Tax Analysts Blog

Cuccinelli's Corporate Tax Plan Does Not Go Far Enough

Posted on Jul 3, 2013

Virginia Republican gubernatorial candidate Ken Cuccinelli is proposing to cut the state corporate income tax from six percent to four percent over the next four years. Cuccinelli is making a big deal about this proposal, claiming that it will spur economic growth. I believe that cutting the tax rate by two percentage points will have no effect on anything. It’s the existence of the tax, not the burden, that is the problem. Cuccinelli would be far better off boldly proposing repeal of the corporate income tax. The tax raises about $800 million – not a trivial amount. But that represents only about five percent of the total tax receipts in the commonwealth. The state would be far better off repealing the tax and either 1) reducing spending by $800 million, or 2) finding other sources of revenue. An increase in the personal income or sales tax would be a better idea than trying to tax corporate income.

GOP Governors Nikki Haley and Bobby Jindal took the bold step of calling for repeal of the corporate income tax. South Carolina’s Haley, unfortunately, did not seem to seriously pursue the idea, even though her party controls both houses of legislature. Louisiana's Jindal tied his proposal to an overall tax reform plan that relied too heavily on increasing sales tax burdens. Several other states have cut or proposed to cut corporate income tax rates. In the current tax reform debate in North Carolina, Republican senators want to eliminate the tax, but it seems unlikely to happen.

But the corporate income tax is a bad tax. It is increasingly used to try to export tax burdens (which is a trick to provide more government without paying for it). Indeed, the Commonwealth Institute of Virginia (a very liberal bunch of folks) points out that out of state corporations pay three quarters of the tax in Virginia. And the institute thinks that is a good thing!

The tax is inefficient, ineffective, and impossible to impose in a meaningful way in a global economy. The tax does not serve as a benefits tax, does not increase progressivity, and does not raise a lot of revenue. It does keep an army of state tax lawyers, accountants, economic development grifters, and others in the corporate tax industrial complex employed. Cuccinelli does not go nearly far enough.

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