federal corporate write-offs, although Massachusetts is phasing them in rather than allowing them immediately.

Further muddying the picture, some states are conforming partially by tweaking the federal rules. Indiana and Michigan taxed tips and overtime income in 2025 but will allow the federal deductions for those items in 2026. Alabama is allowing only the first $1,000 of overtime to be exempt. Minnesota is allowing the federal research and experimentation tax write-offs for businesses that are structured as S corporations, limited liability companies, partnerships, and sole proprietorships, but disallowing it for those structured as C corporations.

Tips, overtime, and business deductions are only a few of the conformity issues that face states. States are also considering decoupling from the federal expansion of Section 529 education savings plans for private elementary and secondary schools, from the federal “QSBS” and Opportunity Zone exemptions for wealthy investors, from certain write-offs for multinational companies, and from other measures.

Conformity debates have dragged on in some states. Conformity legislation that passed the South Carolina House was rejected by the state Senate in favor of even larger and more regressive tax cuts. The District of Columbia passed legislation to decouple, and then the U.S. Congress voted to override the District’s law, although District officials contend Congress failed to act within the requisite window of time. Wisconsin’s governor and legislative leadership had reached agreement on a budget deal that would have included conformity, but the budget deal has not yet passed as of late June.

Eventually the dust will settle. But conformity debates will return to many states in 2029 if not sooner. That’s when some provisions in the Trump bill begin expiring, likely prompting a new wave of conformity or decoupling decisions in the states.

The United States collects much less revenue as a share of our economy than most other wealthy nations. Meanwhile, a handful of extremely wealthy Americans are consolidating their grip on an increasing share of the nation’s wealth, partly because the income generated by businesses these Americans own is not adequately taxed. This is at the root of the staggering inequality that is undermining our cohesiveness as a nation and threatening our democracy.

Many of the smart policies that could fix this are not as viable as we’d prefer in the altered legislative, regulatory, and judicial environment we now face. The next pro-tax administration needs innovative ideas that will reduce wealth inequality, tax corporate profits that enrich billionaires, and begin to rescue democracy in the United States.

The Institute on Taxation and Economic Policy (ITEP) and our sister organization Citizens for Tax Justice have a proud tradition of helping to reform the tax code. Historically, we’ve maintained a commitment to adequacy and progressivity, which we define as raising more revenue from those most able to pay.

Today, more adequacy and progressivity are still needed, but they are insufficient. We also need to think about resilience—that is, the ability of a reform to withstand attempted sabotage by the Supreme Court or a future President or Congress. President Donald Trump regularly breaks the law and violates the Constitution in myriad ways, including on tax policy. He has directed his administration to ignore tax provisions enacted by Congress, in the process reducing federal revenue and rewarding billionaires and extremely profitable corporations.

Justices on the Supreme Court have hinted that they could overturn certain progressive tax reforms, including a wealth tax or a tax on unrealized capital gains. And, of course, progressive tax legislation can always be repealed or modified by a future Congress. This means that new tax law must be written in ways that can survive ideological hostility or even corruption from the Supreme Court, future presidents, or future Congresses.

In such a grim context, corporate tax reforms could be more resilient than proposals to tax wealth or unrealized capital gains while achieving the same goal of more adequately taxing the income of billionaires. Tax reforms are less likely to be struck down by the Supreme Court if they are embedded in the corporate income tax because its constitutionality has been generally uncontroversial and rarely challenged. Corporate taxes can be structured to resist hostile or corrupt moves to ignore or reverse them.

The Case for Corporate Tax Reform

Americans are rightly outraged by corporate tax avoidance. A full 70 percent of Americans in a recent Gallup survey said that corporations pay too little in taxes—and that was before Trump’s 2025 tax bill further slashed taxes of rich people and corporations.

Many large corporations pay little or no corporate income tax. As of this writing, the ITEP corporate tax avoidance tracker found that more than 300 companies had avoided over $140 billion in taxes on 2025 profits of over a trillion dollars. A whopping 88 profitable corporations paid no taxes in 2025.

Existing breaks and loopholes plus new changes enacted under President Trump dramatically reduced taxes for the four enormous tech corporations—Meta, Amazon, Alphabet, and Tesla—whose CEOs or founders flanked Trump at his inauguration. These corporations paid just 4.9 percent of their profits in federal income taxes in 2025 because of several special breaks and loopholes that were either created or preserved by legislation signed by President Trump. This saved them $51 billion compared to what they would have paid at the full 21 percent rate that officially applies to corporations. These companies saved an additional $44 billion compared to what they would have paid at the 35 percent corporate rate that applied before Trump’s first tax law slashed it to 21 percent.

The weakness of our federal corporate income tax is one reason why the United States collects so little revenue. In 2022, only three other Organisation for Economic Co-operation and Development (OECD) member countries (out of 38) collected less corporate revenue as a share of their gross domestic product than the United States: Latvia, Estonia, and Slovakia. On average, OECD countries collect more than twice as much corporate tax revenue as a share of GDP than the United States does.

This contributes to the U.S. government‘s low spending and lack of investment in our communities. It is a major reason why basics that are a routine part of the social contract in other countries—like universal health care, low-cost child care, and affordable college—are absent here.

