Category: TaxJusticeBlog

This week we are bringing you news about potential sales tax changes (and vetoes) in California, New Jersey, and Iowa, voter disapproval of income tax elimination in Arizona, and other state tax policy developments from across the country. Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• The campaign to enact an Earned Income Tax Credit (EITC) in West Virginia continues, as supporters gain more endorsements and work towards building bipartisan support for a bill in 2017.

• A recent poll shows that a majority of Arizona voters oppose (40%) or are uncertain (24%) about the idea of eliminating the state income tax in exchange for a higher sales tax. 

• Alabama legislators last week sent a plan to Gov. Bentley (which he has promised to sign) to spend the state’s $1 billion BP oil spill settlement. Most of the money will be used to pay down state debt, fund road projects, and free up money to plug the state’s $85 million Medicaid shortfall. The state also recently rejected a regressive lottery proposal and established a budget reform task force that will begin looking at some of Alabama’s revenue and spending processes later this month.

• Sales taxes and water quality will be in the news in Iowa again next year, as a coalition has announced a new initiative to increase the sales tax by 3/8 of a cent and devote the $180 million raised to cleaning up waterways, increasing soil conservation efforts, and improving programs for wildlife and outdoor recreation.

• Sales tax cuts are being discussed in New Jersey again as part of a package including a much-needed gas tax increase to bring the state’s roads department – currently operating on an emergency shoe-string budget – back to life.

• New Mexico Gov. Martinez’s refusal to entertain revenue solutions in the face of a $650 million budget gap and empty reserve funds won’t stop some from attempting to get tax increases on the agenda for the upcoming special session anyway, as groups are currently working to promote both alcohol and tobacco tax increases.

• California Gov. Brown vetoed legislation this week that would have exempted feminine hygiene products and diapers from the state sales tax, citing these tax breaks as new spending that must be considered during the upcoming budget session.

What We’re Reading…  

• New Census data from the Current Population Survey shows the first increase in real terms of median income since 2007 and a decrease in Americans living in poverty (though the poverty rate still exceeds 2007 levels).

• The OK Policy Institute summarizes State Question 779—the ballot question to increase the sales tax to fund education.

• CNBC reports on the federal and possibly state tax treatment of federal loans forgiven through the Income Based Repayment Plan.

• A new paper by the Federal Reserve Bank of Boston studying income mobility in the US from 1977-2012 shows lower family income mobility in more recent decades, especially for those in the bottom 20% of earners.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.

For the past five years, U.S. Census has released the Supplemental Poverty Measure (SPM) along with the traditional statistics measuring poverty and income. The supplemental measure provides valuable insight into how government programs and the tax code impact poverty.

What we know and what the SPM confirms is tax policy, as well as social service programs, makes a difference. Two of the most important anti-poverty credits for working families, the federal Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC) are considered under this comprehensive measure of poverty. At 14.3 percent the supplemental poverty rate is higher than the 13.5 percent official poverty rate; however, it is lower than it would have been in the absence of these highly effective anti-poverty programs. In 2015, the combined impact of the EITC and CTC decreased the supplemental poverty rate from 17.2 to 14.3 percent, lifting 9.2 million people, 4.8 million of which are children, out of poverty. Thanks in part to these credits, the supplemental poverty rate for children is even lower than the official poverty rate (16.1 percent compared to 20.1 percent).  

Experts from multiple government agencies worked together to develop the supplemental poverty measure in part to address concerns that the official measure does not produce an adequate nor accurate picture of those living in poverty. By factoring in expenses such as child care, out-of-pocket medical costs, payroll and income taxes, and policies such as the EITC, the Supplemental Nutritional Assistance Program (SNAP), housing assistance, and other key anti-poverty programs, it provides a broader picture and more accurate measure of the true cost of making ends meet.

Both the EITC and CTC make a compelling case for the use of tax policy as a tool to mitigate poverty. Just last year, Congress reconfirmed its commitment to supporting and improving these proven anti-poverty programs by making permanent vital enhancements. This move was a big step forward for low-wage workers across the country. It will prevent 16.4 million Americans from being pushed into or deeper into poverty. For more on that impact by state click here for an interactive map.

A Good Policy with Room for Improvement

Lawmakers should take steps not only to maintain but to strengthen and preserve effective anti-poverty programs such as the EITC and CTC.

