BHI Finds that Closing Corporate Tax Loopholes Hurts Investment, but Jobs are Safe

BHI Finds that Closing Corporate Tax Loopholes Hurts Investment, but Jobs are Safe

(BOSTON) – An economic analysis by The Beacon Hill Institute at Suffolk University finds that Governor Mitt Romney’s recently revised plan to close corporate tax loopholes will recoup millions of dollars of investment and disposable income that would have been lost under his original plan. However, due to the negative economic effects resulting from closing the loopholes, significantly less tax revenue will be generated than state and local officials expect. The most surprising result indicates neither of the plans filed by the Governor would significantly impact employment levels in the Commonwealth.
BHI bases its findings on its State Tax Analysis Modeling Program (STAMP). BHI finds that, under the original plan filed in January, the state would experience the following by FY 2008:

o an investment loss of $510 million
o a drop in disposable income of $68 million
o an increase in tax revenue of $105 million, $58 million less than state officials projected

By comparison, the new tax loophole plan, filed in March, would cause:

o a drop in investment of $119 million, a difference of $391 million
o a loss in disposable income of $30 million, a $38 million difference
o an increase in tax revenue of $63 million, $22 million less than official projections

In commenting on BHI’s findings, John Barrett, Director of Research of the Institute, said that "State officials need to be aware that closing corporate tax loopholes is not without consequences." Said Barrett: "Closing the loopholes lowers the return on capital, which leads to drops in investment and disposable income.”

In January 2005, Governor Mitt Romney and the legislature proposed a series of measures to close corporate tax loopholes that would raise an additional $170 million in revenue, marking the third consecutive year that the Governor and the legislature proposed legislation to close corporate tax loopholes.

However, the Governor’s third trip to the “loophole well” proved too much for local business leaders. Their outcry prompted the Governor to file House Bill 2606 in March, a modified proposal that closes fewer loopholes than the earlier proposal.

“To believe that businesses do not consider state tax levels when making investment decisions is naïve at best. While jobs are not at risk, the Massachusetts economy does not go unharmed by closing these loopholes,” said Barrett.

The Beacon Hill Institute provides policy analysis through its State Tax Analysis Modeling Program (STAMP). Information about STAMP and a copy of the Institute’s FactSheet study may be obtained at www.beaconhill.org or by calling BHI at 617-573-8750.