Report | Budget, Taxes, and Public Investment

Corporate tax chartbook: How corporations rig the rules to dodge the taxes they owe

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Press release

Updated June 1, 2017

The June 1, 2017, version of this report corrects Chart 1. The original chart reported first-quarter data for each year; the chart has been corrected to show annual data instead.

Introduction and key findings

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In recent years, corporate profits have reached record highs, and so too has the amount of untaxed profits U.S. corporations have stashed offshore: $2.4 trillion. And it is estimated corporations could owe as much as $700 billion on those profits. In short, corporations are dodging more and more of their tax responsibilities.

While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate. Driving this divergence between what corporations are supposed to pay and what they actually pay is a combination of offshore profit shifting and tax avoidance. Multinational corporations pay taxes on between just 3.0 and 6.6 percent of the profits they book in tax havens.

And corporations have become increasingly adept at making their profits appear to be earned in these tax havens; the share of offshore profits booked in tax havens rose to 55 percent in 2013. Almost half of offshore profits are held by health care companies (mostly pharmaceutical companies) and information technology firms. Because of the inherent difficulty in assigning a precise price to intellectual property rights, it is relatively easy for these companies to manipulate the rules so that U.S. profits show up in tax havens.

The use of offshore profit-shifting hinges on a single corporate tax loophole: deferral. Multinational companies are allowed to defer paying taxes on profits from an offshore subsidiary until they pay them back to the U.S. parent as a dividend. Proponents of cutting the corporate tax rate refer to profits held offshore as “trapped.” This characterization is patently false. Nothing prevents corporations from returning these profits to the United States except a desire to pay lower taxes. In fact, corporations overall return about two-thirds of the profits they make offshore, and pay the taxes they owe on them.

Further, there are numerous U.S. investments that these companies can undertake without triggering the tax. In short, deferral provides a mammoth incentive for multinational corporations to disguise their U.S. profits as profits earned in tax havens. And they have responded to this incentive: 82 percent of the U.S. tax revenue loss from income shifting is due to profit shifting to just seven tax-haven countries.

Firms have also become increasingly adept at manipulating the rules here in the United States to avoid taxation. Lower tax rates on “pass-through” business entities and poor regulatory responses have given firms the chance to reorganize as “S-corporations” or opaque partnerships in order to avoid paying any corporate income tax at all.

This intentional erosion of the U.S. corporate income tax base has real consequences. Rich multinational corporations avoiding their fair share of U.S. taxes means that domestic firms and American workers have to foot the bill. It also means that corporations are not paying their fair share for our infrastructure, schools, public safety, and legal systems, despite depending on all of these services for their profitability.

This chartbook details the extent of corporate tax avoidance.

Key findings include:

  • Corporate profits are way up, and corporate taxes are way down. In 1952, corporate profits were 5.5 percent of the economy, and corporate taxes were 5.9 percent. Today, corporate profits are 8.5 percent of the economy, and corporate taxes are just 1.9 percent of GDP.
  • Corporations used to contribute $1 out of every $3 in federal revenue. Today, despite very high corporate profitability, it is $1 out of every $9.
  • Many corporations pay an effective tax rate that is one-half (or less) of the official 35 percent tax rate.
  • As of 2015, U.S. corporations had $2.4 trillion in untaxed profits offshore. Another study, looking at S&P 500 companies, found they held $2.1 trillion as of 2014. This roughly five-fold increase from $434 billion in 2005 stems largely from anticipation of a tax holiday.
  • Just two industries—high-tech and pharmaceutical/health care—hold half the untaxed offshore profits.
  • Just 50 companies hold over 75 percent of untaxed offshore profits. Ten companies hold 39 percent of these profits. Just four companies—Apple, Pfizer, Microsoft, and General Electric—hold one-quarter of all untaxed offshore profits.
  • About 55 percent of U.S. corporate offshore profits are in tax-haven countries. Corporations pay an average tax rate of between just 3.0 percent and 6.6 percent on profits in tax havens.
  • U.S. corporations pay very low tax rates—6 percent to 10 percent, mainly to foreign governments—on all their offshore profits. A tax break known as “deferral” allows them to delay paying U.S. taxes until the profits are repatriated to the parent corporation in the United States.
  • The U.S. Treasury will lose $1.3 trillion over 10 years—about $126 billion a year—due to the deferral of taxes on offshore profits.
  • Income shifting—making profits earned in the United States look as if they were earned offshore—erodes our corporate tax base by over $100 billion a year. U.S. corporations increasingly manipulate transfer pricing and bilateral tax agreements to make their U.S. profits appear to be earned in tax havens.
  • Corporations owe up to $695 billion in U.S. taxes on their $2.4 trillion in offshore profits. Having paid just 6 percent to 10 percent in taxes to foreign governments, they owe between 29 percent and 25 percent in U.S. taxes, based on a 35 percent tax rate with foreign tax credits.
  • President Obama has proposed taxing the current stock of offshore profits at 14 percent (less foreign taxes paid), which could give corporations a tax cut of $500 billion on their offshore profits. (Republicans propose an even bigger tax break.) A 14 percent tax rate would raise just $195 billion. This is $500 billion less than the up to $695 billion they owe. That’s a tax cut of up to 72 percent for the country’s worst tax dodgers.
  • Some large multinationals adept at tax dodging would receive huge tax breaks under Obama’s plan. Apple would get a tax break of $36.5 billion, Microsoft $20.7 billion, and Citigroup $7.1 billion (based on the profits they had stashed offshore at the end of 2015).
  • U.S. corporate offshore profits are not “trapped” overseas. Companies can invest these untaxed profits in any U.S. firm, deposit them in any U.S. bank, or use them to purchase any government security as long as it is not directly invested in the U.S. parent. A congressional study found that 46 percent of the offshore profits of 27 companies were invested in the United States in 2010. And, of course, nothing stops them from simply returning profits home—except for a desire to not pay taxes.
  • Corporate reorganization here in the United States likely further erodes the corporate tax base by $100 billion a year. In the United States, the business sector has substantially reorganized as pass-through entities in search of lower tax bills.