For instance, the EITC could be improved to reduce poverty rates among workers without children. Currently, this group is only eligible for a fraction of the credit that families with children can receive–a $506 maximum credit in 2016 as compared to a $3,373 maximum for families with one child. Additionally, to claim the credit, individuals without children must be 25 years old. As a result, vulnerable young adults who are trying to gain a foothold in the workforce are excluded from the EITC’s work-promoting, poverty-reducing benefits.

Fortunately, discussion of this inadequacy and options for improvement are taking place. Since their inception, both the EITC and CTC have enjoyed bipartisan support. Congress should continue to hold up and improve these proven anti-poverty provisions, expanding their impact to benefit hard working American families who continue to struggle to make ends meet. 

How State Tax Policy Can Mitigate Poverty/Income Inequality
The U.S. Census next week will release new data on poverty and household income. ITEP staff has produced recent policy briefs that make the connection between state tax policy and poverty. Read more

Should the Public Pay a Few Thousand or $658,000 to Create One Job?
In a guest blog for taxjusticeblog.org, Good Jobs First Executive Director Greg LeRoy discusses his organization’s recent report, which finds that public investments in workforce development programs provide a bigger bang for taxpayers’ bucks than corporate subsidies and tax credits. Read more

A Growing Number of States Face Revenue Challenges
In this week’s ITEP State Rundown, analysts outline how a growing number of states are struggling to make ends meet and notes what, if anything, they are proposing to do about it. Read more

ICYMI

Apple Inc. Doesn’t Fall Too Far from the Tree
The late August news that the European Commission ordered Apple to pay $14.5 billion in back taxes to the Irish government once again brought the tech giant’s tax avoidance to the forefront. ITEP’s Matt Gardner, who spends a lot of time examining at Fortune 500 corporations’ financial disclosures, says the $14.5 billion in back taxes are a fraction of the story. He also took umbrage with Apple CEO Tim Cook’s corporate spin that attempted to portray Apple as a victim. Read his piece, How Apple CEO Tim Cook Makes Data Crunchers Appreciate the Power of Words. And, finally, writing for The Guardian, Gardner stated that the United States should take a page from the EC’s book and crack down on corporate tax avoidance.

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The U.S. Census Bureau is slated to release its annual national data on poverty this Tuesday and on Thursday will release state-specific data on poverty. While Census doesn’t leak data ahead of time, many economists are predicting that median income increased between 2014 and 2015 and the poverty rate will see a slight decline. While a downward trend in poverty and upward trend in real income would undoubtedly be good news, it is important to note that the poverty rate will more than likely remain substantially higher than its 2000 level and income gains likely will not be substantial enough to recoup the erosion that happened throughout the early aughts.  

The analysts at the Institute on Taxation and Economic Policy (ITEP) have produced multiple recent briefs and reports that provide important context and offer tax policy suggestions that would both make state tax codes more progressive but also help mitigate poverty and widening income inequality.

ITEP’s signature report, Who Pays?, is a distributional analysis of average effective tax rates in each of the 50 states. This in-depth analysis explains how state and local tax systems exacerbate poverty by overly relying on regressive taxes to raise revenue. In fact, when all the taxes levied by state and local governments are taken into account, every state imposes higher effective tax rates on their poorest families than the richest 1 percent of taxpayers. Across the country, the effective tax rate for the poorest 20 percent of taxpayers is 10.9 percent, more than double the 5.4 percent average effective tax rate for the top 1 percent.

State Tax Codes as Poverty Fighting Tools is a 2015 report that examines four specific tax policies in each of the 50 states and Washington, DC. ITEP will release an update to this report by 11 a.m. on Thursday, Sept. 15 and will also include 2016 legislative updates. The new ITEP report suggests states should enact or improve refundable Earned Income Tax Credits (EITC), offer refundable property tax credits for low-income homeowners and renters, create refundable, targeted low-income credits to help offset regressive sales and excise taxes, and increase the value of existing child-related tax credits. In addition to the report, ITEP will release four updated briefs on each of these key anti-poverty tax policies: Rewarding Work Through State Earned Income Tax Credits, Reducing the Cost of Child Care Through State Tax Codes, Property Tax Circuit Breakers, and Options for A Less Regressive Sales Tax.

In Indexing Income Taxes for Inflation, Why It Matters, ITEP analysts note that low- and moderate-income families may be subject to higher state taxes over time due to “bracket creep.” This simply means since state tax brackets aren’t adjusted for inflation, a hypothetical family whose household income was at the poverty level in 2007 but whose income increased only at the rate of inflation (meaning they are still living in poverty) may be subject to a higher tax rate in states whose tax codes don’t adjust for inflation.

