According to a new report, state corporate tax revenues are decreasing. State tax loopholes and reductions to corporate rates allow a majority corporations in at most seven states to avoid paying any corporate income tax.
In a new reportAccording to the Economic Policy Institute (EPI), more than 60 percent of corporations in Connecticut and Illinois, Michigan, Tennessee, Wisconsin, and Tennessee paid zero state corporate income tax in varying periods between 2015-2019. In Colorado, 71 percent of corporations didn’t pay income taxes between 2017 and 2019, and in Florida, a whopping 92 percent of corporations paid zero income taxes between 2016 and 2019.
Even larger corporations were able to dodge paying income taxes, EPI’s Josh Bivens found. Over the four years, between 12 and 27 per cent of corporations with $1 million in taxable income were able completely to avoid state corporate income taxes.
It’s possible that corporations were able to avoid paying corporate income taxes in other states as well; EPI only studied states for which data is currently available. Only a few states have this data. like Ohio and Texas, corporations aren’t subject to corporate income taxes at all.
Despite rising corporate profits, the effective local and state corporate tax rate has fallen half-way over the past decade. It was 5.2 percent in 1989; it was only 2.6% in 2017. If effective tax rates for corporations hadn’t started declining in the last few decades, EPI finds, then state and local governments would have taken in $57 billion more in revenue. This shortfall in revenue could fund a program to provide universal prekindergarten in the U.S.
“Corporate income taxes — both at the federal and S&L level — are highly progressive parts of the U.S. fiscal system,” meaning that corporate income taxes largely affect owners of corporations rather than workers or consumers, Bivens wrote. “The erosion of revenues collected from corporate income taxes has made the overall tax system less progressive, and at the state level it has been a key driver of overall revenue weakness, which in turn has fueled too-austere spending.”
As revenues fall, states are more dependent on federal funding and taxes paid annually by regular households to maintain roads and bridges, clean water, and finance education. According to data, spending is likely to be affected by lower revenues. Decreased revenues can also negatively impact Black and female workers who are disproportionately dependent on state and local tax revenues.
These declines come even as corporations are posting record profits in recent decades, meaning that corporations aren’t dodging taxes because they can’t pay them, but rather because they are able to exploit tax loopholes.
EPI claims that the decline in revenues can be attributed to state and local officials. Governments have reduced corporate income tax rates. There has also been a rise in corporate profits coming from S-corporations, which are able to pass their income taxes onto shareholders and typically don’t pay corporate income taxes. S-corporating businesses is a popular way of avoiding paying state corporate taxes.
Along with forcing regular taxpayers to shoulder much of the tax burden, there is no evidence that any of these state and local tax cuts “trickle down” to workers, the report finds. These tax cuts seem to be primarily in the favor of the richest Americans.
Mary Kay Henry (international president of Service Employees International Union) expressed frustration at how corporations can avoid paying state and local taxes in a press conference after the publication of the report was released.
“It’s absolutely unconscionable that while the two million members of SEIU who clean buildings, care for the elderly and provide essential public services pay their taxes every year, billionaires and their corporations are getting a free ride,” Henry said. “To have a government that works for all of us, we need a tax system that requires corporations and the wealthy to pay their due — period.”