Broadening the Debate over State Corporate Tax Harmonization

May 25, 2005

At the National Tax Association’s meeting on May 20, there was apparently a lot of talk about harmonization of state corporate tax systems and criticism of Congressional inaction in helping the states collect corporate taxes. A sample of some of the quotes from a report on the meeting by State Tax Notes:

“Federal lawmakers lack the incentive or knowledge to make good state tax policy…the Internet Tax Freedom Act makes one wish congressional inaction had continued.” (Charles McClure, Hoover Institute)

“States have too much sovereignty and not enough…” (Bruce Johnson, Chair of Multistate Tax Commission’s Executive Committee)

“It’s kind of hard to get it wrong when you state the obvious. As a representative of state officials, I don’t want states getting the whole blame for lack of uniformity.” (Harley Duncan, Executive Director of the Federation of Tax Administrators)

“I wouldn’t trust Congress — or, to reveal a little of my personal politics — I wouldn’t trust this Congress” on state tax issues. (David Brunori, State Tax Notes)

“When the 800-pound gorilla speaks and sweetens it with money, then we get uniformity…” (Professor Walter Hellerstein, University of Georgia Law School)

State corporate tax harmonization, particularly if imposed by Congress, carries two dangers: first, harmonization will reduce tax competition and increase the tax burden on business; second, this higher tax burden may cause new investment to flow abroad into lower tax countries. Any discussion of multistate corporate tax policy, therefore, must consider the impact tax changes will have on economic growth and international competitiveness.

The Tax Foundation has released several commentaries and studies on international tax competition, including a review of tax reform in the OECD. The author of this report, Jeffrey Owens, begins by observing that tax reform in the OECD “has been driven by the need to provide a more competitive fiscal environment: one which encourages investment, risk-taking and entrepreneurship, and which provides increased work incentives.”


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