Note: For source documentation, see the source line of each chart.

U.S. corporate tax rate is not hurting corporate profits: U.S. corporate pre- and post-tax profit margin rate, 1947–2015

1
Pre-tax profit margin Post-tax profit margin
1947 17.5% 8.7%
1948 19.7% 11.4%
1949 18.2% 11.3%
1950 20.4% 9.7%
1951 20.2% 8.3%
1952 18.0% 8.6%
1953 17.0% 7.7%
1954 16.8% 8.8%
1955 19.2% 10.2%
1956 17.4% 9.1%
1957 16.3% 8.6%
1958 14.5% 7.8%
1959 16.8% 9.1%
1960 15.3% 8.6%
1961 15.3% 8.6%
1962 16.4% 9.9%
1963 17.2% 10.5%
1964 17.7% 11.1%
1965 18.7% 12.0%
1966 18.5% 11.7%
1967 16.8% 10.8%
1968 16.3% 9.8%
1969 14.1% 8.1%
1970 11.1% 6.4%
1971 12.2% 7.4%
1972 12.8% 8.0%
1973 12.7% 7.4%
1974 10.6% 5.4%
1975 11.5% 6.9%
1976 13.2% 7.9%
1977 13.5% 8.2%
1978 13.5% 8.3%
1979 12.0% 7.1%
1980 9.9% 5.6%
1981 10.6% 6.9%
1982 9.3% 6.8%
1983 10.5% 7.5%
1984 12.1% 8.7%
1985 11.4% 8.4%
1986 9.3% 6.2%
1987 9.8% 6.3%
1988 10.2% 6.7%
1989 9.1% 5.7%
1990 8.3% 5.2%
1991 8.3% 5.5%
1992 8.5% 5.7%
1993 9.6% 6.5%
1994 11.3% 7.8%
1995 11.8% 8.3%
1996 12.6% 9.1%
1997 12.9% 9.4%
1998 11.5% 8.2%
1999 10.6% 7.2%
2000 8.7% 5.6%
2001 7.0% 4.9%
2002 8.5% 6.7%
2003 10.2% 7.9%
2004 12.2% 9.1%
2005 13.3% 9.2%
2006 14.5% 10.1%
2007 12.7% 8.6%
2008 11.2% 8.1%
2009 10.5% 7.9%
2010 13.6% 10.5%
2011 13.7% 10.7%
2012 14.3% 11.0%
2013 14.9% 11.5%
2014 14.7% 11.1%
2015 13.9% 10.4%
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Note: Figure depicts profit margins in the non-financial corporate sector.

Source: Adapted from Bivens (2015)

Corporate profits don’t support the claim that U.S. corporations need tax relief to become more competitive. In recent years, in the U.S. non-financial corporate sector, both pre-tax and post-tax profit margins—the share of revenues claimed by profits rather than employee compensation or other business costs—are at their highest levels since the mid-to-late 1960s.

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Corporate profits are way up, corporate taxes are way down: After-tax corporate profits versus corporate tax revenue, as a share of GDP, 1952–2015

2
Fiscal year Corporate income tax revenue After-tax corporate profits
1952 5.9% 5.5%
1953 5.6% 5.1%
1954 5.4% 5.6%
1955 4.4% 6.6%
1956 4.8% 6.2%
1957 4.6% 5.8%
1958 4.2% 5.2%
1959 3.4% 6.1%
1960 4.0% 5.9%
1961 3.8% 5.9%
1962 3.5% 6.6%
1963 3.5% 6.9%
1964 3.5% 7.2%
1965 3.6% 7.8%
1966 3.8% 7.6%
1967 4.1% 7.1%
1968 3.2% 6.6%
1969 3.7% 5.7%
1970 3.1% 4.8%
1971 2.4% 5.4%
1972 2.6% 5.8%
1973 2.7% 5.8%
1974 2.6% 4.7%
1975 2.5% 5.2%
1976 2.3% 5.8%
1977 2.7% 6.3%
1978 2.6% 6.5%
1979 2.6% 6.0%
1980 2.3% 4.8%
1981 1.9% 5.1%
1982 1.5% 4.9%
1983 1.0% 5.5%
1984 1.4% 5.9%
1985 1.4% 5.9%
1986 1.4% 4.7%
1987 1.8% 4.8%
1988 1.8% 5.2%
1989 1.9% 4.7%
1990 1.6% 4.5%
1991 1.6% 5.1%
1992 1.6% 5.0%
1993 1.7% 5.1%
1994 2.0% 5.9%
1995 2.1% 6.3%
1996 2.2% 6.8%
1997 2.1% 7.2%
1998 2.1% 6.1%
1999 1.9% 5.9%
2000 2.0% 5.0%
2001 1.4% 5.2%
2002 1.4% 6.5%
2003 1.2% 7.1%
2004 1.6% 8.0%
2005 2.2% 8.1%
2006 2.6% 8.5%
2007 2.6% 7.5%
2008 2.1% 6.6%
2009 1.0% 7.8%
2010 1.3% 9.2%
2011 1.2% 9.3%
2012 1.5% 9.6%
2013 1.6% 9.4%
2014 1.9% 9.3%
2015 1.9% 8.5%
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Source: ATF and EPI analysis of BEA (2016) and OMB (2016a)

Corporations complain about high tax rates stifling economic growth and profitability. But since 1952, corporate profits as a share of the economy have risen dramatically (from 5.5 percent to 8.5 percent), while corporate taxes as a share of the economy have plummeted (from 5.9 percent to just 1.9 percent). That is a 55 percent increase in profits and a 68 percent decrease in taxes.