The weakness in the U.S. corporate income tax also supercharges inequality. Corporate tax avoidance doesn’t help workers, families, or communities. Instead, it goes to the wealthiest Americans and foreign investors who own corporate stock. Foreign investors and the richest 5 percent of Americans together receive 75 percent of the benefits of corporate tax cuts, while poor and middle-income Americans together get just 5 percent of the cuts. Corporate tax breaks and corporate tax avoidance worsen racial inequality too: Black and Latino Americans combined see just 2 percent of any corporate tax cut.

Most income of extremely wealthy individuals is generated by corporations and other businesses and could be taxed before it reaches them. A strong corporate income tax would tackle this income at its source. The answer, clearly, is corporate tax reform, but crafted to avoid sabotage from the Trumps of tomorrow.

Prevent Executive Sabotage: Standing to Sue

One way to increase corporate tax resilience is to ensure that someone has legal recourse when the executive branch, in violation of the law, issues regulations cutting corporate taxes. Federal courts have sometimes suggested that no individual or entity is sufficiently harmed by corporate tax cuts, which means no one has standing to sue over them. A novel solution would be to dedicate a portion of corporate income tax revenue to specific parties who would then have standing if corporate income taxes were illegally cut by the executive branch. Congress could, for example, earmark a share of corporate tax revenue to states for infrastructure, giving states standing. This would make corporate tax reform more bulletproof if a future President is as willing to break the law and ignore the Constitution as the current one.

Prevent Congressional Sabotage: Global Minimum Tax

Corporate taxes should be made less vulnerable to a future corrupt Congress as well. A key defense is to reinstate the global minimum tax agreement with governments around the world in its original, stronger form, without the special provisions that the Trump Administration demanded to weaken it.

Multinational corporations currently hide their profits in tax havens that charge very low or no corporate income tax. In the most recent available numbers (2022), U.S. corporations reported total profits in Barbados and the British Virgin Islands that exceeded the entire economic outputs of these jurisdictions. Similar outrageous anecdotes can be cited for a dozen other tax havens like the Bahamas, Ireland, and Singapore. This enables these multinational companies to pay paltry taxes—or even no taxes—on billions of dollars in profits.

The global minimum tax would go a long way toward solving this. It essentially requires that large multinational corporations pay taxes equal to at least 15 percent of the profits they earn (or claim to earn) in each country where they do business. Every participating country ensures that its own corporations pay a 15 percent rate in each jurisdiction where they do business and, if necessary, imposes an additional tax to ensure that result.

If a country fails to ensure that its corporations pay at least 15 percent, other governments collect additional taxes on those corporations’ operations within their own borders, likely neutralizing whatever tax cuts the companies hoped to obtain. Sixty-five of the world’s largest economies have already started implementing this policy.

The Biden Administration negotiated the global minimum tax with the international community, but Congress never enacted the legislation required to implement it. When Trump returned to the White House, he pressured other governments to accept a “side-by-side” system that weakens the tax and allows continued tax avoidance by American multinational companies.

This gives our next President a chance to fix tax avoidance for the whole world. If a President works to re-establish the original, stronger standards, America will collect more corporate taxes, and so will nations across the globe. If a later President reneges on the deal, not only will the American people be outraged by the plunge in revenue, corporations will find that they still have to pay the 15 percent, and that German, Japanese, and Brazilian citizens get the resulting investments in their schools, roads, and hospitals, while American infrastructure and services continue to crumble.

Other Corporate Corrections

While most businesses that generate income for billionaires are subject to the corporate income tax, some, called “pass-through businesses,” are not. This creates a major gap in corporate taxation.

It used to be that business owners who wanted to limit their personal legal liability for actions of their business or to trade their company on a public exchange were required to create a corporation and pay a corporate income tax. Much smaller businesses, say, an independent coffeeshop or local restaurant, were typically structured as “pass-through” entities, meaning their profits were “passed through” to the owners, taxed as part of their personal income, and not subject to the corporate income tax.

Over time, federal and state policies allowed business owners to have the best of both worlds, letting them structure their enterprises as pass-through companies (so that the corporate income tax did not apply) while also having limited liability and sometimes even the ability to trade on a public exchange. Eventually larger and larger businesses got permission to use this structure.

Large pass-through entities are nearly impossible for the IRS to audit and are notoriously adept at letting their owners avoid taxes. Experts think that underreported pass-through income is the single biggest contributor to illegal tax avoidance. One example is the Trump Organization, a web of more than 500 entities that are mostly pass-throughs. The IRS doesn’t seem to understand how the Trump Organization functions even in times when the agency has sufficient resources and isn’t controlled by Trump. To effectively tax the income of the wealthy, we need to make the corporate income tax apply to pass-through entities like these.

Since the individual income tax rate was slashed in 1986, making pass-throughs more advantageous, the share of U.S. businesses structured as C-corporations plunged from 51 percent in 1985 to just 16 percent in 2015, with pass-throughs accounting for much of the flip. Only one other OECD advanced economy has a higher share of its businesses organized as pass-throughs.

