A Promising Idea for Corporate Income Tax Reform

Josh Barro calls for a very smart corporate tax reform that would make life much easier for U.S. firms, particularly those that operate across state lines:

Instead of focusing on lowering the federal rate, Congress should broaden the federal corporate income tax base and then forbid states and localities to tax corporate income — replacing their foregone revenues with an unrestricted federal block grant.

As Josh explains, this proposal would reduce revenue volatility for states and shift tax competition in more constructive directions:

Some conservatives might object that interstate tax competition is a good thing, and that the federal government would undermine it by effectively levying a uniform state corporate income tax. But in this instance, interstate competition has mostly led to the granting of special favors and the narrowing of tax bases — not a desirable form of competition. States would continue to compete and differentiate themselves on major taxes, especially those on personal income, sales and property.

This is an issue I feel very strongly about. In the name of the “negative Commerce Clause,” i.e., the notion that Congress has the right and the duty to strengthen America’s national marketplace, I wish we’d see legislation against the granting of special favors and privileges to individual sectors and firms, which badly distort economic decision-making. State corporate tax systems are rife with these abuses.

Abolishing state and local corporate income tax looks like a bold step, but it is preferable to simply reforming the federal corporate income tax. My proposal would achieve all the same goals as a revenue-neutral federal corporate tax reform, while also reducing compliance costs and doing more to reduce the economic burden of corporate taxation. And with a consensus in Washington that corporate tax reform is needed, abolishing these taxes may be more feasible than ever.

Depressingly, I think that at least some self-described federalists will oppose this approach, despite the fact that it is entirely compatible with other measures that would strengthen competitive federalism.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

Most Popular


Fire the FBI Chief

American government is supposed to look and sound like George Washington. What it actually looks and sounds like is Henry Hill from Goodfellas: bad suit, hand out, intoning the eternal mantra: “F*** you, pay me.” American government mostly works by interposition, standing between us, the free people at ... Read More
Film & TV

Black Panther’s Circle of Hype

The Marvel Cinematic Universe (MCU) first infantilizes its audience, then banalizes it, and, finally, controls it through marketing. This commercial strategy, geared toward adolescents of all ages, resembles the Democratic party’s political manipulation of black Americans, targeting that audience through its ... Read More