Is your state in desperate need of jobs? A lower corporate income tax rate would attract business from other states.
Corporate tax hikes drive businesses and jobs out of state, according to a new working paper published by the National Bureau of Economic Research.
“Corporate entities reduce the number of establishments per state and the number of employees and amount of capital per plant when state tax rates increase,” researchers said. The paper was authored by Xavier Giroud, with MIT, and Joshua Rauh, with Stanford University.
Giroud and Rauh used data from the Census Bureau on 27 million businesses with interstate operations from 1977 to 2011. They accounted for changes in other state and local taxes, such as sales tax, to isolate the effect of income taxes on business activity.
Importantly, Giroud and Rauh found changes in business activity occurred after tax changes, showing that changes were not simply following earlier trends. “Responses begin upon implementation of the tax policy, and we find no evidence of trends prior to the treatment,” they wrote.
Iowa has the highest corporate income tax rates in the nation. Businesses there pay 12 percent tax on every dollar earned over $250,000.
According to the Tax Foundation, three states collect no corporate income tax: Nevada, South Dakota and Wyoming. Three others collect a gross receipts tax that isn’t technically a corporate income tax but still hits businesses: Ohio, Texas and Washington.
Businesses in the United States already have to face a federal corporate income tax rate of more than 39 percent, the highest in the developed world.
