by Joseph Henchman
June 19, 2012
States should not follow the example of Illinois and Maryland, which recently raised tax rates while stepping up incentive packages. Illinois has seen an increase in business flight from the state since raising its corporate income tax from 7.3% to 9.5% in 2011. Until federal tax reform reduces competitive pressures, states should instead focus on reducing rates and minimizing incentive packages that hollow out the base and pick winners and losers. Commentators have recommended, one on hand, that states abolish the state corporate income tax altogether and focus on other revenue sources, and on the other hand, adopt old-style gross receipts taxes that impact all business activity, including that by partnerships and sole proprietors.