Does Business Pay Its Fair Share of State and Local Taxes?

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: Incidence and equity considerations

Abstract

This paper takes a novel approach to the debate over whether business pays its fair share of state and local taxes. I utilize criteria for measuring "fair share" that is popular among advocates for expanded state taxation of business - how much a tax deviates from optimal or neutral tax design. Using this methodology, I explain how the designs of the two largest state and local taxes paid by business - sales taxes on business inputs and property taxes on business property - disfavor business far more than the design of corporate income taxes favors business. I provide detailed statistical analysis that shows that business "overpayments" of sales taxes on 'pyramided' business inputs and property taxes on business property (in excess of the tax calculated using the homeowner property ETR) are significantly higher than alleged business "underpayments" of state corporate income tax. I also respond to critiques of my argument based on "economic" vs. "legal incidence theories.

Author

• Karl Frieden, Council On State Taxation