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Monday, June 6, 2005

Brunori on The Politics of State Taxation: Helping States to Hurt Themselves

Brunori Tax_analysts_106 David Brunori (Executive Vice President of Editorial Operations, Tax Analysts) has published The Politics of State Taxation:  Helping States to Hurt Themselves, also available on the Tax Analysts web site as Doc 2005-11900, 2005 STT 107-5, which criticizes the Economic Development Act of 2005, which would overturn the Sixth Circuit's decision in Cuno v. DaimlerChrysler, which held that Ohio's investment tax credit was unconstitutional.

Tax_foundation_7On the other hand, the Tax Foundation is critical of Cuno, call it A Pyrrhic Victory for Economic Neutrality:

Whatever one thinks about the economic efficacy of state tax incentives, ongoing analysis of Cuno reveals that the ruling suffers from three fatal flaws. First, the discrimination rule in the opinion cannot logically be limited to the most egregious forms of state corporate incentives. Second, the opinion allows state tax incentives to continue in the form of direct cash subsidies. Third, the opinion also allows state tax incentives to continue but only if they are granted to out-of-state companies. Those who are convinced that state tax incentives are harmful would be mistaken in accepting Cuno as the remedy.

UpdateJoe Kristan sides with Brunori in this debate:

Cuno threatens to impose some discipline on tax incentives that the states seem unable to apply to themselves. Congress could use the case as leverage help the states stop the pointless incentive wars -- wars the Tax Foundation agrees are unwise. Perhaps its legal reasoning compels it, but it still seems odd that the Tax Foundation wants Congress to re-arm the incentive warriors.

http://taxprof.typepad.com/taxprof_blog/2005/06/brunori_on_emth.html

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Tracked on Jun 6, 2005 8:59:56 AM