One of the loudest critics of the recent wave of corporate inversions is University of Southern California law professor Ed Kleinbard, who warns that these transactions will erode the U.S. corporate tax base because...
- USA Today quotes Scott Drenkard on Louisiana tax reform
USA Today quotes Scott Drenkard on Louisiana tax reform
Dennis Cauchon USA TODAY
Republican governors are introducing bold proposals that would abolish income taxes, business taxes and other unpopular levies and often offset those cuts by boosting sales taxes.
Many of the proposals wouldn't cut taxes overall. The governors say their plans aim to reshape tax systems to promote economic growth.
By contrast, Democratic governors are mostly standing pat, having sometimes raised taxes in the past few years during the economic downturn when revenue fell.
Louisiana Gov. Bobby Jindal has the nation's most dramatic GOP plan: eliminate the state's income tax — top rate 6% over $100,000 — and raise the sales tax up to 3 percentage points. That would give Louisiana the nation's highest sales tax rate — about 12% when state and local taxes are combined — and result in about a $3 billion annual tax shift.
The idea wins praise from free market economists but criticism from liberal economists who say sales taxes hit poor people hardest because they spend a greater share of income on consumer goods.
"This is a very good step," says economist Scott Drenkard of the Tax Foundation's Center for State Tax Policy. He says income taxes, especially on corporate income, hinder economic growth and get passed on to consumers anyway.
Economist Dean Baker of the liberal Center for Economic Policy Research says it's "a great idea if the point is to make everyone else pay more so that the wealthy pay less." He says people will shop online and in other states to avoid the sales tax.
Other Republican tax plans:
- Virginia. Gov. Bob McDonnell wants to abolish the gas tax and increase the sales tax from 5% to 5.8%, spending the extra money on transportation. Virginia would be the first state to drop a fuel tax.
- Florida. Gov. Rick Scott wants to exempt businesses from paying sales taxes when buying manufacturing equipment and to make the corporate income tax start at $75,000 rather than $50,000.
- New Mexico. Gov. Susana Martinez wants to cut the corporate income tax rate from 7.6% to 4.9%.
- Idaho. Gov. Butch Otter wants to eliminate a $141 million property tax on business equipment.
- Ohio. Gov. John Kasich wants to raise taxes on oil and gas production and cut the personal income tax.
Alaska is the last state to kill an income tax, in 1980, when oil money started flowing. Today, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Five states have no sales tax.
The nation has 30 Republican governors, and 25 of those have state legislatures controlled by Republicans. Eliminating a tax is difficult because of its financial and political consequences.
Oklahoma Gov. Mary Fallin and the Legislature tried last year to cut the income tax and eventually phase it out. The effort bogged down, so the Republican government didn't end the income tax or even agree on a tax cut.
Jindal, a potential presidential candidate, also wants to get rid of the corporate income tax and a tax tied to a business's value. To replace this money, the sales tax would not only be raised but expanded to new goods and services such as landscaping. Louisiana's tobacco tax would go up, too.
"There's a lot of romance about eliminating corporate and personal income taxes; how we get there is the hard part, and that's what we're discussing," says Louisiana Senate President John Alario, a Republican.
Contributing: Greg Hilburn, The (Monroe, La.) News-Star
Congress is currently considering tax extenders, the renewal of expiring or recently expired tax provisions. Among the provisions is 50 percent bonus expensing, otherwise known as bonus depreciation. The...
Join the Tax Foundation's fight for sound tax policy Go
Tax Policy Blog
The official weblog of the Tax Foundation.
Tax By State
For information on your state, select it from the drop-down menu.
Ask a Tax Expert
Contact information for Tax Foundation policy staff Ask