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.
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.
The budget news is grim in some states. Twenty states face a combined
budget shortfall of at least $35 billion for 2009, according to analysis by the Center on Budget Policy & Priorities (see CBPP graph below). Another 8 states will likely have budget problems next year or the year after.