Cut the Corporate Income Tax

Harvard economist and former Bush economics adviser Greg Mankiw provided a solid reminder on the corporate income tax in a piece for the June 1 New York Times. Mankiw showed why cutting the corporate income tax rate from 35 percent to 25 percent, as presumptive Republican presidential nominee John McCain has proposed, makes sense and would give the economy a boost.

Mankiw sums matters up this way:

Cutting corporate taxes is not the kind of idea that normally pops up in presidential campaigns. After all, voters aren’t corporations. Why promise goodies for those who can’t put you in office?
In fact, a corporate rate cut would help a lot of voters, though they might not know it. The most basic lesson about corporate taxes is this: A corporation is not really a taxpayer at all. It is more like a tax collector.

The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.

A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers.

Mankiw’s piece is right on target.

Well, except he goes astray at the end of the essay. Mankiw declares that if lost revenues are not made up elsewhere, such as from revenue feedback through other taxes due to faster economic growth and/or from spending cuts, then the gas tax should be increased.

Oh well, it was so close to being a great article.

Some States are Better Than Others on Taxes

When Tax Day rolls around, taxpayers are naturally focused on how much of their paycheck goes to the government. Perhaps if you’re lucky, a federal refund is on the way. Where you live – or operate a business – can profoundly impact how much money you send to government at the state and local level as well. Some states are obviously better than others when it comes to the level of taxation they impose on businesses and individuals.

That is why the Small Business & Entrepreneurship Council (SBE Council) published the "Business Tax Index 2008: Best to Worst State Tax Systems for Entrepreneurship and Small Business," which ranks the states according to the costs of their tax systems for small business start up and growth.

Entrepreneurs and small businesses struggle every day with taxes, which affect a wide array of decisions, including hiring, investment, expansion and location. The “Business Tax Index 2008” captures state and local tax costs, and provides businesses and political leaders with a measurement of how their state stacks up against others in this regard.

(Read the full report by clicking here.)

(Visit the "Business Tax Index 2008" state interactive map by clicking here, or go to www.sbecouncil.org and click on the “Business Tax Index 2008” image on the right had side of the web page.)

The "Business Tax Index 2008" pulls together 16 different tax measures, and combines those into one tax score that allows the 50 states and District of Columbia to be compared. Among the taxes included are income, property, death/inheritance, unemployment, and various consumption-based taxes, including state gas and diesel levies.

According to the "Business Tax Index 2008," the 15 best state tax systems are: 1) South Dakota, 2) Nevada, 3) Wyoming, 4) Washington, 5) Florida, 6) Alaska, 7) Texas, 8) Colorado, 9) Alabama, 10) Mississippi, 11) South Carolina, 12) Tennessee, 13) Missouri, 14) Ohio, and 15) Virginia.

The 15 worst state tax systems are: 37) North Carolina, 38) Nebraska, 39) West Virginia, 40) Hawaii, 41) Idaho, 42) Vermont, 43) Massachusetts, 44) New York, 45) Rhode Island, 46) Maine, 47) Iowa, 48) California, 49) Minnesota, 50) New Jersey, and 51) District of Columbia.

Raymond J. Keating, chief economist for SBE Council and author of the report, wrote: "In the end, taxes matter. They matter at the federal, state and local levels of government. They matter to consumers, entrepreneurs, investors and businesses. They matter in terms of a state's competitiveness. And they matter when it comes to economic growth and job creation."

The "Business Tax Index 2008: Best to Worst State Tax Systems for Entrepreneurship and Small Business" can be read and downloaded from SBE Council's website at http://www.sbecouncil.org/.