Corporate Tax Cuts Are Risky Business

Everyone in Rhode Island wants the same thing: a stronger economy with good jobs that help families to build a future. But tax cuts that some propose won’t create this path to prosperity. Tax cuts have but a negligible effect on creating jobs and generating economic activity. What really works is investing in schools, transportation, and safe communities; helping entrepreneurs find markets and financing; and other tried and true building blocks of economic growth. Tax cuts will deplete the resources it takes to make these solid investments.

Proposals to cut the state’s corporate income tax are particularly risky. They would reduce revenue in the short term on the wager that revenues will increase down the road because of economic growth. That’s not a very safe bet. It is best to avoid these tax cuts and use the resources instead to support the services businesses need to grow and thrive.

If policymakers do decide to reduce the corporate tax rate, then they ought to make up for the resulting revenue losses by adopting another tax policy that makes sure large, profitable, multi-state corporations pay their fair share for the services they use in Rhode Island. Known as “combined reporting,” this sound reform would end many tax avoidance schemes that force Rhode Island-based businesses and residents to subsidize out-of-state companies by paying higher taxes, or losing essential services.