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Corporations now pay a very low share of federal taxes: Corporate taxes as a share of federal revenue, 1952–2015

3
Fiscal Year Corporate Income Taxes
1952 32.1%
1953 30.5%
1954 30.3%
1955 27.3%
1956 28.0%
1957 26.5%
1958 25.2%
1959 21.8%
1960 23.2%
1961 22.2%
1962 20.6%
1963 20.3%
1964 20.9%
1965 21.8%
1966 23.0%
1967 22.8%
1968 18.7%
1969 19.6%
1970 17.0%
1971 14.3%
1972 15.5%
1973 15.7%
1974 14.7%
1975 14.6%
1976 13.9%
1977 15.4%
1978 15.0%
1979 14.2%
1980 12.5%
1981 10.2%
1982 8.0%
1983 6.2%
1984 8.5%
1985 8.4%
1986 8.2%
1987 9.8%
1988 10.4%
1989 10.4%
1990 9.1%
1991 9.3%
1992 9.2%
1993 10.2%
1994 11.2%
1995 11.6%
1996 11.8%
1997 11.5%
1998 11.0%
1999 10.1%
2000 10.2%
2001 7.6%
2002 8.0%
2003 7.4%
2004 10.1%
2005 12.9%
2006 14.7%
2007 14.4%
2008 12.1%
2009 6.6%
2010 8.9%
2011 7.9%
2012 9.9%
2013 9.9%
2014 10.6%
2015 10.8%
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Source: ATF and EPI analysis of OMB (2016b)

Federal revenue contributed by corporate taxes has dropped by two-thirds over the last six decades—from 32.1 percent in 1952 to 10.8 percent in 2015. Corporations used to contribute $1 out of every $3 in federal revenue. Today, they contribute just $1 out of every $9—at a time when they have never been more profitable.

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Corporate profits rise while infrastructure spending is flat: After-tax corporate profits versus federal infrastructure spending, as a share of GDP, 1956–2015

4
Fiscal Year After-tax corporate profits Infrastructure spending
1956 6.2% 2.5%
1957 5.8% 2.7%
1958 5.2% 2.9%
1959 6.1% 3.0%
1960 5.9% 2.9%
1961 5.9% 3.0%
1962 6.6% 2.9%
1963 6.9% 3.0%
1964 7.2% 2.9%
1965 7.8% 2.8%
1966 7.6% 2.8%
1967 7.1% 2.8%
1968 6.6% 2.7%
1969 5.7% 2.6%
1970 4.8% 2.7%
1971 5.4% 2.8%
1972 5.8% 2.8%
1973 5.8% 2.6%
1974 4.7% 2.5%
1975 5.2% 2.8%
1976 5.8% 2.7%
1977 6.3% 2.6%
1978 6.5% 2.5%
1979 6.0% 2.6%
1980 4.8% 2.7%
1981 5.1% 2.7%
1982 4.9% 2.5%
1983 5.5% 2.5%
1984 5.9% 2.4%
1985 5.9% 2.4%
1986 4.7% 2.5%
1987 4.8% 2.5%
1988 5.2% 2.5%
1989 4.7% 2.5%
1990 4.5% 2.5%
1991 5.1% 2.5%
1992 5.0% 2.5%
1993 5.1% 2.5%
1994 5.9% 2.5%
1995 6.3% 2.5%
1996 6.8% 2.4%
1997 7.2% 2.4%
1998 6.1% 2.4%
1999 5.9% 2.4%
2000 5.0% 2.4%
2001 5.2% 2.5%
2002 6.5% 2.5%
2003 7.1% 2.5%
2004 8.0% 2.4%
2005 8.1% 2.4%
2006 8.5% 2.4%
2007 7.5% 2.5%
2008 6.6% 2.5%
2009 7.8% 2.7%
2010 9.2% 2.7%
2011 9.3% 2.6%
2012 9.6% 2.5%
2013 9.4% 2.4%
2014 9.3% 2.4%
2015 8.5% 2.4%
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Source: ATF and EPI analysis of BEA (2016) and CBO (2015a, Exhibit 3)

When corporations do not pay their fair share of taxes, public investments can suffer. While there may not be a direct cause and effect, it is worth noting that corporate profits as a share of the economy have risen by 37 percent over the last six decades—from 6.2 percent in 1956 to 8.5 percent today. At the same time, federal spending on infrastructure as a share of the economy has remained flat, while the U.S. population has ballooned.

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Actual U.S. corporate tax rates are about half the official 35 percent rate: Comparison of U.S. statutory and estimated average effective corporate tax rates

5
 Source  Tax Rate
Statutory rate 35.0% 
Effective rate (CTJ estimate) 19.4%
Effective rate (Zucman estimate) 12.5%
Effective rate (GAO estimate) 14.0%
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Sources: Americans for Tax Fairness (ATF) and EPI analysis of McIntyre, Gardner, and Phillips (2014a, i); Zucman (2014, 132–133); and GAO (2016, 13)

Many corporations do not pay the official 35 percent federal tax rate on all their profits (domestic and offshore combined). Citizens for Tax Justice (McIntyre, Gardner, and Phillips 2014) found that Fortune 500 companies that were profitable over 5 years paid a 19.4 percent federal corporate income tax rate. Using data from Gabriel Zucman (2014) we find that over 2010–2013, the effective U.S. federal corporate tax rate was 12.5 percent—down from 43 percent in the 1950s. Similarly, the Government Accountability Office (GAO 2014) found that profitable U.S. corporations paid an effective federal tax rate of 14 percent on their worldwide income over 2008–2012.

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Corporations pay very low tax rates on tax-haven profits: Comparison of U.S. tax rate with estimated tax rates on tax-haven profits, 2011 and 2013

6
Source Tax Rate
Statutory rate 35.0%
Rate on tax-haven profits (Clausing estimate) 6.6%
Rate on tax-haven profits (Zucman estimate) 3.0%
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Source: ATF and EPI analysis of Clausing (2016, 13) and Zucman (2014, 130)

The official, or statutory, U.S. corporate tax rate is 35 percent. But that is not what most companies pay, especially multinational corporations that are able to shift profits to tax havens. Two major studies show that the average effective tax rates on profits in tax havens range from just 3.0 percent to 6.6 percent (Clausing 2016; Zucman 2014). Such a low rate for multinationals requires the rest of us to make up the difference. It also gives them an unfair advantage over domestic firms, many of which pay close to the statutory rate.

