The Corporate Income Tax Cut Fallacy
January 11, 2013
Susana Martinez is calling for reducing New Mexico’s corporate tax rate by 2 1/2%. Martinez claims that by doing New Mexico companies will stay here instead of leaving for greener pastures. And these companies will then create private sector jobs so that New Mexico will no longer have to rely on federal dollars.
But just who will such a corporate income tax cut benefit? Hardly anyone.
According to an Ernst & Young study released in April 2011, 94% of all businesses in New Mexico are Flow-Through/Pass-Through entities (S corporations, limited liability companies, partnerships or sole-proprietorships). These entities do not pay any corporate taxes. Instead their profits are taxed on their owner’s personal income tax return.
Flow-Through/Pass-Through entities employ 59% of the private sector work force in New Mexico. The vast majority of private sector jobs in New Mexico are not even with companies that pay any corporate income tax.
The New Mexico corporate tax rate is actually graduated based upon the net taxable income (profit) of the company. To pay the top corporate income tax rate, which Martinez proposes to lower, a corporation must have a net profit of at least $1,000,000. Currently, corporations whose net profit is less than $500,000 pay a corporate income tax rate of 4.8%.
Only 6% of the businesses in New Mexico even pay corporate income tax and in order to benefit from Martinez’s push to reduce the top corporate income tax rate the corporation must have a profit of at least $1,000,000 per year.
So who is really going to benefit from this reduction? Of the 6% of New Mexico based businesses that pay the corporate income tax, very few pay the full rate. The biggest beneficiaries of this reduction, it seems, will be those out-of-state corporations who helped to fund her campaigns. (This assessment is part of a larger study on the Martinez administrations's economic development policies and practices to be released soon).
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January 11, 2013
Susana Martinez is calling for reducing New Mexico’s corporate tax rate by 2 1/2%. Martinez claims that by doing New Mexico companies will stay here instead of leaving for greener pastures. And these companies will then create private sector jobs so that New Mexico will no longer have to rely on federal dollars.
But just who will such a corporate income tax cut benefit? Hardly anyone.
According to an Ernst & Young study released in April 2011, 94% of all businesses in New Mexico are Flow-Through/Pass-Through entities (S corporations, limited liability companies, partnerships or sole-proprietorships). These entities do not pay any corporate taxes. Instead their profits are taxed on their owner’s personal income tax return.
Flow-Through/Pass-Through entities employ 59% of the private sector work force in New Mexico. The vast majority of private sector jobs in New Mexico are not even with companies that pay any corporate income tax.
The New Mexico corporate tax rate is actually graduated based upon the net taxable income (profit) of the company. To pay the top corporate income tax rate, which Martinez proposes to lower, a corporation must have a net profit of at least $1,000,000. Currently, corporations whose net profit is less than $500,000 pay a corporate income tax rate of 4.8%.
Only 6% of the businesses in New Mexico even pay corporate income tax and in order to benefit from Martinez’s push to reduce the top corporate income tax rate the corporation must have a profit of at least $1,000,000 per year.
So who is really going to benefit from this reduction? Of the 6% of New Mexico based businesses that pay the corporate income tax, very few pay the full rate. The biggest beneficiaries of this reduction, it seems, will be those out-of-state corporations who helped to fund her campaigns. (This assessment is part of a larger study on the Martinez administrations's economic development policies and practices to be released soon).
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