With state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. receipts surging (reaching double-digit growth in 8 of the last 9 quarters, according to the Nelson A. Rockefeller Institute of Government), many state lawmakers are looking to cut corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burdens to spur economic growth in their state.
The North Carolina Senate approved a state budget recently that included a cut in the state’s corporate income tax rate from 6.9 to 6.4 percent. In Pennsylvania, Governor Ed Rendell wants to reduce the state’s corporate rate to 7.99 percent from 9.99 percent, but a House panel last week passed a measure that would further lower the rate to 6.99 percent. The Pennsylvania House also passed a bill that would lower the corporate tax burden by apportioning income tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on sales instead of property or payroll.
In today’s competitive international market corporate tax cuts are becoming a popular trend. The German cabinet recently unveiled a plan to cut that country’s corporate tax rate from 25 percent to 19 percent. The Germans are undoubtedly feeling competitive pressure from the low corporate tax rates of the new EU members in Eastern Europe.
As Andrew pointed out in an earlier post, taxes matter to business and states that want to encourage business investment need to pay attention to their business tax climate, including the tax rates they levy on corporate income. The Tax Foundation’s State Business Tax Climate Index measures the key features of a state’s business climate, including the tax rate and tax base, on the major taxes paid by corporations.
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