Tax Analysts Blog

Only Tax Professionals Benefit from the State Corporate Tax

Posted on Jan 2, 2013

I was drinking beer and watching football with some old college friends recently and posed the following question. Who do you guys think pays the corporate income tax? There were four responses. 1) Don’t know. 2) Don’t care. 3) You’re weird, there’s football on. The fourth response is not printable since it includes cuss words, a few of which I have not heard uttered in years. But my friends are not tax people and the choice between watching football and drinking beer or talking about corporate tax incidence is pretty clear. Nor are they unusual; most people do not think about corporate tax burdens at all.
We do not know precisely who pays the state (or for that matter, federal) corporate income tax. Fat cat shareholders? Toiling laborers? Beleaguered moms buying milk for their babies? Lamborghini driving hedge fund managers? Maybe my friends are right. Who the fudge cares?

But I think I know why we can’t repeal the state corporate income tax – which is a dumb way to raise revenue in 2013. Tax professionals won’t let it be repealed. President Eisenhower warned against the military industrial complex. We have a state corporate tax industrial complex. Forget who pays. We know who benefits from the tax.

Corporate tax lawyers like the tax – a lot. Corporate tax managers can’t live without it. The Big Four accounting firms have an army of partners who have become rich working on corporate tax issues. State revenue departments are full of people who earn their living working on corporate taxes. Most of them would like to cash in on their expertise and become partners in big law and accounting firms. State economic development officers love the corporate tax – a big old cookie jar from which to dole out goodies. Those economic development folks soon find themselves working for big consulting firms that manage to get corporate tax breaks for their clients. Think tanks on both the left and right love the tax. The left needs it to champion, the right to decry. Academics like the tax. It is so screwed up that it provides a wealth of research opportunities. These are the people who benefit from auditing, planning, litigating, and talking about the state corporate tax. There is nary an ordinary citizen in sight.

I, and maybe five other people in the country, keep up a Quixotic quest to repeal the tax. I would replace its meager revenue with money from just about any source short of a gross receipts tax and gambling. But what chance of repeal exists when the corporate tax industrial complex is arrayed against us? Society, and certainly the people who pay the tax (whoever they are) would be better off without the tax.

Read Comments (7)

David PitkinJan 1, 2013

$1.6 Billion does not seem meager at least here in MA but I do agree with the
complexity of where and how we fund our government.
http://browser.massbudget.org/TaxRevenueInfo.aspx

vivian darkbloomJan 1, 2013

"Corporate tax lawyers like the tax – a lot. Corporate tax managers can’t live
without it. The Big Four accounting firms have an army of partners who have
become rich working on corporate tax issues. State revenue departments are full
of people who earn their living working on corporate taxes. Most of them would
like to cash in on their expertise and become partners in big law and
accounting firms. State economic development officers love the corporate tax –
a big old cookie jar from which to dole out goodies. Those economic development
folks soon find themselves working for big consulting firms that manage to get
corporate tax breaks for their clients. Think tanks on both the left and right
love the tax. The left needs it to champion, the right to decry. Academics like
the tax. It is so screwed up that it provides a wealth of research
opportunities. These are the people who benefit from auditing, planning,
litigating, and talking about the state corporate tax. There is nary an
ordinary citizen in sight."

Somewhere in that description must be the "journalism industrial complex" of
individuals writing on state tax matters for specialist tax publications.
Sure, occasionally they've got to mix it up a bit by calling for abolition of
the state corporate income tax, but isn't that obviously just a bit of
sensationalism to sell a lot more copy?

Martin LobelJan 1, 2013

The solution is not to eliminate the corporate tax, but to simplify it by going
to a combined reporting (unitary) system and using GAAP to determine profits
thereby eliminating the need to keep two sets of books.

David BrunoriJan 1, 2013

Vivian, Ouch! I am guilty I guess. But, I really want to rid the world of state
corporate income taxes. I think they are an ineffective and inefficient way of
raising revenue. Besides, since we have to fund the government somehow, there
will be plenty of other bad ways to raise revenue for me to write about. Happy
New Year to you.

Revenue Without GamesmanshipJan 1, 2013

I'm afraid the corporate income tax at the state level has become a joke. It
gets you peanuts. Seems to exist largely for the sake of being bartered away.
We need to get away from the current fiscal model which encourages myopic state
legislators to lure prospective employers with shameless tax holidays and other
cheap gimmicks which benefit the few to the detriment of the many. States can't
jettison the current fiscal model unless they possess a stable alternate
revenue source. Maybe it's time for a national carbon tax or VAT.

David BrunoriJan 2, 2013

Revenue Without....

I would have no problem with a carbon tax as a replacement for the CIT. But I
think it would have to be a federal carbon tax.

Niclas VirinJan 16, 2013

Thanks for an amusing but completely correct obeservation.

Company tax is a playground for academics and goldmine for consultants.

See http://niclasvirin.com/index-eng.shtml

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