The Center on Budget and Policy Priorities (CBPP) released a paper today saying that corporate income tax cuts don’t matter much to a state’s economy. We hear the same thing all the time: that taxes don’t really matter except when they do. For example, industrial policy proponents, or those who want only certain jobs and industries to thrive, often turn to corporate tax credits to achieve their ends. Case in point: in 2009, in order to lure renewable energy manufacturers to Arizona, lawmakers approved a five-year, $350 million package of tax credits to qualifying companies.
The problem with these credits, which Republicans passed by a wide margin, is that they must be subsidized by every other taxpayer. Across-the-board rate cuts, however, such as a reduction in the corporate income tax rate that the CBPP discredits, apply to everyone. In a free society, the tax code should be neutral on what kind of business you’re in. The state shouldn’t pick winners and losers. So, while we agree that corporate income tax cuts don’t pay for themselves immediately and should be accompanied by spending reductions, it doesn’t mean that high rates (like in AZ) should be left alone.
Furthermore, Arizona taxpayers could stand a bit of relief. In the last two years alone, taxes have skyrocketed. Residential and business property taxes have increased $250 million and the statewide sales tax rate just jumped 18 percent. We need some downward pressure on taxes, and the corporate income tax is a place to start.
While we disagree with much of the CBPP paper, they do make some valid recommendations. For example, a focus on the “principles of good tax policy and sound management of core public responsibilities.” They also argue that states should “examine existing economic development tax incentives for effectiveness — and cost-effectiveness— at regular intervals.”
On that, we couldn’t agree more.