Question

Most states use a corporate income tax, which makes corporations pay income tax just as individuals do. Some states keep their corporate income tax rates lower than other states to attract many businesses. If this strategy works, how might lowering corporate income tax impact state revenue? Corporate income tax would become a small source of revenue. The state would have to collect more income tax from individuals. Attracting more businesses might raise corporate tax revenue. Lowering corporate taxes reduces city revenue and services.

Answer 1

"Attracting more businesses might raise corporate tax revenue" is correct. This is an issue of price vs. quantity. If the state lowers the tax rate on business, this will attract more business, and hopefully the net gain by the state will increase.