September 30, 2005
For immediate release
Media contact: Chris Atkins (202) 464-5106
Washington, D.C.—With state lawmakers scrambling to boost declining corporate tax collections, a new study from the Tax Foundation predicts that many states will reduce or even repeal their corporate income taxes.
“In an age of increasingly mobile labor and capital, companies are more sensitive to tax burdens than ever,” said Staff Attorney Chris Atkins, author of the study. “Rather than chasing away employers with overly aggressive corporate tax laws, states should move toward more stable and less economically harmful revenue sources.”
The study finds that in response to falling state corporate tax collections in recent years, states have gone in two different directions.
On the one hand, some states have focused on lowering corporate taxes or at least changing them to make their states more attractive for investment. At least five states debated bills to reduce corporate tax rates in 2005, while dozens of others have introduced bills that shift corporate taxes away from the property and employees of corporations, and onto the customers of corporations.
But on the other hand, some states are trying to shore up declining corporate tax collections by attempting to tax more companies with only tenuous connections to states, or by requiring combined reporting of income which typically boosts companies’ tax liabilities.
“In many ways, states attempting to shore up corporate tax collections are fighting a losing battle against economic reality,” said Atkins.
The study warns Members of Congress not to back efforts by states attempting to aggressively tax out-of-state firms, as rising state corporate tax burdens can hurt overall U.S. international competitiveness.
The full study, “A Twentieth Century Tax in the Twenty-First Century: Understanding State Corporate Tax Systems,” by Chris Atkins is Number 49 in the Tax Foundation’s Background Paper series.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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