It’s gone much too far. Congress should require businesses that have the essential attributes of large corporations to be taxed as corporations. For example, Congress could apply the corporate income tax to any business that has limited liability or is publicly traded and has revenue exceeding a generous threshold.

Raise the Corporate Income Tax Rate

With loopholes for tax havens and pass-through entities blocked, businesses would have a much harder time dodging taxes. This would give Congress and the president the chance to raise corporate income tax rates with less concern over how the resulting tax increases might be avoided. An innovative approach is to raise rates in a graduated fashion.

Tax professor and former Treasury Department official Kimberly Clausing suggests keeping the current 21 percent corporate income tax rate for companies with less than $100 million in taxable income, while making the rate 25 percent on corporate income between $100 million and $1 billion, 30 percent on income between $1 billion and $10 billion, and 35 percent on income beyond $10 billion. This would leave the vast majority of companies at the current historically low 21 percent rate. Clausing estimates that around 99 percent of corporate taxpayers fall below the $100 million taxable income thresholds, but that 69 percent of tax collected comes from companies whose rates would bump up under the proposal. This reform would also push back against increasing consolidation of economic power in the hands of a few very large companies.

Other changes could be made in the future after the initial reforms described above. This includes closing loopholes on interest and reforming “expensing,” which allows companies to write off the entire cost of equipment in the year it is purchased. But the changes above are a solid start.

Reversing the Brutal Cycle

Policymakers need to focus on resilient tax policy. The corporate income tax is already more protected from attacks by the Supreme Court than other forms of high-end taxation. Some innovative changes could also make it more durable in the face of attacks by the executive branch or Congress. The reforms suggested here—ensuring someone has standing to sue about corporate tax cuts, enacting the global minimum tax, subjecting certain pass-through businesses to the corporate income tax, and raising the corporate tax rate in a graduated fashion—are a solid start in restoring corporate tax collections. This would begin to reverse the brutal cycle of low revenue, high inequality, and low public faith in government. And it would meaningfully get at income streaming into billionaire portfolios.

President Trump was elected in 2024 largely because he promised to do something about voters’ fear and fury over rising prices in the wake of the COVID-19 pandemic. Once in office he cut taxes for the richest, raised tariffs that fall more heavily on working people, and cut spending on the health care that is an enormous source of financial anxiety. Anger over this fake-out, along with inflation, anti-democratic actions, and war, are surely responsible for a significant share of the dismal poll numbers the President now faces.

It is incumbent upon the next set of leaders to break this pattern and deliver tangible benefits that can reduce costs for the American people by making childcare, health care, college, and housing more affordable and by addressing the skyrocketing inequality that cheapens our claim that we are a nation of equals. This starts with taxing the rich. The most durable, practical way of doing that is by reforming corporate taxation. The count is on to see if elected officials can deliver.

On June 19, 1865, enslaved people in Texas belatedly learned that they were free, an event that is still commemorated as Juneteenth. It is a day for reflection, resilience and recognition of Black Americans’ enduring fight for equality. But if Juneteenth is to mean anything beyond symbolism, it must also be a call to confront the policies that continue to shape racial inequities today.

One of the most powerful drivers of that inequity is our tax system. The rules that govern who pays, who benefits and how governments raise revenue are deeply intertwined with the nation’s history of racial exclusion. And today, those rules continue to disadvantage Black households in ways that echo past injustices.

Consider the current moment. States across the country are deciding whether to align their tax codes with recent federal tax changes from President Donald Trump’s “One Big Beautiful Bill Act” through an approach known as conformity.

These decisions, often framed as administrative or budgetary, carry real racial equity consequences. When states conform to certain provisions of this bill, they are effectively doubling down on policies that transfer wealth away from low- and moderate-income families, and away from Black communities.

At the same time, many states are grappling with reduced federal support for essential programs including Medicaid and nutrition assistance (SNAP). These programs are lifelines for millions of families, including a disproportionate share of Black households.

Over the past two decades, states have repeatedly cut personal and corporate income taxes, shrinking the few progressive elements of their tax systems. To make up the difference, they have leaned more heavily on sales taxes, as well as fines and fees- revenue sources that take a larger share of income from those who have the least. Black households, who on average earn less and hold less wealth due to systemic barriers, are more likely to feel this shift.

The result is a quiet but profound injustice: Families struggling to make ends meet are paying higher effective tax rates than profitable corporations and wealthy investors. In some cases, the contrast is stark. While low-income households often pay double-digit shares of their income in state and local taxes, some large corporations pay little to nothing, even in years of record profits.

This is not accidental. It is the predictable outcome of policy choices.

Juneteenth invites us to ask what freedom truly looks like in 2026. It is not just the absence of legal bondage. It is the presence of economic security – the ability to afford housing, access health care, build wealth and pass opportunity on to the next generation. By that measure, the promise of freedom remains unfulfilled for too many Black Americans.

But if policy helped get us to where we are today, it can also be part of the solution.