The bottom line is that no matter what the 2015 Census data on poverty and income find, the nation can do more to address and alleviate poverty. Ensuring state tax policies are progressive is one effective, proven tool in a very diverse arsenal.

This week we are bringing you news from a growing number

of states with current and projected revenue shortfalls including Mississippi, Virginia, New Mexico, Oklahoma, Wyoming and Tennessee.  Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

New Jersey Gov. Christie, one of the nation’s most hard-line anti-tax governors, has ended a four-decades-old tax reciprocity agreement with Pennsylvania and in the process has shown he is in fact willing to raise taxes – just so long as high-income New Jerseyans are protected. Nixing the deal will raise taxes on upper-income Pennsylvanians and lower- and middle-income New Jerseyans who cross the border to go to work.

Mississippi revenues are already running behind for the new fiscal year, a particularly disconcerting sign considering lawmakers budgeted $130 million more than they expected to receive in tax revenues under normal circumstances. Meanwhile, state transportation commissioners estimate they need nearly $1 billion per year in additional funds to keep the state’s infrastructure in good shape.

It appears fiscal issues will be front and center in Virginia in 2017, with Gov. McAuliffe announcing a projected $1.2 to $1.5 billion revenue shortfall this week that could be the largest in state history. The good people at The Commonwealth Institute have offered thoughtful solutions to the shortfall.

New Mexico Gov. Martinez will call a special session to deal with the state’s $485 million currenty-year revenue shortfall sometime in September. Tensions may be high in that session, with reserves completely exhausted, some in the legislature insisting on further funding cuts and refusing to consider revenue solutions, and others arguing “We’re not cutting anymore; we’re amputating.”  Oklahoma‘s Governor, Mary Fallin, decided against calling a special session to discuss teacher pay increases. Instead, the state’s budget surplus will be divvied out amongst state agencies who felt the brunt of recent state spending cuts.

Wyoming lawmakers look to the sales tax as revenue from energy reliance continues to take a hit. Specifically, lawmakers are looking to end certain exemptions. The Equality State relies heavily on the sales tax, a tax that disproportionately falls on low- and middle-income families.

Tennessee’s decision this year to cut taxes for its wealthiest residents by beginning a phase-out of the state’s “Hall Tax” on certain dividend and interest income is already leading directly to calls for 2 percent budget cuts throughout state departments that all Tennesseans rely on.

What We’re Reading…  

• A study on state pension funding from Pew shows that when looking at long-term returns and contribution practices, only 15 states are contributing enough to improve the standing of their funds over time.
• Just in time for Labor Day, check out new reports on the state of working Connecticut and Pennsylvania in 2016, and Vermont’s Framework for Progress.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.

This week we are bringing you news from a growing number of states with current and projected revenue shortfalls including Mississippi, Virginia, New Mexico, Oklahoma, Wyoming and Tennessee.  Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

New Jersey Gov. Christie, one of the nation’s most hard-line anti-tax governors, has ended a four-decades-old tax reciprocity agreement with Pennsylvania and in the process has shown he is in fact willing to raise taxes – just so long as high-income New Jerseyans are protected. Nixing the deal will raise taxes on upper-income Pennsylvanians and lower- and middle-income New Jerseyans who cross the border to go to work.

Mississippi revenues are already running behind for the new fiscal year, a particularly disconcerting sign considering lawmakers budgeted $130 million more than they expected to receive in tax revenues under normal circumstances. Meanwhile, state transportation commissioners estimate they need nearly $1 billion per year in additional funds to keep the state’s infrastructure in good shape.

It appears fiscal issues will be front and center in Virginia in 2017, with Gov. McAuliffe announcing a projected $1.2 to $1.5 billion revenue shortfall this week that could be the largest in state history. The good people at The Commonwealth Institute have offered thoughtful solutions to the shortfall.

New Mexico Gov. Martinez will call a special session to deal with the state’s $485 million current-year revenue shortfall sometime in September. Tensions may be high in that session, with some legislators insisting on further funding cuts and refusing to consider revenue solutions, and others arguing “We’re not cutting anymore; we’re amputating.” 

Oklahoma‘s Governor, Mary Fallin, decided against calling a special session to discuss teacher pay increases. Instead, the state’s budget surplus will be divvied out amongst state agencies who felt the brunt of recent state spending cuts.

Wyoming lawmakers look to the sales tax as revenue from energy reliance continues to take a hit. Specifically, lawmakers are looking to end certain exemptions. The Equality State relies heavily on the sales tax, a tax that disproportionately falls on low- and middle-income families.

