The Evolution and Impacts of the State Corporate Tax Structure: 2011-2020

RESEARCH REPORT: September 8, 2021
BY: Junjie Guo, Noah Williams, Zhuoer Ren, and Qi Yang

We study how the state corporate tax rate and 15 measures of the state corporate tax base have been evolving since 1980, with a particular focus on changes in the last decade. We find the average corporate tax rate across the 50 states declined from 6.7 percent in 2010 to 6.1 percent in 2020, the lowest value observed in our data covering 1980-2020. The last decade also saw a significant number of changes in the tax base, including a drop in the number of states with a franchise tax from 28 to 13, and an increase in the average R&D tax credit rate from 5.7 to 7.5 percent. Overall, the state corporate tax base has become narrower over time, reducing the state corporate tax revenue as a share of state GDP (the revenue-to-GDP ratio). Together, the changes have increased the explanatory power of the state corporate tax structure, especially the tax rate, in accounting for the variation of the revenue-to-GDP ratio across states and over time. However, the narrower tax base also reduced the marginal effect of the state corporate tax rate on the revenue-to-GDP ratio.

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Fig 1: Cross-State Distributions of the Corporate Tax Rate and the Revenue-to-GDP Ratio in Every Ten Years From 1980 to 2020
Fig 7: Event analysis: Impacts on state corporate tax revenue and GDP of changes in state corporate tax rates exceeding 0.5 percentage points in absolute value