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Jan 14

Corporate taxes finally getting attention

Posted by Stephen Taub in Taxpensionspension fundscorporate tax ratecorporate taxChris ChristieCashbudget deficitbudget

Stephen Taub

Corporate taxes may finally be receiving the attention it deserves.

The decision by Illinois to raise its personal income tax rate to 5 percent from 3 percent, and its business income taxes to 9.5 percent from 7.3 percent led New Jersey governor Chris Christie to appeal to Illinois businesses to move east to the Garden State.

Never mind his state's income tax is 9 percent for businesses with income over $100,000 and personal income tax is 6.37 percent for married couples earning more than $150,000 per year and 8.97 percent for those earning more than $500,000.

Meanwhile, Treasury Secretary Timothy Geithner Friday is meeting with business executives to discuss corporate tax reform.

On the agenda: The notion that the current 35 percent corporate tax rate just might discourage foreign investment and hurt US companies' ability to compete in the global economy.

Imagine what the tax rate would have to zoom to if we implemented a nationalized medical system like that in the UK, Israel and Canada?

It is about time this issue is getting more attention.

However, the state tax issue is frequently overlooked. And with budgets bleeding red ink, policymakers still think it is easier to score points with voters if they simply tax those big, bad corporations rather than make serious decisions about cutting their bloated budgets.

I don't believe governments have a moral or legal right to cut pension payments. But, they can change some of the rules, which astoundingly have been in place for decades in many states.

For example, just make base wages pensionable. In many cities and states like New York, firefighters, cops, sanitation workers and teachers ramp up the overtime in their final years to boost their pensions.

In addition, for years government workers were able to retire in their 50s, start collecting their pensions, and then launch new careers. Sometimes they simply resume their old jobs, but as "consultants." Others move to another government agency and then eventually draw two pensions from the same city or state.

The simple solutions: Don't start paying pensions until the age they are eligible to receive a full paycheck from the Social Security Administration. Or they can receive reduced benefits beginning at 62.

These are just common sense suggestions right off the bat.

Another way New York State can boost its revenues is for its State University system to charge out of staters what their nearby states charge New Yorkers. Currently, outsiders pay almost half the tuition costs to attend the State University of New York than a New Yorker pays to attend a university in Maryland, Connecticut, Delaware, Pennsylvania, Wisconsin, to name among the more popular out of state choices among New Yorkers.

In general, though, States with high tax rates must bring down those rates if they want to attract more business. They know who they are. According to the most recent ranking by The Tax Foundation, the 10 worst states in the Tax Foundation's 2011 State Business Tax Climate Index are as follows: New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina.

The 10 best are: South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.

According to the report, New York scored at the bottom by having the third worst individual income tax, ninth worst sales tax, and worst property tax. Rhode Island improved from 44 to 42 but still has the worst unemployment tax system and third worst property tax system. Connecticut plummeted from 38 in last year's index to 47 mostly by creating a new "millionaire's bracket" on the individual income tax.

As for Christie's New Jersey, his state broke a three-year streak of having the worst business tax climate in the country, improving to 48.
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