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Over half of U.S. corporate offshore profits are in tax-haven countries: Share of offshore U.S. corporate profits by tax haven, 1982–2013

7
Ireland Netherlands Luxembourg Switzerland Bermuda and other Caribbean Singapore
1982 1.7% 4.3% 0.6% 5.8% 8.5% 1.9%
1983 1.9% 5.2% 0.6% 5.1% 1.9% 1.9%
1984 1.7% 3.9% 0.4% 5.3% 1.0% 1.7%
1985 2.5% 5.3% 0.3% 5.1% 1.2% 1.4%
1986 2.5% 7.5% 0.4% 5.4% 1.9% 1.7%
1987 2.6% 7.4% 0.2% 6.8% 1.1% 1.8%
1988 2.3% 5.7% 0.2% 5.2% 3.8% 1.6%
1989 2.4% 5.8% 0.3% 7.1% 5.1% 1.3%
1990 2.5% 7.1% 0.3% 7.6% 5.2% 1.9%
1991 3.0% 6.9% 0.4% 6.2% 6.1% 2.2%
1992 3.6% 6.1% 0.4% 5.4% 8.3% 3.0%
1993 3.0% 4.0% 0.7% 7.2% 6.5% 3.3%
1994 2.2% 8.3% 1.8% 6.5% 8.0% 3.1%
1995 2.5% 8.5% 1.5% 4.8% 6.1% 2.8%
1996 2.1% 10.3% 1.6% 4.7% 5.8% 2.9%
1997 2.2% 11.1% 1.5% 4.8% 6.8% 3.3%
1998 5.0% 11.1% 1.9% 6.8% 7.5% 2.0%
1999 3.6% 11.9% 3.1% 5.8% 8.2% 2.3%
2000 4.3% 10.0% 2.2% 3.8% 8.1% 3.0%
2001 4.7% 9.9% 4.6% 6.0% 10.7% 3.0%
2002 5.1% 9.4% 6.0% 8.7% 8.4% 3.6%
2003 5.5% 10.0% 5.7% 7.7% 8.4% 3.6%
2004 6.2% 13.2% 3.8% 6.4% 9.6% 3.8%
2005 6.3% 12.5% 4.5% 5.6% 10.1% 5.8%
2006 5.9% 11.7% 5.7% 4.7% 9.4% 5.1%
2007 6.3% 12.6% 5.7% 4.2% 11.9% 5.4%
2008 7.7% 12.3% 5.3% 5.0% 12.8% 4.4%
2009 7.3% 16.6% 6.0% 5.0% 15.0% 3.0%
2010 6.5% 15.8% 7.6% 4.5% 13.4% 3.9%
2011 7.1% 17.2% 5.3% 4.2% 13.2% 4.8%
2012 8.9% 16.3% 6.4% 4.4% 12.5% 4.9%
2013 7.7% 16.7% 8.2% 4.8% 13.2% 5.2%
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Source: ATF and EPI analysis of Zucman (2014, 128, 130)

The share of U.S. offshore corporate profits that are in tax-haven countries has increased dramatically since 1982—from about 23 percent of the total to 55 percent in 2013. Corporations shift profits to these low-tax jurisdictions—which include Ireland, the Netherlands, Luxembourg, Switzerland, Bermuda, and Singapore—to dodge paying their fair share of taxes.

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Big U.S. corporations’ offshore untaxed profits equal $2.4 trillion: Untaxed profits booked offshore by S&P 500 corporations, as a share of GDP, 2001–2015

8
Year Total permanently reinvested/unrepatriated income as a share of GDP Total permanently reinvested/unrepatriated income as a share of GDP
2001 2.7%
2002 3.3%
2003 3.9%
2004 4.3%
2005 3.4% 
2006 4.3%
2007 5.4%
2008 6.2%
2009 7.1%
2010 8.1%
2011 9.5%
2012 10.7%
2013 11.6%
2014 12.0% 12.0%
2015 13.4% 
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Note: 2015 data reflects untaxed profits booked offshore by the Fortune 500.

Source: ATF and EPI analysis of CTJ (2016a)

Corporations had $2.4 trillion in profits booked offshore in 2015 (CTJ 2016a). This is equal to 13.4 percent of U.S. GDP. This has risen from $2.1 trillion as of 2014 (Credit Suisse 2015). Corporations have not paid any U.S. taxes on these profits because our tax system lets them defer paying taxes until that income is brought back to the U.S. parent corporation (i.e., repatriated).

The amount of untaxed offshore profits stood at $434 billion in 2005. This means it has increased nearly five-fold over 10 years—four-fold as a share of GDP. Congress established a one-time repatriation tax holiday in 2004 with a tax rate of just 5.25 percent, which took effect in 2005. Corporations were barred from using the funds for stock buybacks, but it is estimated that up to 92 cents of every dollar repatriated went to shareholders, primarily through stock repurchases (Dharmapala et al. 2009, 26). Since then, offshore profits have increased dramatically in anticipation of another tax holiday.

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IT and health care industries hold half of offshore profits: Share of U.S. corporate profits held offshore, by industry, 2014

9
Sector Percentage of earnings overseas
Information tech. 29%
Health care 20%
Consumer staples 11%
Energy 7%
Industrial 13%
Material 4%
Consumer discretionary 6%
Financial 10%
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Source: ATF and EPI analysis of Zion, Gomatam, and Graziano (2015, 15)

Just two industries—high-tech/information technology and pharmaceutical/health care—hold about half of offshore profits. Information technology firms hold 29 percent, while health care companies, primarily pharmaceutical firms, hold 20 percent. Companies that earn their profits from intellectual property, such as patents, are best able to shift their profits to tax havens.