States have options. They can choose to decouple from costly federal corporate tax breaks and personal income tax breaks that drain revenue while offering little benefit to those who need it most. They can adopt more equitable revenue strategies, such as taxing income from wealth more effectively. They can use policy tools like worldwide combined reporting to close corporate tax loopholes that allow profits to disappear offshore. And they can invest in property tax reforms that protect low- and moderate-income families.

These are not radical ideas. They are practical steps toward a tax system that asks more of those who are most able to afford it, and reinvests in communities that have long been left behind.

Juneteenth is often described as a celebration of delayed justice. But it should also be a reminder that justice delayed is justice denied. The inequities embedded in our tax system will not correct themselves. They require intentional action, guided by a clear understanding of who benefits and who bears the cost.

If we are serious about honoring the legacy of Juneteenth, we must move beyond commemoration to transformation. That means building a tax system and an economy that works for everyone, not just the privileged few.

Documents released by Musk’s company SpaceX in advance of its record-breaking initial public offering show that SpaceX has claimed a whopping $1.9 billion in income tax breaks that the company believes would likely be disallowed on audit—which means Musk and the other owners of SpaceX have 1.9 billion reasons to want to see the IRS’s enforcement capabilities defunded. And new administrative data from the IRS suggest that Musk and other big corporations may yet be handsomely rewarded for this effort.

Privately-owned companies like SpaceX aren’t required to make public disclosures about their taxpaying behavior. So until this moment, it’s been impossible to know whether the company has paid any federal income taxes in the past. But when private companies plan to go public—as SpaceX now does—they must file a “form S-1” with the Securities and Exchange Commission. This is an initial registration document that gives much of the same information about a company’s tax profile that publicly traded companies must make available to shareholders and the public.

SpaceX’s S-1 form tells us that the company has claimed a total of $1.9 billion in “uncertain tax benefits” (UTBs). These are tax breaks that the company has claimed on its tax forms, but that it believes would more likely than not be rejected by a properly functioning IRS. These are also, importantly, tax breaks that the company believes it’s still in danger of losing if the IRS is allowed to do its job. (When the statute of limitations on tax avoidance runs out, such tax breaks are removed from a company’s UTB tally, a frequent and lucrative outcome for big corporations.)

And SpaceX appears to be manufacturing these probably illegal tax breaks faster than it’s producing booster rockets: In 2025 alone, the company claimed $282 million of income tax breaks that the company believes it shouldn’t legally be allowed to keep. This is actually a step down from the $302 million in doubtful tax breaks the company claimed the previous year.

This doesn’t mean that SpaceX’s tax team is on the wrong side of the law 24-7. The company’s new disclosure shows that SpaceX is well-versed in the art of claiming “perfectly legal” tax breaks as well. In 2025 alone the company raked in $2.9 billion of accelerated depreciation tax breaks, a figure that was surely turbocharged by the permanent bonus depreciation included in last year’s Trump tax cuts. SpaceX also claimed $600 million in R&D tax credits.

So even if DOGE’s evisceration of the IRS is someday reversed, the company will have a traditional array of Congressionally-sanctioned tax breaks to rely on and could easily achieve escape velocity from federal income tax laws in the same way that dozens of other large, profitable corporations routinely do under the Trump corporate tax regime.

And Elon Musk has already demonstrated that this isn’t his first tax-avoidance rodeo. A series of ITEP analyses have shown that Musk’s car company Tesla has been astonishingly successful at avoiding more than passing encounters with the federal income tax laws, and a recent Reuters investigation found that Tesla has concealed billions of dollars in foreign tax havens.

The main reason accounting rules require companies to disclose UTBs is so that shareholders (and tax administrators) can get a sense of how aggressively corporate leaders are claiming tax breaks that are, to put it politely, in the grey areas of the law. And SpaceX’s disclosure says quite clearly that the owners of SpaceX are feeling lucky. The $282 million in probably-illegal tax breaks claimed by SpaceX last year represent more than a third of the company’s $718 million income tax expense for 2025.

Will Musk’s effort to defund the IRS result in a multi-billion-dollar personal payoff? We’ll have to wait for future SpaceX financial disclosures to know that for sure. But there’s already emerging evidence that the post-DOGE IRS is less able to investigate corporate tax avoidance than it used to be. Newly released IRS data show that the agency’s audit-related collections from corporations in fiscal year 2025 fell by over $3 billion relative to the previous year.

All of which makes it far more understandable that Musk, in his time running DOGE, appeared ready to base his decisions about IRS budget cuts on a poll of his Twitter followers. SpaceX is openly telling tax administrators that if they look carefully at the company’s tax filings, they’ll find $1.9 billion in tax breaks it shouldn’t be allowed to claim—which means the less capacity the IRS has to enforce the laws going forward, the richer Musk and other owners of SpaceX will be.

During his brief reign at DOGE, Musk portrayed himself as a brave defender of American taxpayers against an overreaching and inefficient bureaucracy. But by focusing his ire on the one federal bureaucracy that’s capable of collecting the taxes his companies owe, Musk now appears less interested in saving Americans from unnecessary red tape than in feathering his own nest.

There are tax breaks just like that. Even those that are borne of good intentions can eat up far greater amounts of revenue from state and federal governments than was originally intended, lining the pockets of very wealthy people and shifting the responsibility for paying taxes onto everybody else.

