What Corporate Tax Burden?

Thursday, March 13, 2014

By Meg Wiehe:

State Tax Policy Director

Institute on Taxation and Economic Policy (ITEP)

On the immediate heels of significantly cutting taxes for corporations and high income individuals, lawmakers are close to making a deal to deliver additional tax breaks to some businesses including very profitable multi-national corporations.

The compromise that has emerged in recent weeks (and will likely be sent to Governor Pence today) would give counties the option to cut local business taxes and would include a gradual reduction in the state’s corporate income tax rate from 6.5 percent to 4.9 percent (Indiana lawmakers cut the rate gradually from 8.5 percent to 6.5 percent in 2011. The 6.5 percent rate goes into effect next year).

Yet, an analysis of the aggregate state corporate income taxes paid (or not paid) by two of the largest and most profitable corporations based in Indiana –Eli Lilly and NiSource– shows that lawmakers should first be concerned with asking how much if anything these and other profitable corporations operating in Indiana are actually paying before further cutting the rate.

Eli Lilly and NiSource have been staggeringly successful in avoiding state corporate income taxes in recent years. In 2011, both corporations actually paid a negative state tax rate despite recording profits. In other words, rather than paying any state income taxes in 2011, Eli Lilly and NiSource received rebates.

Between 2008 and 2012, NiSource paid only $9 million total in aggregate state corporate taxes on more than $2.4 billion in profits for an effective rate of just .4%, far below Indiana’s rate. During the same period, Eli Lilly’s effective rate was just .6%, paying only $61 million in total aggregate state income taxes on more than $10 billion in profits.

When some of Indiana’s most successful corporations are paying such a small fraction of their profits in state income taxes to states around the country, it raises serious questions about whether reducing the corporate income tax is a worthwhile priority.

Lawmakers interested in true corporate tax reform should start by ensuring that profitable multi-national corporations are paying something resembling the legal rate. When these large companies are able to dodge almost all state income taxes on their U.S. profits, the inevitable impact is a tax shift away from big corporations and onto everyone else, including small businesses and middle-income families. Creating a level playing field between large businesses and “mom and pop” businesses should be a priority for state policymakers—but that is best done by repealing harmful tax giveaways, not through reducing corporate income tax rates.