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More earnings are repatriated than stashed offshore: Amount of S&P offshore earnings repatriated/earmarked for repatriation or parked offshore (in billions)

10
Year Est. amt. repatriated/earmarked for future repatriation Earnings parked each year
2006 $205 $150
2007 $223 $192
2008 $261 $140
2009 $260 $104
2010 $260 $181
2011 $264 $253
2012 $230 $255
2013 $281 $204
2014 $301 $158
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Source: ATF and EPI analysis of Zion, Gomatam, and Graziano (2015, 8)

Proponents of corporate tax breaks will often refer to offshore corporate profits as “trapped.” For instance, Apple CEO Tim Cook has stated that “almost nobody’s bringing back their money” (NPR 2015). However, in reality it is simply that large multinational corporations don’t want to pay the taxes they owe. A Credit Suisse report shows that in every year but one between 2006 and 2014, more U.S. offshore earnings were repatriated or were earmarked for future repatriation than were stashed offshore. This tells us that many American corporations are in fact bringing their money back home and paying the taxes they owe. Rather, as detailed in the next few charts, offshore tax avoidance is mainly about particular large multinational corporations that refuse to pay the taxes they owe.

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50 companies hold over three-fourths of untaxed offshore profits: Share of offshore profits held by top four, 10, 43, and 50 companies, 2015

11
Percentage
Top 4 25%
Top 10 39%
Top 43 70%
Top 50 77%
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Source: ATF and EPI analysis of CTJ (2016a, Appendix A); and Zion, Gomatam, and Graziano (2015, 16)

By the end of 2015, Fortune 500 companies held $2.4 trillion in profits booked offshore. Just four corporations—Apple, Pfizer, Microsoft, and General Electric—had one-quarter of these untaxed profits offshore. Only 10 corporations hold nearly 40 percent of them, and 50 companies hold more than three-quarters of these untaxed offshore profits. (See Appendix Table A1 for the list of all 50 companies.) These corporations are the most adept at dodging taxes because of their ability to shift profits offshore.

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Corporations owe up to $695 billion in U.S. taxes on offshore profits: Tax revenue raised from statutory rate (less foreign taxes paid) versus revenue from Obama tax repatriation proposal

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Rate Tax Gathered
Statutory rate (CTJ estimate)* $695
Statutory rate (Credit Suisse estimate)** $533
Obama plan $195
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*Based on an estimated $2.4 trillion in offshore profits in 2015
**Based on an estimated $2.1 trillion in offshore profits in 2014

Source: ATF and EPI analysis of CTJ (2016a); Zion, Gomatam, and Graziano (2015); and JCT (2016, 1)

The share of corporate income paid in taxes to foreign governments on offshore profits stands at between 6.4 percent and 10.0 percent, according to respected estimates. That means U.S. corporations will owe to the U.S. Treasury between 28.6 percent and 25 percent when their profits are repatriated, based on a 35 percent tax rate (less deductions for foreign taxes paid). Thus, corporations owe between $533 billion (based on $2.1 trillion in offshore profits in 2014) and $695 billion on those offshore profits (based on $2.4 trillion in offshore profits in 2015).

President Obama’s corporate tax reform plan proposes that a mandatory 14 percent tax be assessed on the offshore profits (less credits for foreign taxes paid). A 14 percent rate would raise $195 billion—a tax break of roughly $500 billion from the up to $695 billion that is owed. Republicans have proposed even lower rates that would lose even more revenue.

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Big corporations would get a multibillion-dollar tax break at 14% tax rate: Estimated taxes major corporations owe on offshore profits, 35% versus proposed 14% tax rate (less foreign taxes paid), 2015 (billions)

13
Company 35% rate 14% rate 
Apple $60.90 $24.40
Microsoft $34.50 $13.80
Citigroup $12.70 $5.60
Amgen $11.40 $4.50
Oracle $11.80 $5.00
Qualcomm $10.20 $4.10
Bank of America $5.00 $2.30
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Source: ATF and EPI analysis of CTJ (2016b)

Some very large multinational corporations owe a substantial amount of U.S. taxes on their offshore profits because they have paid very little in foreign taxes, as many of these profits are booked in tax havens.

For example, Apple, which reported paying just 4.6 percent in taxes on its offshore profits (CTJ 2016a, 6), owes nearly $61 billion (based on the 35 percent tax rate Apple would owe if it brought its offshore profits home, less the foreign taxes already paid). Microsoft, which reported paying just 3.1 percent on its offshore profits, owes nearly $35 billion. Citigroup owes nearly $13 billion.

But these large multinational corporations would get huge tax breaks under President Obama’s proposal to apply a 14 percent tax rate to existing offshore profits. For example, Apple would owe about $24 billion—a tax break of about $37 billion from the 35 percent rate.

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14

U.S. corporate offshore profits are not “trapped” overseas: Share of major corporations’ offshore profits held in U.S. bank accounts or U.S. investments, 2010

0-25% 26-50% 51-75% 76-100%
Bristol-Meyers Squibb Coca-Cola Oracle Adobe
CA Technologies Devon Energy Motorola Apple
Duke Energy DuPont PepsiCo Broadcom
Eli Lilly Intel Cisco
Hewlett-Packard Google
Honeywell EMC
IBM Microsoft
Eastman Kodak Johnson & Johnson
Merck Qualcomm
Pfizer

Note: Table reflects companies' U.S. dollars and investments as a percentage of their undistributed accumulated foreign earnings.

