Tax evasion reforms at the state level increase state funds and the effectiveness of heightened corporate tax rates.
Bivens 2022 – Josh Bivens is the chief economist at the Economic Policy Institute with areas of research in macroeconomics, inequality, social insurance, public investment, and the economics of globalization, “Reclaiming corporate tax revenues,” April 14th 2022, Economic Policy Institute, https://www.epi.org/publication/reclaiming-corporate-tax-revenues/
Corporate income taxes—both at the federal and S&L level—are highly progressive parts of the U.S. fiscal system. The erosion of revenues collected from corporate income taxes has made the overall tax system less progressive, and at the state level it has been a key driver of overall revenue weakness, which in turn has fueled too-austere spending.
The S&L sector is vitally important to the economic health and quality of life of U.S. families. It plays a leading role in the direct provision of valuable public goods and services. But the sector’s ability to provide these services well is highly constrained by how much revenue can be raised. Corporate income tax cuts in recent decades have compromised this revenue collection.
A number of obvious reforms could help stem these losses. Statutory corporate income tax rates could be raised. (Given the enormous cut in corporate income taxes at the federal level in 2018, even very large increases in state corporate income tax rates would leave capital-owners far better off than they were just a few years ago.)
Besides changing statutory tax rates, reforms should also focus on the tax base. Corporations undertake a range of tax evasion techniques to minimize the scale of taxable profits they report to governments. While federal government changes have failed to rein in these tax evasion efforts, there are a range of reforms states could undertake on their own to force a more honest accounting of taxable profits.19 Most fundamentally, new legislation forcing transparency in regard to which profitable corporations pay taxes in a state and which do not could help educate the public about this issue.
Finally, of course, other bases of income—like business income earned by entities besides C-corporations—could also be tapped for more revenue. The rise of S-corporations highlights how business forms have been manipulated for tax evasion. There is no reason legislators must let that stand—the new business forms (or their owners) could certainly pay more in taxes.