Don't overpromise benefits of corporate tax cut

Two candidates for governor, the Independence Party's Tom Horner and Republican Tom Emmer, are in alignment with this newspaper's view that Minnesota's corporate income tax rate should be reduced -- though not necessarily for the same reasons. This page has argued against high business taxes in large part because they're borne disproportionately and often unwittingly by low- and middle-class people, through higher prices and lower wages. They also put the state at a disadvantage in the increasingy global competition for business investment.

Horner and Emmer claim that reducing business taxes will stimulate the economy and encourage job growth. Emmer has suggested that increased personal income tax collections from the new jobs that lower corporate taxes would generate could repay the $1.4 billion IOU the state is giving school districts -- as soon as 2014.

That may be too optimistic, a new study by the Center on Budget and Policy Priorities suggests. The Washington-based progressive think tank notes that because states must balance their budgets, the benefits of a corporate tax cut cannot be considered in isolation from its costs, in terms of either higher taxes or reduced spending elsewhere on state balance sheets. In fact, because many corporations would likely spend some portion of a Minnesota tax cut in other states, while offsetting spending cuts and/or tax increases would all be felt within Minnesota, the short-term impact of cutting the state's corporate tax could be reduced economic activity.

The study also finds limited long-term benefit from corporate tax cuts. It cites two state economic models that found that additional economic activity in time would recoup only 16 percent of the initial revenue loss. That's not counting the potential long-term downside of offsetting cuts in education, public safety or other government services that promote business growth.