Corporate Tax Reform and Eliminating Wasteful Economic Subsidies

[irishbobcat]

Corporate Tax Reform and Eliminating Wasteful Economic Subsidies


In a Progressive States Network Report :

Corporations should also be paying their fair share in taxes.  They benefit from state investments in education, infrastructure, and public safety, but unfortunately, corporations have repeatedly and excessively exploited the tax system.

•Corporate income tax revenue as a share of all taxes has fallen dramatically.  In 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. In 2005, the figure fell to 6.5 percent. 
•The Iowa Fiscal Partnership reported that approximately half of Iowa corporations with at least $1 million of sales in state pay no corporate income tax. 
•Similarly, the Oklahoma Tax Commission revealed that only 35 percent of corporations filing tax returns in 2000 reported positive taxable income- almost an anomaly considering the economy experienced substantial gains that year.
•The problems are similar at the federal level. A Government Accountability Office report, Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005, found almost two-thirds of all corporations reported no tax liability from 1998 to 2005.
Accordingly, there are a variety of corporate taxation policy options legislators can pursue to ensure businesses are contributing adequately to a state.

•Close Tax Loopholes:  Ending some of the egregious corporate tax loopholes that businesses abuse should be a top priority for lawmakers.  States lose billions of dollars each year as a result of these loopholes.  For instance, states should opt out of the "domestic production deduction" tax break that was passed by the federal government in 2004 and subsequently incorporated into the tax code in several states.  Currently, 25 states allow the deduction, which by 2011, will cost states $500 million annually and favors large corporations over small businesses.  States can also eliminate Net Operating Loss "Carryback" Deductions, reform the "cancellation of debt income" (CODI) provision, and reform the tax treatment of S-Corporations and Limited Liability Companies.
•Combined Reporting:  23 states have implemented combined reporting, which requires multi-state corporations to report profits from all entities, including subsidiaries, for tax purposes.  Combined reporting is a key policy to restrict tax avoidance.  The policy makes the tax system fairer, brings in greater revenue, and does not impede economic growth.  In fact, CBPP finds, "combined reporting states are well-represented among the most economically-successful states in the country."
The Film Tax Credit as Case Study of Corporate Giveaways:  Several states are dealing with ineffective expenditures, a notorious recent example being the proliferation of film tax credits.  In 2002, only three states offered incentives to the film industry.  Currently, of the 44 states that offer some type of movie production incentive, 28 provide tax credits.  The Tax Foundation provides a graphic that depicts states with incentives and the year in which they were approved.

Following an explosive scandal involving members of the Department of Economic Development and abuse of the film tax credit, Iowa Gov. Chet Culver ordered a review of credits the state provides.  In early January, Iowa released the Tax Credit Review Report that recommended the state:

•Provide greater transparency of tax credits;
•Develop an effective return on investment calculation for all tax credits;
•Establish a five-year sunset for all tax credits;
•Cap all currently uncapped tax credits;
•And eliminate certain tax credits.
Reports by many other advocacy organizations and government bodies, including the Oregon Center for Public Policy, Connecticut Voices for Children, New Mexico Fiscal Policy Project, the Massachusetts Department of Revenue and the Wisconsin Department of Commerce, indicate that offering these tax credits are ineffective and provide little to no economic benefit to a state or its residents.  The Tax Foundation writes that states are greatly overestimating the impact of providing film tax credits and basing decisions "on fanciful estimates of economic activity and tax revenue (leading to) small returns and unnecessary risks with taxpayer dollars."

Other states have taken tangible steps to address these problems:

•Connecticut:  Gov. M. Jodi Rell estimated that a $25 million cap for film tax credits would save the state $70 million in the next two years.
•Massachusetts:  Rep. Steven D'Amico introduced legislation, HB 3854, to limit state spending on incentives for the film industry.
•Michigan:  Gov. Jennifer M. Granholm proposed reducing the 42% refundable tax credit to approximately 37%.
•Wisconsin:  Gov. Jim Doyle offered a plan to completely eliminate the state's 25% film tax credit and replace it with a two-year, $1 million grant program to create permanent film industry jobs
•New Mexico:  Rep. Dennis Kintigh has sponsored HB52 to limit the state's spending on film tax credits.
Discontinue Excessive Corporate Subsidies:  Even as states confront massive gaps, many are still doling out huge subsidies to corporations.  Many times, these subsidies do not produce long-term growth and may even result in lost revenue.  In North Carolina, for instance, a Dell plant closed just a few years after it received a promise of up to $300 million in grants, an amount more than twice the cost of building the plant.  As Good Jobs First explains, states waste money competing for firms to locate within their borders by providing extremely costly and ineffective incentives, rather than on fostering entrepreneurship and new jobs.  The report details:

[T]ax reductions, exemptions or credits exert a very small marginal influence on corporate investment decisions... For the vast majority of companies, tax breaks are windfalls, not determinants, and are therefore wasted.

As government officials look to eliminate wasteful spending, they should also rethink allocating enormous and often inefficient business tax breaks as a better option than cutting programs for their most vulnerable residents.  The public money squandered through tax credits and corporate subsidies demonstrates that blind giveaways are not a sustainable model for economic growth and a more transparent budget process is needed in the future.

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As Governor of Ohio, Corporations will pay their fare share of taxes.

Dennis Spisak-Green Party Candidate for Governor

www.votespisak.org/governor/

for more info: contact 330-503-1407