Rich States, Poor States: Tracking Nine Years of State Domestic Inversions

The trend of international corporate inversions is the most recent high-profile indicator that taxes matter for economic development and job creation, but that signal is hardly the first to do so. While the overly complicated and burdensome federal Internal Revenue Code and its excessively high tax rates have been the driving forces behind firms’ desire to seek out more competitive tax codes, federal taxation is not the only yoke weighing down the American economy. State-imposed taxes affect state economies and business development across the country as well, as demonstrated by routine stories of corporations moving from high-tax states to economically freer ones, e.g., when California lost Carl’s Jr. to Tennessee. Another example: Decades after its more competitive tax system brought General Electric over from Manhattan, Connecticut recently passed a series of historic tax increases and — as a result — lost GE to Massachusetts.

These “domestic inversions” are evidence of a state’s commercial attractiveness and commitment to providing residents with jobs. Unlike their international counterpart, however, the fiscal policies impacting corporations’ moves between states are frequently reformed. The last time the federal government comprehensively re-worked the tax code was 1986. By contrast, more than a dozen states have significantly cut taxes each of the past three years.

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