The Business of NY: Cutting Corporate Income Taxes

A Legislative Column by Assemblyman Dave Townsend (R,WF-Sylvan Beach)

If I asked you to devise a state or federal tax with more costs to potential businesses and fewer benefits to the taxpayers and employees it was supposedly designed to help, you could do little worse than corporate income taxes. Taxes on businesses and shareholders hurt economic growth in our state and drive away potential companies looking to relocate in New York. Furthermore, they account for a small percentage of total tax revenue every year yet create onerous compliance costs on companies and employers attempting to keep track of every change and amendment to the code. We should drop the corporate income tax immediately. This levy does nothing for New York’s economic competitiveness and is kept alive primarily by ideological opponents of business that unwittingly create more tax havens than they close. If the business of New York should be business then the corporate income tax damages our bottom line.

As corporate income taxes go New York places levies on a variety of activities which constitute “doing business” in the state, but the most noticeable one is the corporate franchise tax. According to the Tax Foundation this 7.1 percent tax consists of the regular income tax all businesses must pay, a 1.5 percent alternative minimum tax, and .178 percent on capital base or a fixed dollar minimum tax between $100 and $1,500. For New York City businesses there is an additional 17 percent surcharge on all activity within the downstate mass-transit service area. Our 7.1 percent tax isn’t quite as bad as New Jersey’s top marginal rate of 9 percent, but when combined with the federal 35 percent corporate income tax it means that at least 42 percent of gross income is subject to taxes for existing and potential employers in the Empire State.

Distorting taxes such as the corporate income tax also hurt New Yorkers by shifting expenses and raising compliance costs. Corporate income taxes rarely target those with the most ability to pay them. Here’s why: opponents of business typically assume high marginal rates will target business owners rather than employees. But this is hardly the case, since employers shift new costs to workers in the most efficient way possible: wage stagnation. We have seen this phenomenon firsthand in Upstate New York over the last decade. According to the Brookings Institution, Upstate employees earn lower in hour-by-hour comparisons with the rest of the United States. As a result, personal income grows at approximately half the national rate. What’s more, some of these so-called rich businessmen are actually shareholders not engaged in traditional activity but caught in the corporate income tax net nevertheless. This does not include federal capital gains taxes and other investor fees that raise costs on shareholders. Higher compliance costs for corporate taxes mean legal and accounting departments spend most of their time adjusting to new rates or figuring out new ways to avoid heavy taxation, not driving economic growth. Some estimates calculate that businesses spend about 13 percent of their tax bill in actually complying with the corporate income tax. Bernie Madoff clones too abound under a system of heavy corporate taxation. Nobody likes off-shore tax havens, but liabilities of over 40 percent tend to encourage them.

Let’s get away from a corporate income tax in New York State as a revenue tool. It doesn’t work for liberals because it fails to bring in much cash and promotes scofflaws. It doesn’t work for conservatives because it discourages businesses to locate here. And it doesn’t work for employees, whose wages flat-line over the long-term. I want to fight to make our business tax code more favorable for the people I represent and the companies and firms I would like to see start here in Central New York.

The Business of NY: Cutting Corporate Income Taxes

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