Central Planners and Cronies Love a High Corporate Tax

North Carolina’s corporate income tax is scheduled to phase out to zero by 2030. The usual big-government types vehemently oppose this phase-out, but their objections should fall on deaf ears for multiple reasons.

For starters, contrary to what critics claim, the burden of the corporate tax mostly falls on workers. The corporate tax takes a bite out of business’s budgets, which needs to be made up for somehow. They can try to pass along higher prices to consumers, but the higher price will hurt sales and threaten the company’s profitability. So that leaves cost-cutting to offset the corporate tax burden, and the largest expense for most businesses is payroll.

As a result, higher corporate taxes are associated with lower worker wages. There is ample research available to support this claim.

Additionally, as Scott Lincicome of the Cato Institute writes in this op-ed in the Raleigh News & Observer, central planners and their big business cronies are fans of the corporate tax as well.

There is, however, another important -if unsaid- reason why many U.S. politicians want, even need, a high corporate tax rate: It lets them direct the economy via a favorite (if not the favorite) tool of central planners everywhere: targeted tax breaks, especially tax credits. …

Here in the United States, for example, (Cato’s Chris) Edwards has looked at state-level taxation and finds a pretty solid relationship between more onerous corporate tax regimes (as ranked by the Tax Foundation, which generally advocates for lower corporate tax rates and fewer subsidies/loopholes) and more generous subsidies.

The reasoning is pretty straightforward: the higher the corporate tax rate the bigger the advantage gained by those crony corporations receiving a targeted subsidy or tax break. For a state with no corporate tax rate, however, as Lincicome explains, “A proposed exemption, deduction, or (non-refundable) credit is worthless because the corporate entity is already paying zero tax.”

North Carolina’s largest corporate tax giveaway is known as the Job Development Investment Grant (JDIG) program, and it has a well-documented track record of failure.

Legislators should not waver in their support for eliminating the corporate income tax. Not only will it benefit workers, but it will pave the runway for phasing out failed crony corporate welfare programs like JDIG.