Source: ATF and EPI analysis of U.S. Senate Permanent Subcommittee on Investigations (2011, 5)

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Corporations will avoid almost $1.3 trillion in U.S. taxes in the next decade due to “deferral”: Tax revenue lost from the “deferral” loophole, 2015–2024 (billions)

15
Year Deferral
2015 $99.3
2016 108.9
2017 114.0
2018 118.1
2019 123.2
2020 128.4
2021 133.8
2022 139.4
2023 145.2
2024 151.3
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Source: ATF and EPI analysis of JCT (2015, 29)

Corporations are able to accumulate offshore profits without paying U.S. taxes on them because of a loophole known as “deferral.” It lets corporations defer paying taxes on profits earned overseas indefinitely, as long as they claim it is permanently reinvested offshore. Using estimates from the Joint Committee on Taxation, we project the deferral loophole will cost the U.S. Treasury almost $1.3 trillion in tax revenues over 10 years—or $126 billion a year, on average. Ending deferral would also eliminate some incentives to ship jobs offshore, end incentives to shift profits offshore, and make the tax system more equitable so that multinational corporations no longer pay a much lower tax rate than domestic firms.

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U.S. loses over $100 billion a year in revenue to corporations shifting their profits offshore: Revenue loss due to corporate income shifting, as a share of GDP, 1983–2012

16
Year  Lost revenue as a share of GDP
1983 -0.103%
1984 -0.114%
1985 -0.083%
1986 -0.022%
1987 -0.014%
1988 -0.004%
1989 0.008%
1990 0.033%
1991 0.019%
1992 0.017%
1993 0.042%
1994 0.040%
1995 0.053%
1996 0.050%
1997 0.072%
1998 0.091%
1999 0.123%
2000 0.142%
2001 0.124%
2002 0.201%
2003 0.293%
2004 0.368%
2005 0.409%
2006 0.445%
2007 0.482%
2008 0.522%
2009 0.411%
2010 0.629%
2011 0.618%
2012 0.694% 
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Source: ATF and EPI analysis of Clausing (2016, 24)

The driving forces behind offshore tax avoidance are the deferral loophole and the tax incentives that exist for multinational corporations to shift their U.S. profits to make them appear as offshore profits. That is, much of the offshore earnings that corporations can defer taxes on weren’t really earned offshore at all, and corporations have no intention of keeping them offshore. They are simply waiting for Congress to grant a new tax holiday to bring them home at a low tax rate. The resulting revenue loss to the U.S. government is growing substantially—and was $111 billion per year as of 2012. This is equal to roughly 0.7 percent of U.S. GDP.

Multinational corporations can create complicated arrangements through the varied array of bilateral tax agreements that exist between countries, and they can manipulate transfer pricing rules (rules that determine the prices at which multinational corporations exchange goods and services internally). The simplest example is assigning all profits earned from royalty payments on intellectual property assets (patents, for example) to the subsidiaries of U.S. corporations based in low-tax countries.

It is clear that U.S. corporations haven’t actually relocated production for the sake of “competitiveness”; they are simply dodging taxes. Of the top 10 profit locations for overseas affiliates, seven are tax havens with effective tax rates of less than 5 percent. Ninety-eight percent of the revenue loss results from profit shifting to countries with corporate tax rates of less than 15 percent. And 82 percent of revenue loss stems from profit shifting to just seven tax-haven countries. These seven tax havens are responsible for 50 percent of all foreign profits of U.S. multinational firms. And those seven tax havens account for only 5 percent of their foreign employment (Clausing 2016).

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Income shifting erodes the U.S. corporate income tax base: Corporate income tax revenue, and corporate income tax revenue with income shifting, as a share of GDP, 1983–2012

17
Year Corporate income tax revenue with income shifting Corporate income tax revenue without income shifting
1983 1.0% 0.9%
1984 1.4% 1.3%
1985 1.4% 1.4%
1986 1.4% 1.4%
1987 1.8% 1.7%
1988 1.8% 1.8%
1989 1.9% 1.9%
1990 1.6% 1.6%
1991 1.6% 1.6%
1992 1.6% 1.6%
1993 1.7% 1.8%
1994 2.0% 2.0%
1995 2.1% 2.1%
1996 2.2% 2.2%
1997 2.1% 2.2%
1998 2.1% 2.2%
1999 1.9% 2.1%
2000 2.0% 2.2%
2001 1.4% 1.6%
2002 1.4% 1.6%
2003 1.2% 1.5%
2004 1.6% 1.9%
2005 2.2% 2.6%
2006 2.6% 3.0%
2007 2.6% 3.1%
2008 2.1% 2.6%
2009 1.0% 1.4%
2010 1.3% 1.9%
2011 1.2% 1.8%
2012 1.5% 2.2%
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Source: ATF and EPI analysis of Clausing (2016, 24) and OMB (2016a)

In recent years, corporate income shifting has increasingly eroded the U.S. corporate tax base. If not for income shifting, corporate income tax revenues as a share of GDP would have been almost 50 percent higher in 2012—2.2 percent rather than 1.5 percent.

The reduction of corporate income tax revenue in 2012 due to income shifting is estimated at $111 billion (Clausing 2016). This is roughly the size of sequestration cuts to federal spending that Congress made in the Budget Control Act (BCA) of 2011 (Kogan 2013). The BCA-driven cuts remain the single biggest reason why full recovery from the Great Recession has taken more than 7 years to arrive (Bivens 2016). In short, the budgetary effects are likely to have been roughly equivalent had Congress tackled corporate income shifting in 2012 rather than enforcing arbitrary spending cuts. And ending corporate income shifting would have provided much less of an economic drag than did the BCA spending cuts.