One increasingly costly tax break for the rich that’s getting more attention is called QSBS. The full name of this tax break is so misleading that I don’t want to name it (you can look it up here), but the Tax Foundation, a conservative, pro-business organization, calls it “Quite the Skewed Business Subsidy,” and that’s an understatement.

Simply put, QSBS allows millionaire investors to pay zero income tax on their profits. It’s been best known as a tax avoidance strategy for Silicon Valley companies like Uber, Zoom, and DoorDash, but Bloomberg News reports that the tax break has become so lucrative – especially after its expansion in the 2025 Trump tax law – that clever tax lawyers are teaching lots of other kinds of businesses how to exploit it, too.

To be clear, this is not about promoting a strong economy. There is no evidence that QSBS does so, and there is plenty of reason to think that it doesn’t. Mostly it just makes money for wealthy investors and the tax lawyers who charge them huge fees to take advantage of the complex tax break.

And it is costing states billions of dollars in lost revenue, because most allow this federal tax break to weaken their state income taxes as well. We estimate that by 2032, QSBS will be costing states $1.1 billion a year, and since states must balance their budgets, that’s money they can’t use for public services. That $1.1 billion, for example, is enough to pay the annual salaries of more than 14,000 teachers.

The good news is that state policymakers who would rather spend money on schools, roads, healthcare, and other public services than useless business subsidies can enact a simple change to their tax codes to “decouple.” Maine and Oregon did so earlier this year, and now Illinois, Vermont, and likely Rhode Island are also decoupling from QSBS.

In some sci-fi movies, humanity prevails. In others, it’s the monster. Who will win in your state?

By all accounts, this is not what the public wants to see from the tax code. On top of the opposition on display at recent rallies, both national and state opinion polling reveal that the constituency for corporate tax cuts is borderline microscopic. Just 7 percent of Americans think corporations are paying “too much” in tax and, here in North Carolina, just 19 percent of residents think the state’s corporate tax should be eliminated.

So far, legislative leadership has shown no sign that it’s rethinking corporate tax repeal even as it searches the couch cushions for money to fund long-overdue teacher pay raises. Might it be the case that the North Carolina General Assembly knows best, and that charging ahead with corporate tax cuts would be so good for the state’s economy that we should do it despite widespread public opposition? The answer is no. If anything, the case for repealing North Carolina’s corporate tax is even weaker than the public realizes.

Fully grasping the folly of North Carolina’s corporate tax cutting escapades requires taking a short trip into the exhilarating world of state corporate tax accounting. More specifically, it means discussing “single sales factor apportionment” which, mercifully, is less complicated than it sounds.

The corporate income tax is paid mainly by very large, multinational corporations (small businesses tend to pay their taxes through the personal income tax instead).

When a state taxes a multinational company with operations around the globe, it must figure out what part that company’s profit is fair game to tax—that is, what part gets “apportioned” to the state. In recent years most states, including North Carolina, have decided to do this by looking at where a company’s sales are occurring. If 3 percent of a company’s sales are to North Carolina customers, for example, then 3 percent of that company’s profits can be taxed by North Carolina. In other words, the state’s apportionment system is singularly focused on the location of a company’s sales, hence the name “single sales factor.”

And this, it turns out, is where the economic case for corporate tax cuts falls apart. The argument in favor of low state corporate taxes often assumes that low tax rates will entice companies to locate new jobs and production in a state—moving facilities like factories, office buildings, even headquarters in search of a lower tax bill and higher after-tax profits.

But with single sales factor being the norm these days, the notion that low state corporate taxes can spur meaningful growth is antiquated at best.

A large company choosing to move its headquarters from New York to North Carolina, or a major factory from California to North Carolina, is not rewarded with a state corporate tax cut for doing so, despite North Carolina’s much lower tax rate. Again, this is because it is the location of the company’s customers—not its workers or property—that determines what share of its profit gets taxed by California, New York, North Carolina, or some other state.

In the real world, North Carolina’s corporate tax cuts aren’t an incentive for economic growth. They’re a windfall for multinational companies that happen to sell into our state, regardless of whether they’ve made any meaningful investments here or not.

This is money that’s flowing out of our state, out of our classrooms and hospitals and fire departments, and into the pockets of multinational corporate shareholders who live all around the world. From the perspective of North Carolina taxpayers, it’s like pouring money down the drain.

A good strategy is for states to eliminate unwarranted tax breaks. Helpfully, a new ITEP paper provides one specific good idea: tax advertising.

Most states exempt advertising from their sales taxes. This policy made some sense in the past when it was supporting local newspapers and TV stations. Today, though, it mostly means sending billions of dollars to Alphabet, Meta, and Amazon. If states ended that exemption, they could collectively raise between $16 billion and $27 billion a year, depending on how broadly they define the tax base.

An advertising tax offers a way to raise significant money from a sector of the economy that has been getting a free ride for decades.

