States Slash Corporate Taxes, Promote Growth as Biden Considers Higher Rates

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Posted by Dennis Hull on Tuesday, August 3rd, 2021, 4:29 PM PERMALINK

As President Joe Biden and congressional Democrats push for a massive corporate tax hike, states across the country are moving in the opposite direction. This year, five states – Idaho, Nebraska, New Hampshire, Oklahoma, and Louisiana – cut their corporate tax rates, providing hundreds of millions in tax relief for employers and workers. These states will enjoy a more competitive business climate with their commitment to pro-growth tax reform.

Compared to other forms of taxation, corporate taxes are by far the most detrimental to economic growth, according to analysis by the Tax Foundation. Academic research reveals that workers bear the brunt of the corporate tax burden – at least half – through reduced wages. That applies in particular to “the low-skilled, women, and young workers.”

On the other hand, lowering corporate tax rates can spur investment in things like buildings, equipment, and research and development. The 2017 Tax Cuts and Jobs Act did just that: by lowering the corporate tax rate from 35% to 21%, corporate fixed investment jumped 9.0% in 2018 and an additional 4.4% the next year.

Take a look at how these five states, all Republican-led, are slashing corporate tax rates and promoting free enterprise:

Idaho

  • H.B. 380 will reduce Idaho’s flat corporate tax rate from 6.925% to 6.5%.
  • The tax cut is retroactive to January 1, 2021, giving businesses the opportunity to claim a tax refund.

 

Nebraska

  • L.B. 432 not only reduces the top marginal corporate income tax rate – it also creates a framework for future tax reductions next year.
  • The top marginal corporate income tax rate will be lowered from 7.81% to 7.5%, starting in January 2022. In January 2023, that rate will be further reduced to 7.25%.
  • The other of Nebraska’s 2 corporate tax brackets will maintain the same rate of 5.58%. This rate applies to the first $100,000 of taxable corporate income.
  • The law also expresses the intent of the legislature to further reduce the top corporate rate, down to 7% in 2024 and 6.84% in 2025.
  • Total tax savings:
    • $1.9 million in FY 2022
    • $9.1 million in FY 2023
  • Total tax savings if other reductions are enacted:
    • $19.8 million in FY 2024
    • $26 million in FY 2025

 

New Hampshire

  • With the passage of H.B. 1 and 2, New Hampshire will slightly lower its two major business taxes.
  • The Business Profits Tax (BPT) – the state’s corporate income tax – will be reduced from 7.7% to 7.6% starting in 2022.
  • The Business Enterprise Tax (BET), which is similar to a value-added tax, will be reduced from 0.6% to 0.55%. The filing threshold is also increased from $200,000 to $250,000, providing relief to many small businesses.
  • H.B. 2 removes revenue triggers from the BPT and the BET, creating a fixed rate that will no longer rise with low tax revenue.

 

Oklahoma

  • With Governor Stitt’s signing of H.B. 2960, Oklahoma now ties Missouri for the 2nd lowest corporate income tax rate in the nation.
  • Starting January 2022, Missouri’s flat corporate income tax will be lowered by more than a third, from 6.25% to 4%.
  • The lower rate will also apply to pass-through companies like LLCs, partnerships, and sole proprietorships. That allows these small businesses to pay the lower corporate tax rate of 4%, rather than a personal income tax rate of 5.4% levied on profits over $8,424.
  • Total tax savings:
    • $110 million in Fiscal Year 2023

 

Louisiana

  • Residents will vote on a constitutional amendment this November that will determine whether new tax cuts ultimately go into effect. If the amendment fails, none of these tax cuts will be enacted.
  • Louisiana will consolidate its 5 corporate income tax brackets into 3 new, simplified brackets.
  • Louisiana’s top corporate tax rate will come down from 8% to 7.5%.
  • The law also permanently suspends part of the Corporation Franchise Tax by exempting the first $300,000 of taxable capital starting in January 2023, a major boon to small businesses.
    • The rate on taxable capital in excess of $300,000 will also be reduced, from 3% to 2.75%.
  • If tax revenue growth targets are met over the next several years, the franchise tax will go down even further.
  • These cuts will bring Louisiana out of the bottom 10 rankings in the Tax Foundation’s State Business Tax Climate Index, moving the state from 42nd to 38th.

 

Photo Credit: Jacopo Werther

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