Policy Documents

Research & Commentary: Lowering Idaho’s Corporate Tax Rate

Elizabeth Henderson –
September 19, 2011

Many business and civic groups, including the Idaho Chamber Alliance, have recommended reducing the state’s 7.6 percent corporate income tax rate. Currently, Idaho’s corporate tax rate is the 23rd highest in the nation and one of the highest in the region. Neighboring Nevada, Washington, and Wyoming have no corporate income tax, and rates in border states Utah and Montana are considerably more competitive, at 5 and 6.75 percent, respectively.

Reform advocates contend the state’s corporate tax rate has precluded it from consideration for economic development projects. Opponents of a tax cut are calling instead for greater spending on government services such as education.

The Organization for Economic Cooperation and Development (OECD) cites the corporate income tax as the most economically harmful of all taxes. A report from the Tax Foundation notes, “the taxes paid by businesses should be a concern to everyone because they are ultimately borne by individuals through lower wages, increased prices, and decreased shareholder value.” A Tax Foundation study found that in 2007 the average household was burdened by $3,190 in corporate income taxes. The corporate income tax often accounts for a larger share of the total tax burden for the poorest 20 percent of households than the individual income tax.

Corporate tax revenues are highly unstable because corporate profits are strongly influenced by economic booms and busts. The Rockefeller Institute for Government estimates corporate taxes constitute only about 7 percent of all state tax collections—revenue that could be replaced fairly easily with spending cuts and increased economic activity as a result of a more attractive business climate.

A phased decrease beginning in tax year 2012 could help bring business and growth to Idaho, and a $179 million budget surplus forecast for next July makes this a prime opportunity for such a tax cut. One plan for lowering corporate tax rates in Idaho involves scaling back the $1.7 billion Idaho issues annually in sales tax exemptions. The measure would make for a more competitive business environment, promoting innovation and growth instead of subsidizing certain industries and individual businesses. A reduction in Idaho’s corporate tax rate is a necessary precursor to increased economic growth for the state.

The following documents offer insight into Idaho tax reform and the detrimental effects of high corporate tax rates.

 

Ten Principles of State Fiscal Policy
This booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the ten most important principles of sound fiscal policy, from “Above all else: Keep taxes low” to “Protect state employees from politics.”

2011 State Business Tax Climate Index
This comprehensive report from the Tax Foundation offers state-by-state comparisons of tax policy and their implications for state competitiveness and business climates.

What Do Corporate Income Taxes Cost American Families?
A Tax Foundation “Tax Watch” document provides surprising statistics about the burden of corporate taxes on American households—the poorest 20 percent in particular.

Idaho Chamber Alliance
The Idaho Chamber Alliance details individual chamber policy positions, including those on corporate income tax reduction.

Why the U.S. Should Cut its Corporate Tax Rate
John Nothdurft of The Heartland Institute outlines the negative effects of high federal corporate tax rates and cites the merits of reduction.

The Right Way to Cut Corporate Tax Rates
The Idaho Statesman advocates cutting sales tax exemptions to pay for reductions in the corporate sales tax rate.

Corporations Don’t Pay Taxes, People Do
The Tax Foundation’s Stephen Slivinski explains why the corporate income tax is “one of the most burdensome and economically inefficient taxes in the federal/state tax code.”

Business Tax Cuts Pass in Michigan but Falter Elsewhere

This Stateline article describes provisions of Michigan’s recent corporate tax cuts, and notes successes and failures of similar measures across the United States.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit the Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at www.heartland.org, or PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or the Heartland Web site, contact Government Relations Director John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.