Most people believe that if they don’t work for a corporation or own stock, corporate income taxes don’t affect them. Nothing could be further from the truth. In fact, corporations don’t really pay corporate income taxes; they just pass the tax burden onto consumers. They have to — if they didn’t, they’d go out of business. The upshot is that everyone pays corporate income taxes.
Take Illinois, for instance. In January, Illinois’s elected leaders voted to raise the state’s corporate income tax by 46% (from 4.8% to 7.0%). In February, the state’s second largest utility, Ameren, asked for a rate increase that included $41 million to cover the tax increase. So Ameren’s 1 million customers will be seeing a $40 per year increase in their utility bills as a result of the corporate income tax hike. Expect ComEd, Illinois’s largest utility, to file for a rate increase soon.
Forty dollars a year might not seem like much, but consider what else the income tax increase will affect — the cost of your morning cup of coffee, the gasoline you put into your car, your television, your cell phone, your groceries, your clothing, your haircut, your insurance, your bank products, etc. The corporate income tax causes prices to increase across the board. The effects are felt most by companies that provide goods and services, which not only see their taxes increase but, thanks to the effect of income taxes on utility companies, also see their utility costs increase.
Elected officials in Florida, Kansas, North Dakota, Indiana, North Carolina, South Carolina, Oklahoma and some other states are considering lowering or eliminating their state corporate income taxes. As price declines roll through the economies of these states, extra dollars will flow into every household. Each 2.5% of cost savings in a household with a $40,000 budget will put an extra $1,000 on the table for spending or saving. Of course, the economic gains do not stop there. If households in Florida see their costs fall and wealth increase, this will lure people from other states to relocate to Florida, which will lead to economic growth and rising real estate prices in the Sunshine State. And if companies in Florida are generating higher returns from lower input costs, they will be able to compete more effectively and grow faster than their peers in neighboring states.
Eliminating corporate income taxes is something that politicians in Washington, D.C., should also be considering. In fact, at 35%, the federal income tax rate dwarfs even the highest state income tax rates. Eliminating it would be a huge boon for consumers. After all, it is consumers, not corporations, who would benefit the most from eliminating the corporate income tax.
Blaine Rollins is a former portfolio manager of the Janus Fund and is a Board member of the Lance Armstrong Foundation. He writes and blogs at www.EliminateCorporateIncomeTax.com and at Twitter: @EliminateCIT.