Tennessee’s decision this year to cut taxes for its wealthiest residents by beginning a phase-out of the state’s “Hall Tax” on certain dividend and interest income is already leading directly to calls for 2 percent budget cuts throughout state departments that all Tennesseans rely on.

What We’re Reading…  

• A study on state pension funding from Pew shows that when looking at long-term returns and contribution practices, only 15 states are contributing enough to improve the standing of their funds over time.
• Just in time for Labor Day, check out new reports on the state of working Connecticut and Pennsylvania in 2016, and Vermont’s Framework for Progress.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.

By Greg Leroy

States and localities spend tens of billions of dollars annually in the name of creating jobs, but not all economic development deals are created equal.  Some are clearly cost-effective and others are obviously taxpayer gifts to large companies.

A new report, Smart Skills and Mindless Megadeals, from Good Jobs First finds that workforce training programs provide taxpayers a solid return on their investments. But 20 or 30 times a year, states and localities award huge tax-break “megadeals” costing an average of more than $658,000 per job—compared with a few thousand dollars per job for most training programs.

The study draws heavily from Good Jobs First’s unique Subsidy Tracker database, which names 14 megadeals that each cost more than $2 million per job. By contrast, 25 of 33 workforce development programs cost less than $2,000 per job.

This is an important issue to highlight because most of these megadeals’ costs are in foregone taxes, and at that astronomical price, taxpayers can never break even. That is, the workers getting those jobs will never pay $658,000 more in taxes than public services they and their dependents will consume. Who makes up the difference? You guessed it: this is one cause of the long-term tax burden shift onto working families.

It’s the Corporate One Percent taking it to the bank, with companies like Boeing, Tesla and General Electric pitting states against each other for nine- and 10-figure subsidy packages. Highly automated facilities like data centers, oil and gas refineries, micro-chip fabrication plants and steel mills have the highest costs per job.

By contrast, studies find that most job-training programs pay off well. And even if the job for which the worker originally trained doesn’t pan out, chances are she will stay put and take her skills to another employer, so taxpayers’ investment still pays off.

Given these sharp differences in taxpayer costs and risks, Good Jobs First recommends that public officials should quit “buffalo hunting” for those big, risky megadeals and instead invest in skills, infrastructure, emerging business “clusters” and in local entrepreneurs.

It doesn’t have to be this way: at least 19 state programs and two long standing federal programs cap the amount of subsidy per job. And in the European Union, “aid intensity” rules reduce costs far below the levels of some U.S. deals.

The bottom line: states and localities should put their buffalo muskets in a museum where they belong. We can spend less and get more.

Greg LeRoy is the executive director of Good Jobs First.

As tax policy analysts, wonks and researchers, it’s not a surprise that we love data and number crunching. But we also appreciate an eloquent turn of phrase. So, after reading Apple CEO Tim Cook’s response to this week’s European Commission (EC) ruling on his company’s tax avoidance, we had to admit his letter is a compelling, lyrical work of art. Convincing obfuscations often are.

Within hours of the EU competition Commissioner Margrethe Vestager’s announcement that Apple will have to repay as much as $14.5 billion in illegal Irish tax breaks, Cook wrote a letter claiming that the EU’s decision is a money grab, violates Irish law and will undermine the sovereignty of EU nations:

“It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe,” Cook wrote.

In a vacuum, this is compelling. But this phrase and Cook’s entire letter ignore why Apple was the target of an EC investigation in the first place, not to mention what the EC seeks to accomplish with this ruling: applying the same 12.5 percent tax rate to Apple’s Irish profits that must be paid by the thousands of smaller Irish businesses.

More generally, Cook’s argument that the EC decision strikes a “devastating blow to the sovereignty of EU member states” misses the forest for the trees. When countries like Ireland can dole out special tax deals to companies as big as Apple, the ability of every other nation to tax corporate profits is threatened. Imposing basic limits on the ability of tax havens to subvert the tax base of other nations helps strengthen the rule of law and makes it possible for the corporate tax to survive in the modern era. If the most profitable corporations in the world are able to negotiate sweetheart deals that essentially zero out their taxes, the “sovereignty” of EU member states over their tax systems will be utterly meaningless in the long run.

But the master stroke at the heart of Cook’s letter is an extraordinary claim of the black-is-white, night-is-day variety: that “[a]t its root, the Commission’s case is not about how much Apple pays in taxes.”

