Corporate Tax Shell Game in Massachusetts?

At first glance, there seemed to be some good tax news for businesses coming out of Massachusetts. The state certainly could use it.

For example, on the “Small Business Survival Index 2007,” which ranks the states according to their public policy climates for entrepreneurship, Massachusetts ranked a pathetic 44th. Among the state’s many negatives is a 9.5 percent corporate income tax rate, which is one of the highest in the nation.

The Boston Globe reported today (January 17) that Governor Deval Patrick is going to propose a cut in the corporate tax rate. Unfortunately, it would be a rather modest cut – to 8.3 percent – buy, hey, anything is better than nothing, right?

Well, there’s more to the story. The Globe reported that this would be part of an effort “to tighten what [the Governor] calls corporate tax loopholes.” The article went on: “The compromise may not be enough to win over business leaders. While the corporate tax codes would be tightened in January 2009, Patrick wants to delay his corporate tax rate reduction until 2010, and it would be phased in over three years. Closing what the governor describes as loopholes would generate $297 million in the next fiscal year and $490 million a year after that. But that would be offset by about $210 million a year in lost revenue, once the tax rate reductions for businesses took full effect. The net increase in new taxes for the state would be $280 million.”

The corporate tax relief phase in would drop the rate to 9.1 percent in 2010, 8.7 percent in 2011, and to 8.3 percent in 2012.

Well, so much for clear, substantive tax relief.

Although, some legislators might be on the right track. The newspaper reported that “other lawmakers have urged deeper corporate rate cuts, to as low as 5.3 percent, the same as the state's personal income tax.”

Now that would be a positive tax cut.