Who Really Bears the Burden of a State Level Business Tax Increase?
Robert Cline, National Director of State and Local Tax Policy Economics at Ernst & Young’s Quantitative Economics and Statistics (QUEST) practice in Washington, DC; Andrew Phillips, senior manager in the EY/QUEST practice and leads the Regional Economic Contribution practice, in Washington, DC; Joo Mi Kim, former QUEST senior consultant, currently an associate at Foros; and, Tom Neubig, National Director of the EY QUEST practice in Washington, DC.
The views expressed in this paper are those of the authors, and do not necessarily reflect the views of their employers; nor do they necessarily represent the views of the editors of this journal nor those of the Multistate Tax Commission.
The ultimate burden – the economic incidence --of taxes initially imposed on businesses must be borne by households in their capacity as consumers, workers, or owners of capital; that is, a business may write the check to the tax authority, but the business has no capacity, per se, to bear the burden of the taxes. This paper presents estimates of the ultimate burden of an increase in each state’s business taxes, assuming no other state changes its business taxes. (Editor’s note: If all state and local governments were to simultaneously change their business taxes by the same proportion, the outcome would most likely be significantly different from those contained in this paper.)
The authors find that:
- On average, 28% of a state business tax increase is “exported” to non-residents, assuming no other state increases its business taxes.
- Resident consumers’ and workers’ share of a state’s business tax increase ranges from 30% in Wyoming to 88% in Hawaii.
- Capital owners’ share of state business tax increases ranges from 2/3rds in states with substantial reliance mineral extraction to a low of 12% in Hawaii.
The full article can be found here: