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
What good is it to say this or that fact is correct? It's the way the facts are used that is important. The most important piece of "context" in this story is that many corporations pay little or no income tax because there are so many loopholes they can use. It means nothing that the tax rate is a certain percentage if most corporations don't pay that amount. This is more shallow fact-checking.
"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."
Fairly safe to say that business passes all costs to consumers. It sure doesn't come out of the CEO's wallet.
This is why we are promoting the FairTax model for the state of Minnesota. If we do it right, Minnesota can become the business investment haven for the upper midwest.
And what about the point of Emmer's argument, that the corporate tax rate stifles Minnesota's economy?
First, large employers are generally the ones who pay (or avoid) the corporate income tax. Many small and medium-sized Minnesota businesses aren't subject to the tax.
Second, research suggests there is some, very modest impact on economic growth from state taxes, but the differences among states attributed to taxes are small.
Third, as this piece only indirectly conveys, the corporate income tax contributes roughly 5% of the state's annual revenues. Saying our rate is third highest in the world sounds so much scarier!
Thanks for covering this. Tom Emmer is nearly right on in regard to corporate taxes in Minnesota, and the US. Our tax rates discourage corporate expansion in our state, in fact, we are excluded from consideration right off the bat. Minnesota has become well known for its anti-corporate friendly tax structure.
By my research, Japans 2009 corporate tax was 30%, but I don't claim to be knowledgable about corporate taxes around the world. That would make the US #1 (as we have been #1 and #2 for at least 5 years.) So a company looking to build operations in America to reach a customer base is already taking on one of the heaviest tax burdens around the world, if not the heaviest, regardless of deductions, etc. and the chances of coming to Minnesota are slim to none. If the spending side people, the people who want roads, bridges and Taj Mahal like schools, knew more about how to create a tax base instead of bleeding it from the neck, this may be an item more often discussed. As it stands, many on the left of the debate believe that taxes are not damaging to the economy or fail to consider the actual facts of the damage that is done to the ability to collect revenue in the future. There is a divorce between means and ends and that is what fuels the divisive left leaning view, the failure to consider the long term effects of getting what they believe they need to get from government.
As for property taxes, Minnesota is in the middle of the pack. The only part of our tax structure that is middle of the road is property tax. As of two years ago we were 19th. Your statement that Emmer is somehow off-base by what he says is not really true, as property tax does bring in more money from corporations, but that doesn't mean much, and doesn't serve the discussion. It says that corporate tax payments are smaller than property tax payments by corporations and is a non sequiter in the discussion of comparing tax structures to other states and other nations.
Thanks for running this story. Too bad you felt the need to call Emmer accurate with a caveat. I guess that as good as some of the stuff on your channel is, there is some evidence of the bias that so many assert exists. I am a republican who has long listened to MPR and defended your reputation to many of my friends. I see that in this instance, I am in error, and owe my friends an apology.