Accounting professor offers committee ways to boost corporate
Tuesday, September 30, 2003
JEFFERSON CITY, Mo. -- A professor who teaches prospective accountants how to use Missouri's corporate tax code to their clients' advantage now is offering state lawmakers advice on how to collect more taxes from businesses.
John McGowan, an accounting professor at St. Louis University, said Monday that Missouri's plunging corporate tax revenue reveals a problem with its tax laws that goes beyond any recent decline in corporate profits because of the economy.
"The policy-makers have a real important decision to make: Either fix the corporate income tax code or get rid of it," McGowan told members of the Joint Committee on Tax Policy, which is studying ways to revise Missouri's tax system.
Economist Ed Robb, a former professor at the University of Missouri-Columbia, has urged lawmakers to do away with the corporate tax as a way to spur economic growth. He also advocates a flat individual income tax at a higher rate than the state's current tax.
But McGowan said a better and more realistic approach to corporate taxes, especially in the short-term, is to tweak the law in order to get more taxes for the state's struggling budget.
Missouri's corporate income tax collections peaked around $370 million in 1995 but declined to around $195 million during the fiscal year that ended June 30 and are projected at $111 million during the current fiscal year, he said.
At some point, the time and expense of collecting the taxes stops being worth it.
"But I don't know that now is a good time to just jettison the balance of corporate taxes," McGowan said in an interview after his presentation to legislators.
Instead, he recommended a three-prong revision to corporate taxes.
Reduce the amount of tax credits available. As of last year, the state Department of Economic Development had authorized $356 million in tax credits through various incentive programs, according to Jim Moody, a former state budget director who also has prepared a fiscal analysis concluding the state has a "severe structural budget problem."
Separate Missouri's tax code from the federal one. As it is, federal tax changes always impact state taxes. For example, a federal tax break granting businesses an accelerated depreciation schedule automatically carries over to state taxes. Lawmakers currently can vote to severe that tax link on a case by case basis. But McGowan suggested the state should reverse that, requiring a legislative act in order for a federal tax change to be passed along to Missouri's taxes.
Eliminate some exceptions -- or loopholes -- in the corporate tax code. McGowan suggested that parent corporations be required to file combined tax returns for all of their subsidiaries, thus reducing the ability of multistate corporations to shift Missouri profits to other states where they are not taxed.
Democratic Gov. Bob Holden also has proposed to eliminate what he calls "corporate loopholes" and to separate Missouri's tax code from the federal one. But most of Holden's proposals failed this year in the Republican-led legislature.
Among the legislators responsible for shooting them down was House Tax Policy Committee chairman Rep. Shannon Cooper, who also is a member of the joint House and Senate panel that met Monday.
Cooper, R-Clinton, said many of the so-called "loopholes" are legal accounting measures used by businesses, and eliminating those possible tax breaks would result in tax increases. Cooper has refused to allow committee hearings on many of Holden's tax proposals.
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