There is one narrow sense in which this is true: the EC’s ruling really focuses on just how little Apple pays in taxes. But make no mistake, the main finding of Vestager’s commission, and of a U.S. Senate investigation of Apple’s Irish subsidiaries that announced its findings three years ago, is that Apple has played the Irish tax system and Irish taxpayers like a piano, creating a special post-office-box subsidiary with tax rates so low it’s hard to discern how many zeros to insert after the decimal point to show Apple in fact paid some semblance of taxes to the Irish government (the company’s 0.005 percent Irish rate in 2014 is precariously close to zero).

Cook attempts to counter the EC’s low-tax-rate claims by pointing out that Apple is “the largest taxpayer in the world.” While this claim is not easy to verify, it seems plausible given the enormity of Apple’s worldwide profits, which totaled $72 billion in 2015—more than virtually any Fortune 500 corporation in recorded history. Even the lowest tax rate on $72 billion will yield a very large number—but that doesn’t make Apple a good corporate citizen. It is possible for a company as highly profitable as Apple to pay billions in taxes and still clock in at a super low rate. Conspicuously absent in Cook’s rebuttal is any mention of the tax rate the company pays.

More so than most companies, Apple’s leadership clearly values public relations. The company cherishes its image as a responsible corporate citizen. But the EC’s huge tax penalty against the tech giant confirms what the U.S. Senate’s Permanent Subcommittee on Investigations first found more than three years ago: Apple has taken steps to set up an elaborate network of shell corporations with little or no substance, for the sole purpose of avoiding paying taxes to the United States and other nations.

Tim Cook has made we data crunchers at ITEP and CTJ appreciate the power of words, for sure. But as much as we have the skill to tease out what data tell us about tax trends, we—and the broader public—are also savvy enough to read between the lines and discern the difference between truth and a well-delivered public relations ploy. 

In spite of Apple’s protestations, today’s European Commission ruling that the tech giant received billions in illegal tax breaks from the Irish government and must pay $14.5 billion in back taxes has been a long time coming.

Three years ago, the U.S. Senate’s Permanent Subcommittee on Investigations issued a report that found Apple used a network of offshore subsidiaries to not only avoid paying the 35 percent U.S. tax rate on its profits, but also to dodge Ireland’s 12.5 percent corporate tax rate. The commission’s investigation reveals more clearly how effectively Apple has used its Irish subsidiary to avoid taxes. In a press release, the commission stated that in 2014, “Apple paid a tax rate of just 0.005 percent on its European profits.”

Based on Ireland’s 12.5 percent rate, the EU ruling that Apple owes $14.5 billion implies the company holds as much as $115 billion in profit essentially tax free in Ireland. This figure represents just over half of the total $215 billion in earnings that Apple holds in offshore subsidiaries, according to its latest financial filings.

Before the ruling, Citizens for Tax Justice estimated that Apple is avoiding up to $66 billion in U.S. taxes on these earnings, meaning that even if Apple paid the $14.5 billion the EU Commission has declared it owes enitrely to Ireland, the company would still be avoiding about $51.5 billion in U.S. taxes.

The new European Commission ruling finds that Ireland violated EU rules that prohibit giving tax breaks to specific companies. In particular, the commission says the Irish government issued two tax rulings that gave Apple the green light to shift most of its nominally Irish profits to a subsidiary that was a resident of no country, and therefore paid no income tax to any country. While the commission says the agreement is “perfectly legal” under Irish national laws, it is nonetheless “illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules.”

On its face, this looks like a $14.5 billion tax windfall for Ireland. But the EU release makes clear that Ireland doesn’t have to be the sole beneficiary of this ruling, noting that “[i]f other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.” In particular, the EU points out that some of this tax penalty could go to the United States, rather than Ireland, “if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts. These are conducted by Apple in the U.S. on behalf of Apple Sales International and Apple Operations Europe, for which the two companies already make annual payments.”

However, the U.S. government has not reacted to this news with anything resembling joy. Last week, President Obama’s Treasury Department preemptively released a report (PDF) arguing that the EU’s recent efforts to claw back illegal tax subsidies from large multinational corporations are a departure from prior law, and would undermine international tax reform efforts. And a Treasury spokesperson responded to the EU’s announcement today with a statement that the penalties against Apple “are unfair, contrary to well-established legal principles and call into question the tax rules of individual Member States.”

This is an odd reaction, to say the least, given the incontrovertible evidence that Apple has systematically organized its Irish affairs in a way designed solely for tax avoidance. It’s doubly troubling given the high likelihood that much of Apple’s nominally Irish profits are really earned in the United States, and should be treated as domestic profits. Rather than criticizing the EU for taking on tax avoidance among their member countries, the United States should instead focus on collecting the taxes on the more than $2.4 trillion in earnings that Apple and many companies are holding offshore.

