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Make Corporations Pay Their Fair Share

Some Bad Corporate Tax Ideas in New Jersey Governor's Economic Recovery Proposal

Addressing the recession affecting New Jersey, as well as many other states, New Jersey Governor Jon Corzine last week presented a plan for reviving the state economy.  Some of the proposals - such as speeding up work on infrastructure projects and putting $500 million of state pension money in community banks to spur lending to local businesses - are smart and desperately needed.

Overview on Making Corporations Pay Their Fair Share

By taxing corporate owners, an effective corporate income tax has two large advantages for states: the majority of owners are in the richest 1% of the population, and many are not state voters. Corporate income taxes are often the main tax that out-of-state corporations and their shareholders pay for the public benefits enjoyed by their companies.

One reason social services face funding crises is that state corporate income tax revenues have dropped from 9.7% of all state taxes in 1980 down to just 5.7% by 2000. States are increasingly using a variety of tools to have corporations pay their share, including

  • Combined Reporting: States are increasingly requiring companies to use combined reporting, listing profit reports for all subsidiary companies together on state tax forms to prevent shell games where companies hide profits through phony transactions among different corporate entities.
  • Decoupling: States can save revenue by refusing to automatically grant special interest tax breaks handed out by the federal government --"decoupling" their tax code from the feds.
  • Oil windfall taxes: A number of groups have advocated state Windfall Profits Taxes to capture the outsized oil company profits.