I was reading through this infographic/cartoon over at The Big Picture and started thinking about the race to the bottom we see with state tax laws. Here in Washington, of course, we’ve done our share of corporate shoe-shining to keep certain large companies in town (which employ a lot of people, to our state’s benefit), but obviously taxes for incorporating in a state are another matter. If I incorporate my billion dollar LLC in Delaware to take advantage of the cheap taxes, but I don’t actually locate my physical business there (maybe there’s isn’t enough room in Delaware for a large warehouse, e.g.), then Delaware isn’t trading tax revenue for jobs, it’s trading no tax revenue for some tax revenue, at the expense of another state.
It’s always bothered me that companies can simply open a Mailboxes Etc. account in Wilmington and suddenly reap all sorts of tax benefits, and I can’t understand why other states let them do it. Fred Clark had an interesting observation the other day, that we know Wal-Mart doesn’t pay $12/hour because if they did they’d be fighting for the minimum wage to be set higher. After all, if your competitors are paying less than you, then you can hurt them by setting the pay floor right at your company’s level. So why not apply this to the states?
Maybe every state out there (other than the obvious tax havens) should get together and pass an Amendment to set a corporate treatment floor. Maybe have a new inter-state body (doesn’t have to be federal, because I don’t want to get into that analysis) that sets things like minimum effective tax rates, incorporation restrictions, etc. Allow states to be treated fairly by their own citizen-companies instead of begging for any scrap that they’re willing to part with.