But the Treasury’s harsh reaction may reflect the inability of the Obama administration to unilaterally take the necessary tax reform steps to claim the nation’s rightful share of Apple’s unpaid tax bill. The administration received verbal blowback from many members of Congress when it attempted to scale back corporate inversions via administrative action. It’s hard to imagine the current Congress requiring Apple, or any major U.S. corporation, to pay taxes it has successfully avoided by shifting tens of billions of dollars in profits offshore each year.

The U.S. Treasury and the Obama Administration should remain steadfast and consistent in its efforts to crack down on corporate tax avoidance.

The EU’s finding reiterates what CTJ has argued for years: it’s entirely within the power of Congress to restore our corporate tax by ending deferral and requiring U.S. corporations to keep their U.S. profits where they belong.

“Don’t blame me, blame the system.”

This is a typical refrain from corporate CEOs when they are the subject of public outcry for unsavory business practices. So it came as no surprise on Thursday when Mylan CEO Heather Bresch, under fire for exponentially increasing the price of a life-saving drug, blamed Congress and the insurance and health care industries for her company’s price gouging.

“No one is more frustrated than me,” she said.

It is easy enough to pick apart that flimsy defense by highlighting how Bresch’s compensation has soared to $18 million while ordinary working families who require access to the life-saving allergy medication in the EpiPen have faced huge price increases. But, in truth, Mylan’s price gouging and brazen corporate greed is part and parcel of a larger, systemic problem that we cannot count on corporations to self-police.

Sen. Charles Grassley noted in an Aug. 22 letter to Mylan that in many cases, “taxpayers are picking up the tab” for the company’s skyrocketing profit margins because children using Epipens are often covered by Medicaid. But this isn’t the only way consumers and U.S. taxpayers are subsidizing Mylan’s profits.

In 2015, the Pittsburgh-based company completed a corporate inversion, a scheme in which a U.S. company buys a smaller, foreign multinational and subsequently claims the merged company’s headquarters are housed abroad. Such maneuvers are widely derided as a transparent effort to avoid U.S. taxes by claiming legal tax domicile in another country. In the case of Mylan, it now claims to be based in the Netherlands although, practically speaking, corporate executives manage the company from its U.S. base.

As a long-time U.S.-based multinational, Mylan routinely earned more than half its worldwide sales in the United States. Now, a year after abandoning its U.S. citizenship, the company’s latest annual financial reports reveal that Mylan continues to earn a majority of its revenue in the United States, and is earning huge profits domestically as well, with $466 million in U.S. income in 2015. The company, therefore, still benefits handsomely from the public infrastructure that U.S. tax revenue make possible. Further, the pharma company also benefits from U.S. tax breaks. For example, thanks in part to production tax credits, Mylan paid a measly 2.9 percent federal income tax rate on its U.S. profits last year.

When corporations invert and claim foreign residency for tax purposes, it is sensible to ask whether these companies should be allowed to continue to enjoy all the advantages of U.S. citizenship. Mylan’s shameless effort to use U.S. taxpayers as a profit center, both by avoiding federal income taxes and by jacking up prices of medical supplies, should prompt policymakers to closely examine all benefits lavished directly and indirectly on Mylan and its fellow corporate inverters and, if possible, revoke them.

The Obama administration has worked hard over the past two years to prevent corporations from engaging in tax-motivated corporate inversions. These efforts are built on the sensible principle that when companies remain American in practice, they should not be able to engage in the legal fiction that they are “foreign” for tax purposes. Yet, administrative action can only go so far. Congress can stop shady inversions once and for all by passing measures such as the Stop Corporation Inversions Act, which would shut down domestic companies’ ability to pretend that they are foreign for tax purposes.

Mylan’s recent corporate inversion and EpiPen price gouging are fairly damning evidence that the company is maximizing its profits at the expense of the American taxpayer. During her CNBC interview, Bresch said, “facts are inconvenient to headlines.” It’s a sentiment that, in context, made little sense in part because it’s a monumental challenge to defend the indefensible.

But we agree, Ms. Bresch. Facts are important. And no matter what the headlines say or don’t say, if a company heavily relies on the largesse of the federal government, as Mylan in fact does, it should be treated as a U.S. citizen for tax purposes – and it warrants intense public scrutiny over the pricing of its products.