NCPA - National Center for Policy Analysis

States Reluctant to Cut Federal Business Taxes

March 18, 2002

Faced with budget shortfalls, many states are balking at adopting corporate tax breaks included in the new federal economic-stimulus measure.

  • The business tax breaks are estimated to cost $14.7 billion over three years for the 46 states that base all or portions of their corporate tax codes on the federal system.
  • Of those states, 25 have tax systems that automatically adjust to changes in federal laws.
  • The remaining ones periodically update their codes -- through a vote of their legislature -- to incorporate federal changes such as those in the stimulus bill.
  • That means state legislatures in the later group must, in effect, vote to cut taxes at the same time they are slashing spending and raising taxes and fees elsewhere to close deficits caused by the economic slowdown.

Thus, the quandary for the states is this: Should they go along with the tax breaks and vote to take another revenue hit, or refuse, thereby denying corporate taxpayers some benefit and complicating the tax code?

The stimulus bill includes a provision that provide companies with a bonus 30 percent depreciation on capital equipment they buy between Sept. 11, 2001 and Sept. 11, 2004 -- and a second one that extends the time period for using operating losses to offset taxes.

Congress estimates the bonus depreciation could save companies nearly $97 billion.

Some states are moving to undo their automatic linkage to the federal tax code to stave off the hit from the stimulus bill.

Source: Andrew Caffrey, "States Balk at Cuts in Federal Business Taxes," Wall Street Journal, March 18, 2002.


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