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Business sector is reorganizing to avoid taxes: Shares of business income by entity type, 1980–2012

18
Year C-Corporations S-Corporations Partnerships Sole proprietorships
1980 79.26% 0.79% 2.60% 17.34%
1981 80.22% 0.71% -1.04% 20.10%
1982 76.56% 1.54% -3.70% 25.59%
1983 74.47% 2.06% -1.06% 24.53%
1984 75.29% 2.30% -1.17% 23.58%
1985 75.00% 2.45% -2.87% 25.41%
1986 76.26% 2.42% -5.07% 26.39%
1987 70.04% 6.91% -1.25% 24.29%
1988 67.31% 7.72% 2.57% 22.40%
1989 65.04% 8.17% 2.57% 24.22%
1990 62.52% 8.28% 3.07% 26.13%
1991 60.33% 8.55% 4.09% 27.04%
1992 58.23% 9.55% 7.02% 25.20%
1993 60.55% 9.03% 9.09% 21.33%
1994 59.64% 10.86% 9.74% 19.76%
1995 62.94% 9.79% 10.55% 16.72%
1996 61.47% 10.79% 12.51% 15.23%
1997 61.27% 11.67% 12.83% 14.23%
1998 55.55% 14.16% 14.54% 15.75%
1999 55.68% 13.63% 16.07% 14.63%
2000 53.61% 13.50% 18.29% 14.60%
2001 40.36% 16.43% 24.19% 19.03%
2002 37.95% 16.86% 24.87% 20.32%
2003 44.94% 15.78% 22.26% 17.01%
2004 49.63% 15.28% 21.35% 13.74%
2005 58.59% 12.70% 19.21% 9.49%
2006 55.16% 13.01% 22.46% 9.37%
2007 53.17% 13.75% 23.45% 9.63%
2008 41.72% 17.77% 25.68% 14.83%
2009 42.95% 16.76% 25.22% 15.06%
2010 47.63% 14.63% 26.01% 11.73%
2011 45.41% 16.54% 25.60% 12.45%
2012 47.24% 16.11% 26.33% 10.32%
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Source: ATF and EPI analysis of Cooper et al. (2015, 31)

While the scale of offshore tax avoidance is enormous, it shouldn’t be overlooked that businesses likely avoid taxes about as much here in the United States. Increasingly, the business sector is reorganizing as various “pass-through” entities to avoid taxes. Pass-through entities are businesses whose incomes are not taxed at the corporate level, but instead “passed through” entirely to the business owners and then taxed at individual income-tax levels.

The most dramatic shift is the rise in partnership income. In 1980, partnerships (a relationship where two or more persons join to carry on a trade or business) accounted for 2.6 percent of business income. Today they account for 26 percent.

The rise of pass-through income has eroded the corporate income tax base. Standard C-corporations (which pay the corporate income tax) accounted for almost 80 percent of business income in 1980. By 2012, they accounted for only 47 percent.

Increasingly, evidence points to the rise of pass-through business income being due to tax avoidance. Cooper et al. (2015) note that their inability to unambiguously trace 30 percent of partnership income to an ultimate owner or originating partnership lends evidence to the belief that firms are organizing opaquely in partnership form to minimize their taxes.

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The tax incentives driving reorganization: Average tax rate, by entity type

19
Entity type Average tax rate Dividend taxes paid on distributions to owners
Sole proprietorships 13.6%
Partnerships 15.9%
S-Corporations 25.0%
C-Corporations* 22.7% 8.9%
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* The average tax rate on C-Corporations includes both the corporate tax (bottom segment of the bar) as well as dividend taxes paid on distributions to owners (top of the bar).

Source: ATF and EPI analysis of Cooper et al. (2015, 37)

As with the rise of offshore profits, the rise of reorganization is likely due to the available tax incentives. Pass-through entities can avoid the first layer of the corporate income tax (i.e., the 35 percent statutory rate), and further minimize taxes by organizing opaquely. The capital income generated by standard C-corporations faces an average total tax rate of 31.6 percent. This rate includes not just an estimated 22.7 percent rate on C-corporations, but also an effective 8.9 percent tax on dividends. On the other hand, by organizing as an S-corporation, a company can expect an average tax rate of 25 percent. And indeed, it appears businesses have responded to these tax incentives. S-corporations have grown as a share of business income from less than 1 percent in 1980 to about 16 percent today.

Even more lucrative are the tax avoidance strategies available to partnerships. Partnerships face an average tax rate of just 15.9 percent. And one of the largest tax incentives in partnership organization is the ability to organize opaquely. Cooper et al. (2015) find that collapsing all circular partnerships (where partnership income could not be uniquely linked to non-partnership owners) into one would imply they pay a rate of about 8.8 percent.

Like offshore tax avoidance, this costs the rest of us in the form of forgone tax revenue. If pass-through activity had remained at 1980s levels, Cooper et al. (2015) find that 2011 tax revenue would have been approximately $100 billion higher.

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Appendix Table A1

Unrepatriated foreign profits of top 50 major U.S. corporations, 2013–2015 (millions)

Unrepatriated income (millions)
Company 2015 2014 2013 State headquarters
Apple $200,100 $157,800 $111,300 California
Pfizer 193,587 175,798 162,264 New York
Microsoft 108,300 92,900 76,400 Washington
General Electric 104,000 119,000 110,000 Connecticut
International Business Machines 68,100 61,400 52,300 New York
Merck 59,200 60,000 57,100 New Jersey
Google 58,300 47,400 38,900 California
Cisco Systems 58,000 52,700 48,000 California
Johnson & Johnson 58,000 53,400 50,900 New Jersey
Exxon Mobil 51,000 51,000 47,000 Texas
Hewlett-Packard 47,200 42,900 38,200 California
Chevron 45,400 35,700 31,300 California
Citigroup 45,200 43,800 43,800 New York
Procter & Gamble 45,000 44,000 42,000 Ohio
PepsiCo 40,200 37,800 34,100 New York
Oracle 38,000 32,400 26,200 California
J.P. Morgan Chase & Co. 34,600 31,100 28,500 New York
Amgen 32,600 29,300 25,500 California
Coca-Cola 31,900 33,300 30,600 Georgia
United Technologies 29,000 28,000 25,000 Connecticut
Qualcomm 28,800 25,700 21,600 California
Goldman Sachs Group 28,550 24,880 22,540 New York
Gilead Sciences 28,500 15,600 8,550 California
Medtronic 27,837 20,529 20,499 Minnesota
Intel 26,900 23,300 20,000 California
Eli Lilly 26,500 25,700 23,740 Indiana
Abbvie 25,000 23,000 21,000 Illinois
Bristol-Myers Squibb 25,000 24,000 24,000 New York
Danaher 23,500 11,800 10,600 District of Columbia
Wal-Mart Stores 23,300 21,400 19,200 Arkansas
Abbott Laboratories 22,400 23,000 24,000 Illinois
Dow Chemical 18,773 18,037 16,139 Michigan
Bank of America Corp. 18,000 17,200 17,000 North Carolina
Caterpillar 17,000 18,000 17,000 Illinois
Honeywell International 16,600 15,000 13,500 New Jersey
DuPont 16,053 17,226 15,978 Delaware
McDonald’s 14,900 15,400 16,100 Illinois
Kraft Foods 13,200 12,400 10,300 Illinois
3M 12,000 11,200 9,700 Minnesota
EMC 11,800 11,800 10,200 Massachusetts
Corning 11,000 10,300 12,400 New York
Praxair 11,000 10,400 9,300 Connecticut
Berkshire Hathaway 10,400 10,000 9,300 Nebraska
Morgan Stanley 10,209 7,364 6,675 New York
American Express 9,900 9,700 9,600 New York
Occidental Petroleum 9,900 9,900 10,600 Texas
Priceline.com 9,900 7,300 4,900 Connecticut
Celgene 9,667 7,541 6,129 New Jersey
Archer Daniels Midland 9,600 8,600 7,500 Illinois
Western Digital 9,400 8,200 6,800 California