The Numbers Are Big

The revenue potential varies considerably by state, for the obvious reason that bigger states have more advertising activity. California could raise $4.8 billion a year from a broad-based advertising tax at its current sales tax rate. Texas could raise $2.7 billion and Florida, $2.3 billion. But even smaller states would see meaningful revenue: Virginia could raise $579 million, and Connecticut $390 million.

Those estimates are based on taxing all advertising. Alternatively, states could more narrowly tax just programmatic and search advertising, the auction-based, data-driven ads that dominate the market today. This would still raise $15.6 billion a year collectively across states not already taxing advertising.

States could also choose to tax only the biggest platforms. Collections from Meta, Alphabet, and Amazon could yield over $13 billion a year nationally.

Click here to see how much each state could raise from each version of the tax.

Other States Are Already Doing This

As our new paper explains, some states are already collecting such taxes.

Hawaiʻi and New Mexico have taxed advertising for decades under their broad-based sales taxes, without controversy. Maryland enacted a standalone digital advertising tax in 2021 and has raised $418 million since then. Washington extended its sales tax to advertising in 2025 and expects to collect over $600 million annually. Utah enacted a targeted advertising tax earlier this year. Other states, like Illinois and Minnesota, are moving in this direction too.

The Case for Acting Now

States have long exempted advertising from sales taxes. But those exemptions date to an era when most advertising meant a local car dealer buying a spot on the evening news.

Today, over half of all U.S. advertising dollars flow through just three large platforms, mostly in the form of targeted, programmatic advertising based on users’ personal data. The exemption that once made sense as support for local media now functions as a massive subsidy to some of the wealthiest corporations in the world.

At the same time, most states that tax paid streaming subscriptions don’t tax the advertising that lets someone access similar content for free. So in many places, Netflix collects sales tax, while TikTok doesn’t. Consumers that pay cash for YouTube subscriptions pay sales tax, but those that use the ad-supported version don’t. That inconsistency is hard to defend.

Instead of cutting public services like healthcare and education, states facing budget pressures should consider ending this decades-old giveaway to the biggest players in the information economy.

Second home taxes make a lot of sense for communities struggling with housing costs for full-time residents. They can raise real revenues too, which can be used to support further affordable housing development. New York’s proposed tax, which falls entirely on second homes worth more than $5 million, is also exceedingly well targeted to extremely wealthy individuals.

The real estate industry is predictably warning this will destroy the city’s property market, reduce the city’s property tax rolls, and drive wealthy people to ruin. Banker Jamie Dimon attacked Mayor Zohran Mamdani, saying the mayor’s actions were threatening the city’s image as a business hub. Noted city-quitter Ken Griffin told the Financial Times that the tax “trigger[ed] the trauma I went through in Chicago.” If I didn’t know better, I’d assume Ken Griffin was on the verge of financial ruin from owning too much real estate he couldn’t afford.

The tempest raised by these wealthy individuals might suggest that New York City is doing something novel here. New York City has been considering adopting a pied-a-terre tax since at least 2021. And Montana adopted a second-home tax last year, which will relieve pressures on full-time homeowners and renters. Montana’s legislature created a new tax rate for all homes not used as permanent residences. The state acted after a wave of out-of-state second-home purchasers drove up housing prices and property taxes for full-time Montanans. Estimates from the statehouse last year indicated the average owner-occupant’s property taxes would decrease 18 percent over the first two years.

The Montana tax, much like the NYC tax, Rhode Island’s “Taylor Swift tax,” new property tax rates on second homes in Hawai’i County, and the District of Columbia’s higher property tax rate on mansions, recognizes that our housing markets are increasingly challenging for non-wealthy Americans to navigate.

Low- and middle-income families suffer the most harm from rising housing and other costs. IRS data indicates that these families comprise many interstate movers, and they are often relocating in search of cheaper housing. Gen Z and Millennials are dealing with challenging job prospects, rising rents, and piles of student loan debt, a dynamic that is worsened by the extremely high cost of living in New York City.

The Atlanta Fed’s Home Ownership Affordability Monitor finds that nationwide, homes are just as unaffordable now as they were in 2006 when the housing bubble was at its peak. The average household approved for a mortgage has income twice the national median. In both New York City and Bozeman, Montana, median home prices are seven times higher than median incomes. And every unit owned by a wealthy family who uses their house occasionally is a unit not available for a family who lives in that place year-round.

Second-home taxes are a reasonable option to fight the challenges presented by partly vacant units. Second homes, particularly very valuable ones, drive up property values, make housing more expensive, and contribute to the commodification of housing as an asset rather than as a human need.

And if they don’t want to pay the tax, they don’t have to own a second home they don’t really use. Vacancy taxes can generate revenues, but they’re also a behavioral nudge. Those ultra-wealthy could certainly rent their units out to full-time tenants or sell them. I’m sure hotels in New York would appreciate their business.

Last year, the Trump administration and Republicans in Congress approved tax cuts that mostly rewarded the wealthy and forced federal spending cuts that slashed revenue sharing with the states. Now states face tough decisions about raising revenue or making severe spending cuts of their own. Lawmakers are logically looking at those most able to pay among their solutions.

