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Declining Corporate Income Taxes in the 1990s: A State-by-State Analysis of Effective Tax Rates

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  • Elissa Braunstein

Abstract

Between 1995 and 2000, inflation-adjusted federal corporate income taxes grew an average of 2.0 percent a year; the annual average for state and local corporate tax revenue actually declined by 0.12 percent during the same period. A number of statelevel studies have documented this decline by showing that corporations are paying a declining share of state taxes. But such results are inconclusive because they do not control for changes in corporate profitability. In this paper we use data from the National Income and Product Accounts to create a time series of corporate profits by state, enabling us to investigate corporate income taxes while controlling for corporate profits. Our findings are striking: out of the 42 states studied, 41 show a statistically significant decline in their effective corporate income tax rates between 1991 and 2001. The average decline for all states is 4.6 percent per year, which means that effective corporate income tax rates fell by a little over one-third over the decade of the 1990s and into 2001. After accounting for the impact of the growth in income of S corporations, this means that states lost about $11 billion on corporate income tax revenue in fiscal 2002 due to the decline in effective corporate income tax rates.

Suggested Citation

  • Elissa Braunstein, 2004. "Declining Corporate Income Taxes in the 1990s: A State-by-State Analysis of Effective Tax Rates," Working Papers wp91, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp91
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    References listed on IDEAS

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    1. Reuven Avi-Yonah, "undated". "Corporations, Society and the State: A Defense of the Corporate Tax," University of Michigan John M. Olin Center for Law & Economics Working Paper Series umichlwps-1005, University of Michigan John M. Olin Center for Law & Economics.
    2. Fox, William F. & Luna, LeAnn, 2002. "State Corporate Tax Revenue Trends: Causes and Possible Solutions," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 491-508, September.
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