Reforming State Corporate Income Taxes Can Yield Billions

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The federal government should be providing states and localities with hundreds of billions of dollars in aid. The arguments against such aid, including the claim that the states have somehow been profligate, do not stand up to scrutiny. Nevertheless, it seems unlikely that the federal government will do enough, and it is already the case that the federal government is acting too slowly. States and local governments, which generally operate under balanced budget constraints, are, accordingly, already making sweeping cuts4 that will deepen the recession and reduce services when they are most needed.

Rather than make these cuts, it would be better to raise taxes on those that can afford to pay. In this essay, we will focus on one such set of taxpayers — large multinational corporations that have long circumvented both the state and federal corporate income taxes. Better yet, the reforms we propose represent good tax policy more generally: They are fair, efficient, and administrable. This essay is a contribution to Project SAFE: “State Action in Fiscal Emergencies” — an academic effort to help states weather the COVID-19 economic crisis by providing policy recommendations backed by research.