They could start by following the success of Massachusetts. The state’s millionaires’ tax has already generated more than $3.1 billion in revenue this fiscal year, exceeding expectations, with two months still to be counted. Since voters in 2022 approved the 4 percent surcharge on income over $1 million, Massachusetts has brought in billions each year to fund education, infrastructure, and transportation .

From surcharges on the income of high-earners to higher taxes on second homes, here are recent steps states have taken to tax the rich.

Taxes on High-Earners

Earlier this year, Washington Gov. Bob Ferguson signed a new millionaires’ tax into law. The measure creates a 9.9 percent tax on income over $1 million.

The new tax is projected to raise more than $3 billion in 2029 — and annually thereafter — after it goes into effect in 2028. This revenue will help fund education and childcare.

The richest 1 percent in Washington currently pay the lowest effective tax rates of any income group in the state. The millionaires’ tax marks important progress toward making the state’s tax system more equitable.

In April, Maine Gov. Janet Mills approved a 2-percentage point surcharge on income over $1 million. The richest 5 percent of households currently pay lower tax rates than working-class Mainers. Maine’s new millionaires’ tax will tackle this while raising nearly $100 million in new revenue in fiscal year 2027.

And this month, Hawaiʻi Gov. Josh Green signed Senate Bill 3125, which adds a new income tax bracket for joint filers with incomes over $1 million and single filers with income over $500,000. This group will pay a 13 percent rate on income over those amounts, up from the previous 11 percent top rate. The bill passed unanimously in the Senate with approval from both Democrats and Republicans.

Higher Taxes on Wealthy Homeowners

Mayor Zohran Mamdani and Gov. Kathy Hochul proposed a yearly surcharge on New York City properties worth $5 million or more when owners have a separate primary residence outside of the city. Mayor Mamdani included this second home tax – also referred to as a pied-à-terre tax – in NYC’s Fiscal Year 2027 budget.

The governor’s office projects the tax would apply to 13,000 residences and generate $500 million in annual revenue. If enacted, it will apply to some of the most expensive residences in the country.

Taxes on wealthy homeowners continue to grow in popularity. Maine, Montana, New Jersey, Rhode Island, and Washington, D.C., all took steps in recent years to raise revenue from high-income homeowners.

Measures these states have adopted include property tax increases on homes valued at $1 million or more, new or higher taxes on vacation or second homes, and higher rates on home sales valued in the millions.

Other Pushes to Tax the Rich in 2026

Proposals to tax the wealthy appeared during legislative sessions in several other states as well.

Those still up for discussion include:

• California. At the ballot, voters may have the chance to renew the state’s top income tax rates and vote on a proposed ballot measure to levy a one-time 5 percent tax on individuals with more than $1 billion in wealth.

• Colorado. A coalition is gathering signatures to place before voters a ballot measure that would raise taxes on the wealthy. The measure would allow for graduated rates and brackets to raise taxes on individuals and corporations making more than $500,000 per year.

• Rhode Island. Gov. Dan McKee’s proposed budget included a new 3 percentage point surcharge on millionaires, which is estimated to raise about $135 million a year. Other lawmakers and state advocates are making the case for a higher tax on the top 1 percent.

• Vermont. Lawmakers are debating a high-earner surcharge, which would raise taxes on the richest 1 percent with a new top tax rate of 13.3 percent, added above the current highest rate of 8.75 percent. Lawmakers are also weighing a wealth proceeds tax on investment income.

The Myth of Tax Migration

Anti-tax advocates and some wealthier taxpayers continue to voice their opposition to taxes on the rich. They often turn to misleading arguments about so-called “tax flight,” cautioning states that the wealthy will leave en masse if new taxes on the rich are installed.

The evidence suggests otherwise.

A recent analysis from the Center on Budget and Policy Priorities explains that most claims about interstate tax migration are grossly exaggerated.

That also holds true for New York, a state that anti-tax advocates perpetually lift up for the threat of mass migration due to higher taxes. A recent study found that there has been no statistically significant evidence of tax migration out of New York in recent years.

Speculative fears of millionaire migration should not drive policy decisions. Ensuring the wealthiest households don’t pay lower tax rates than teachers, construction workers, or nurses in your state is common sense. As we’ve seen from the progress in 2026, lawmakers have solutions at their disposal to raise significant revenue from those most able to pay more.

The Financial Accounting Standards Board (FASB) now requires companies to publicly break down their tax payments by jurisdiction. (“Jurisdiction” in this context typically refers to a country, though it can also apply to territories with independent tax systems, including tax havens). This year companies have started disclosing this information in their Annual Reports submitted to the SEC.

These new disclosures highlight how the U.S. tax code encourages corporate tax avoidance through incentives and credits and allows the oil and gas industry to engage in onshore, rather than offshore, tax avoidance. Substantial tax giveaways reduce federal funds, putting further strain on the national budget.

Industry giants such as Exxon and Chevron pay more in taxes abroad than they pay in the U.S, as detailed in a 2025 report by the FACT Coalition. The report details 11 disclosures from big oil giants to showcase tax giveaways for the industry.

Corporate taxes are based on income, not on production. Companies can report profits in low-tax countries while underreporting in the U.S., then use foreign tax credits to further reduce their domestic tax bill.

