Potential Effect of Eliminating the State Corporate Income Tax on State Economic Activity
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چکیده
At first glance, the elimination of the corporate tax on business seems an obvious method of attracting new firms to the state and promoting the expansion of existing firms. And in fact, states and localities have been offering tax incentives, usually in the form of reduced property taxes or corporate income tax credits, to firms for many years. Under current law, Georgia imposes a 6 percent tax on corporate income. In fiscal year 1999, state corporate tax revenues were $800 million (Morton and Hawkins 2004). Over the years though, the corporate tax has become less important in providing revenues to the state. By fiscal year 2003 state revenues from this source were $470 million (Morton and Hawkins 2004). Thus, a simple estimate of the outright repeal of the corporate income tax would result in a revenue loss to the state of at least $564 million in FY 2006 which represents the forecasted revenues from this tax. But in fact, the potential revenue loss could be somewhat greater than that. Repealing the tax on corporate income creates some incentive to move income currently taxed under the state personal income tax code, such as sole proprietorships or LLCs, and reorganize it as corporate income in order to reduce taxes. This tax avoidance behavior could increase the revenue loss to the state. Literature Review
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