Source: ATF and EPI analysis of CTJ (2016a)

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Appendix Table A2

After-tax corporate profits as share of GDP, and corporate income taxes as share of GDP and federal revenue, 1952–2015

Fiscal Year Corporate income taxes as a percentage of federal revenue Corporate income taxes as a share of GDP After-tax corporate profits as a share of GDP
1952 32.1% 5.9% 5.5%
1953 30.5% 5.6% 5.1%
1954 30.3% 5.4% 5.6%
1955 27.3% 4.4% 6.6%
1956 28.0% 4.8% 6.2%
1957 26.5% 4.6% 5.8%
1958 25.2% 4.2% 5.2%
1959 21.8% 3.4% 6.1%
1960 23.2% 4.0% 5.9%
1961 22.2% 3.8% 5.9%
1962 20.6% 3.5% 6.6%
1963 20.3% 3.5% 6.9%
1964 20.9% 3.5% 7.2%
1965 21.8% 3.6% 7.8%
1966 23.0% 3.8% 7.6%
1967 22.8% 4.1% 7.1%
1968 18.7% 3.2% 6.6%
1969 19.6% 3.7% 5.7%
1970 17.0% 3.1% 4.8%
1971 14.3% 2.4% 5.4%
1972 15.5% 2.6% 5.8%
1973 15.7% 2.7% 5.8%
1974 14.7% 2.6% 4.7%
1975 14.6% 2.5% 5.2%
1976 13.9% 2.3% 5.8%
1977 15.4% 2.7% 6.3%
1978 15.0% 2.6% 6.5%
1979 14.2% 2.6% 6.0%
1980 12.5% 2.3% 4.8%
1981 10.2% 1.9% 5.1%
1982 8.0% 1.5% 4.9%
1983 6.2% 1.0% 5.5%
1984 8.5% 1.4% 5.9%
1985 8.4% 1.4% 5.9%
1986 8.2% 1.4% 4.7%
1987 9.8% 1.8% 4.8%
1988 10.4% 1.8% 5.2%
1989 10.4% 1.9% 4.7%
1990 9.1% 1.6% 4.5%
1991 9.3% 1.6% 5.1%
1992 9.2% 1.6% 5.0%
1993 10.2% 1.7% 5.1%
1994 11.2% 2.0% 5.9%
1995 11.6% 2.1% 6.3%
1996 11.8% 2.2% 6.8%
1997 11.5% 2.1% 7.2%
1998 11.0% 2.1% 6.1%
1999 10.1% 1.9% 5.9%
2000 10.2% 2.0% 5.0%
2001 7.6% 1.4% 5.2%
2002 8.0% 1.4% 6.5%
2003 7.4% 1.2% 7.1%
2004 10.1% 1.6% 8.0%
2005 12.9% 2.2% 8.1%
2006 14.7% 2.6% 8.5%
2007 14.4% 2.6% 7.5%
2008 12.1% 2.1% 6.6%
2009 6.6% 1.0% 7.8%
2010 8.9% 1.3% 9.2%
2011 7.9% 1.2% 9.3%
2012 9.9% 1.5% 9.6%
2013 9.9% 1.6% 9.4%
2014 10.6% 1.9% 9.3%
2015 10.8% 1.9% 8.5%

Source: ATF and EPI analysis of OMB (2016a; 2016b) and BEA NIPA Table 1.12

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About the authors

Frank Clemente is executive director of Americans for Tax Fairness, which he helped to found in 2012. Previously he was campaign manager for the Strengthen Social Security Campaign, a coalition of 320 organizations. Prior to that he managed a health care campaign for the Communications Workers of America in support of the Affordable Care Act. He was issue campaigns director at the Change to Win Labor Federation and director of Public Citizen’s Congress Watch, a national consumer watchdog organization. Frank also has been senior policy advisor to the U.S. House Committee on Government Operations and issues director for Jesse Jackson’s 1988 presidential campaign. Frank edited Keep Hope Alive: Jesse Jackson’s 1988 Presidential Campaign.

Hunter Blair joined EPI in 2016 as a budget analyst, in which capacity he researches tax, budget, and infrastructure policy. He attended New York University, where he majored in math and economics. Blair received his master’s in economics from Cornell University.

Nick Trokel is research associate at Americans for Tax Fairness (ATF), where he is responsible for assisting the executive director in background research for ATF’s various reports and publications, as well as assisting in the management of website content and ATF’s email program. Nick has previously worked at the Securities and Exchange Commission and U.S. Treasury Department. Nick received his bachelor of science in economics from The George Washington University.

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