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1 Elizabeth L. Malm, Issues Associated with Corporate Income Taxation 1 (2013)

handle is hein.taxfoundation/taxfaabf0001 and id is 1 raw text is: Issues Associated with Corporate Income Taxation Elizabeth L. Malm Economist, Tax Foundation Hearing of the Ways and Means Committee of the Maryland House of Delegates February 26, 2013 Members of the Committee: My name is Elizabeth Malm and I am an Economist at the Tax Foundation, a non-partisan, non-profit organization founded in 1937. We analyze tax issues at all levels of government and raise economic awareness among taxpayers, lawmakers, and the general public. I am also a Montgomery County resident. I am pleased to have the opportunity to speak with you today regarding House Bill 261, a bill that would reduce Maryland's state corporate income tax rate from its current level of 8.25 percent to 6 percent. The Tax Foundation takes no position on this bill, but I am eager to offer analysis based on our examination of corporate income taxation in general. Maryland and other states considering tax reform should be fully informed about the benefits and costs associated with various tax instruments. We find two compelling reasons that corporate taxes are a poor instrument for collecting tax revenue. First, corporate taxes are detrimental to economic growth; and second, they provide unstable and inadequate revenue over the business cycle. As of 2012, Maryland's corporate income tax rate was the 15th highest nationally and the third highest in the region. The most problematic rate differential, however, is the significant difference between Maryland and neighboring Virginia. Virginia's corporate rate is only 6 percent-more than two percentage points lower than Maryland's. Businesses choosing to locate in the Washington, D.C. metropolitan area have the choice between three jurisdictions-Virginia, Maryland, and D.C. Potential tax burden is most certainly one of the costs a business considers in choosing where to locate. Reducing the corporate rate would make Maryland even more competitive in relation to its neighbors. Issue #1: Corporate tax rates are harmful to economic growth. 1

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