These foreign tax advantages stack on top of already generous domestic breaks.

Despite claims from the Trump administration, federal gas tax suspensions and oil subsidies do not lower energy bills or gas prices. In 2025 alone, American corporations across industries used tax havens to avoid over $11 billion in taxes.

The new FASB reporting requirements are particularly relevant now, as the gas and oil industry’s tax avoidance continues while Americans face rising costs at the pump. Tax subsidies and loopholes ultimately allow big oil to avoid paying its fair share while offering no benefit to consumers. These advantages do not lower gas prices and contribute to broader issues. Tax breaks for the oil and gas industry cannot be ignored as the global conflict over energy resources intensifies.

A tax system cannot be described as fair unless it is progressive, but that’s not the only reason why states should tax upper-income people at higher rates than those with lower incomes.

Progressive state tax codes raise more revenue for public services, improve the government’s relationship with residents, reduce poverty, and advance racial equity.

A fair tax system asks people to contribute to the cost of government services based on their ability to pay. Fairness is, of course, in the eye of the beholder. Yet almost anyone would agree that the best-off families should pay a higher tax rate than low- and middle-income families. State and local taxes pay for schools, safe neighborhoods, clean water and air, public transportation, and other things that make for a better community and enhance quality of life. Communities cannot afford these services, absent punishingly high levels of taxation on the poor and working class, unless taxes take ability to pay into account.

What Is a Progressive Tax System?

In discussing tax fairness, we use the terms regressive, proportional, and progressive. As the chart below illustrates:

• A regressive tax makes middle- and low-income families pay a larger share of their incomes in taxes than the rich.

• A proportional tax takes the same percentage of income from everyone, regardless of how much or how little they earn.

• A progressive tax is one in which upper-income families pay a larger share of their incomes in tax than do those with lower incomes.

Few people would consider a tax system to be fair if the poorer you are, the more of your income you pay in taxes. But that’s exactly what regressive taxes do. And it turns out that almost every state and local tax system in America is regressive, or upside-down. In contrast, six states plus Washington, D.C. have tax codes that reduce inequality with some strong progressive elements.

ITEP’s landmark Who Pays? study measures overall regressivity in all 50 states plus the District of Columbia. The most recent edition shows that, in the average state, low- and middle-income taxpayers faced a combined state and local tax rate 50 percent to 60 percent higher than the highest-income 1 percent of taxpayers.

Some believe that a proportional, or “flat,” tax structure is fair. They argue that if everyone pays the same share of income in taxes, then everyone is treated equitably. But this view ignores the fact that taking the same share of income from a middle- or low-income family as from a rich family has vastly different consequences. A tax on low- or middle-income families can cut directly into their ability to meet basic needs. The same tax may affect the lifestyle of the wealthiest families very little. Even if one believes that flat taxes are the fairest structure, the vast majority of state and local tax systems are regressive, not flat.

What Problems Do Regressive State Tax Systems Cause?

A basic problem with regressive tax systems is that they seek to raise money from the people who have the least of it. This is illogical at best. The best-off 20 percent of Americans make more than the remaining 80 percent combined. And the wealthiest 1 percent of Americans have an average income 139 times as high as the bottom 20 percent. Soaking the poor in taxes doesn’t yield much revenue compared to modest taxes on the rich. Fair taxes are essential to adequate funding of public services because they tax those who have the most to give.

Many states with regressive tax structures are facing long-term structural budget deficits due to continually imposing higher taxes on people without much money. These states are largely bypassing—that is, by taxing at very low rates—the people whose incomes have grown the fastest: the rich. In the long run, progressive taxes like the income tax are a more dependable source of revenue for state and local governments precisely because they tax the wealthy state residents who have enjoyed the largest income gains in recent decades.

Fair taxes also help the government in its relations with its citizens. The public accepts taxes because it values the services that government provides. When a tax system is unfair, however, it undermines public trust. When states choose to balance their budgets by concentrating tax increases on low- and middle-income families, while giving the best-off families a free pass, this obvious unfairness undermines public support for revenue-raising tax reforms even when they are desperately needed.

A fair tax system is important as a moral imperative. Tax payments can reduce funds available for other things in any family. But for poorer families, it may make it hard to afford food, clothing, a trip to the doctor, or some other necessity. ITEP’s Who Pays? report shows – not surprisingly — that states with lower taxes for wealthy households tend to have higher taxes on poor families.

Reducing poverty through fairer taxes has broad social benefits. Research shows that kids who grow up less poor tend to fare better in school, stay out of trouble, and earn more and pay more taxes as adults. Further, keeping money in low-income communities leaves consumers with greater spending power, boosting local businesses.

Finally, fair taxes help further racial equity. Tax policy is not racially neutral. Historic and current injustices, both in public policy and in broader society, have resulted in vast disparities in income and wealth across race and ethnicity. Employment discrimination, uneven systems of public education funding, and racist policies such as redlining and discrimination in lending practices have created extraordinary differences in intergenerational wealth. Taxing poorer people at higher rates than the wealthy tends to widen the racial wealth gap even further.