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date: 10 December 2019

Abstract and Keywords

Addressing the state corporate income tax (CIT), this article goes immediately to the question of whether the states can “rescue the state corporate income tax from near irrelevancy.” Even though the tax is used in forty-five states and the District of Columbia, it has diminished—dropping from a high of 9.5 percent of state revenues in 1997 to less than 5 percent today. In addition to simply broadening the tax base, the CIT is primarily justified on two grounds: as a complement to the tax on real property (which ignores the returns to the input of intangible property) and a need for a mechanism that integrates with the state personal income tax (to ensure some degree of neutrality by type of business organization). At the same time, the article largely dismisses the frequently cited justification that a state CIT adds to the progressivity of state public finance systems, noting that depending on the nature of the market, the tax is just as likely to be shifted forward to consumers in the form of higher prices or backward to factor suppliers such as labor as it is to be shifted to landholders in the form of lower rents and by reducing the shareholder return to equity.

Keywords: state corporate income tax, state revenues, tax base, income tax, shareholder return, rent

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