Republican gubernatorial candidate Tom Emmer pledges to cut the corporate income tax if he’s elected, which he argues stifle Minnesota’s economy.
Here’s what he had to say about the matter during a recent interview with Minnesota Public Radio’s Gary Eichten:
Minnesota’s corporate tax rate is “actually third highest in the country,” Emmer said on Oct. 5, 2010. “When it’s combined with the federal corporate tax, I believe it’s the third highest in the world.”
Emmer’s facts are in the ballpark, but as with most things involving taxes it’s more complicated than it appears on first glance.
Minnesota has a flat corporate tax rate of 9.8 percent, which Emmer wants to lower to 3 percent by 2015. He’s right that the current rate is quite high compared to other states. Iowa comes in first with a 10 to 12 percent rate on corporations making more than $100,000 annually. Pennsylvania is next, followed by the District of Columbia. Minnesota comes in fourth when accounting for Iowa’s two top brackets, so Emmer is close enough on his first point.
For the second part of his claim, Emmer relies on numbers produced by Organization for Economic Co-Operation and Development, an international group that collects and compiles data about developed countries. While their list excludes many smaller countries, it’s common for experts, including the Congressional Budget Office, to use their data when comparing the U.S. corporate tax rate to other countries.
By this measure, Emmer is also correct: At a little more than 39 percent, the U.S. has the highest corporate tax rate in the world. Combined with Minnesota’s of 9.8 percent, the state has one of the highest in the world.
Nevertheless, all these numbers deserve some context.
Experts argue that the U.S. statutory rate is misleading because the tax code contains all sorts of credits and deductions that companies take advantage of. So, it’s unlikely that many businesses are actually paying the full amount. In any event, businesses frequently pass these tax costs on to consumers in the form of higher prices or employees in the form of lower wages.
Another interesting twist to this story: It’s actually Minnesota’s property tax that hits corporations the hardest. In 2009, businesses paid about $3.6 billion in property taxes and only $800 million in corporate income taxes, according to a study published by the Center on State Taxation.
Emmer is a little off on his numbers, but close enough to pass this test.
Minnesota Public Radio News, Midday interview with Rep. Tom Emmer, Oct. 5, 2010
Tom Emmer for Governor, The Emmer Budget Plan, accessed Oct. 7, 2010
The Tax Foundation, State Corporate Income Tax Rates, 2000-2010, accessed Oct. 7, 2010
The Tax Foundation, Facts on Minnesota’s Tax Climate, accessed Oct. 8, 2010
Federation of Tax Administrators, Range of State and Corporate Income Tax Rates, accessed Oct. 7, 2010
The Congressional Budget Office, Corporate Income Tax Rates: International Comparisons, November 2005
The Council on State Taxation, Total state and local business taxes: State-by-state estimates for fiscal year 2009, March 2010
The Center for Budget and Policy Priorities, Putting U.S. Corporate Taxes in Perspective, by Chye-Ching Huang, Oct. 27, 2008
MinnPost.com, How does Minnesota stack up in business taxation? Pretty well, it turns out, By Sharon Schmickle, Aug. 24, 2010
MN2020, Governor Gets it Wrong on Business Taxes, by Jeff Van Wychen, accessed Oct. 7, 2010
Interview, Carl Kuhl, spokesman, Emmer for Governor, Oct. 7, 2010