In Support of Eliminating the Corporate Income Tax

Last week in the Wall Street Journal, Michael Boskin published an editorial described the negative effects of corporate income taxes on an economy:

Reducing or eliminating the corporate tax would curtail numerous wasteful tax distortions, boost growth in both the short and long run, increase America’s global competitiveness, and raise future wages. […]

Junking both the corporate and personal income taxes and replacing them with a broad revenue-neutral consumption tax would produce even larger gains.

Although Boskin focuses on the federal corporate income tax, his conclusion would also hold true for the state corporate income tax in Missouri. Eliminating the state corporate income tax and replacing it with a broad-based consumption tax would attract more employers, business activity, and migration to the state. This echoes the scholarly work published by the Show-Me Institute, finding that taxes and economic activity are inversely related. When you tax something, you get less of it, after all.

Sixteen states have a lower corporate income tax rate than Missouri’s, which now stands at 6.25 percent. Businesses have a marginal incentive to locate in those states, instead of in Missouri, because they would enjoy a higher after-tax return to capital. As a consequence of realizing that higher return, the firms in these low- or no-tax states would supply more production.

Eliminating the corporate income tax would also be a more efficient and fair way to attract businesses to Missouri than targeted incentive programs, which is the state government’s current practice.