Robert J. Cline

The Economic Incidence of Additional State Business Taxes

This study provides state-by-state estimates of the economic incidence of a 10 percent increase in business taxes in each state, holding taxes in all other states constant. Combining detailed state-by- state information on total state and local taxes that are the legal liability of business with an economic incidence model that reflects each state’s economy, this study estimates the amount and share of the business tax increase borne by in-state residents through higher prices and lower incomes, along with the amount and share exported to out-of-state residents.The results of this study indicate that taxes imposed initially on business are primarily borne by residents in higher prices or reduced wages and jobs, with only a modest share exported to taxpayers in other states (other than in extractive states) or shifted to capital owners. That result reflects the growing reality of increased business tax competitiveness and capital mobility both nationally and internationally.