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NC has 3rd lowest business taxes in U.S.

Post on May 2, 2008 by 5 Comments »

Those pesky researchers at Ernst & Young and the Council on State Taxation have done it again.  They simply refuse to develop a methodology for ranking state business tax burdens in such a way that North Carolina's ranking will come out where the state Chamber of Commerce and the free-market fundamentalist "think tanks" like to claim that it is - as in at the top of list.

The latest version of the 50-state study was released last week. Among its findings are that businesses pay 36.9% of all state and local taxes in North Carlina and fully 3.9% of the total Gross State Product is consumed by business taxes. (Keep in mind that percentage of taxes paid by businesses includes lots of taxes that are technically paid by businesses but are often passed on to consumers in the form of higher prices.) The study certainly has its flaws but it clearly reenforces what we have been saying here at the Budget & Tax Center for more than a dozen years - focusing simply on nominal tax rates and focusing on state taxes while ingoring local taxes does not provide an accurate assessment of our tax levels relative to other states.

So don't be fooled by the hype about NC's taxes. We have a lot of things that need to be addressed in order to compete effectively in the global economy, such as educating the current and future workforce of our state.  The one thing we don't need to do is cut taxes on corporations so that we can compete with those two states that ranked lower than we did – Deleware and Oregon.

Possibly related posts:

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Comments (Closed):4

  1. Max
    May 2, 2008 at 2:42 pm

    Well, Elaine. You said it, not us:

    “Keep in mind that percentage of taxes paid by businesses includes lots of taxes that are technically paid by businesses but are often passed on to consumers in the form of higher prices.”

    Congratulations. You just had a free-market fundamentalist moment.

    Taxes are not borne by businesses at all. They’re paid by labor in the former of lower pay, by customers in the form of higher prices, and by investors in the form of lower returns on investment. In short, corporations don’t really pay taxes at all. They’re simply an inefficient and economically crippling way of collecting revenues that ultimately come from individuals (not legally contrived agglomerations of individuals). Again congratulations, you’re almost there!

  2. Elaine
    May 2, 2008 at 3:36 pm

    Max, the Budget & Tax Center has always acknowledged that not all business taxes are ultimately paid by the owners/investors of the business. The point is that NC’s overall taxes are not high – the census bureau’s data shows that each and every year when they release their state by state comparisons and the Ernst & Young/ COST study confirms that. If you want to claim that governnment here is too big then just say that and talk about what activities NC’s state and local governments are doing that you don’t think they need to be doing. But don’t try to prove that government in the Tar Heel state is “too big” based on tax rates alone because any credible comparisons clearly show that we are a not a “big government” or “high tax” state.

  3. Brian
    May 2, 2008 at 4:37 pm

    Dr. Cordato at Locke dissected the flaws in the E&Y study a few years ago in this article:
    http://www.johnlocke.org/news_columns/display_story.html?id=1425

    “First, the study ignores personal income taxes. North Carolina has the highest top marginal income tax rate in the Southeast and one of the highest in the nation. Owners of sole proprietorships, partnerships, limited liability companies, and subchapter-S corporations, making up most of North Carolina’s businesses, pay their taxes through the personal income tax.”

    By ingnoring personal income taxes, roughly 90 percent of all NC businesses are not even included in this “study” of business tax burdens. Not exactly a “credible comparison” that “confirms” anything.

    As to NC being a “high tax” state, see this:
    http://www.taxfoundation.org/taxdata/show/335.html

    NC ranks 19th for state & local tax burden – highest in the SE.
    This is up from a ranking of 36th in 2000. This leap of 17 slots is the highest in the nation during that time.

    Further, according to Dep’t of Revenue data, NC’s share of income tax collections as a percent of personal income ranks sixth highest among the 43 that tax income – also highest in the SE and just barely behind California.

    If the E&Y study is such proof-positive that NC is some sort of tax haven, explain why the Tax Foundation ranks North Carolina 40th in their 2008 State Business Tax Climate Index.

    Lastly, it’s ironic that you express concern over the workforce while insisting that corporate taxes not be cut. Recent studies show that the majority, if not all (in the long run), of the corporate tax burden comes out of worker pay.
    http://www.cbo.gov/ftpdocs/75xx/doc7503/2006-09.pdf
    http://users.ox.ac.uk/~mast1732/RePEc/pdf/WP0707.pdf

  4. Elaine
    May 3, 2008 at 8:50 am

    First of all if you read the last two E&Y studies you will see that they no longer omit personal income taxes paid by small business owners so citing an old analysis by the Lockeans is not helpful.

    Second, the tax foundation’s business tax climate and state and local tax burden studies are seriously flawed. For more on why see the following two links:
    http://www.cbpp.org/3-27-07sfp2.htm
    http://www.ocpp.org/cgi-bin/display.cgi?page=iss071214taxfoun

    We here at the BTC will stick with the reliable census bureau’s data which, in its latest round of data, showed NC ranked 35th in total taxes as a percentage of personal income and 33rd in total state and local taxes per capita.

    As I said before, if you want to say that NC government is too big just because you think it is then that’s fine but don’t try and “prove” that we’re too big by comparing us to other states because no credible data ever shows that.