The Benefit Principle as a Preferred Approach to Taxing Business in the Midwest

Abstract

State-local tax policies to encourage growth and development have been roundly criticized as detrimental to social welfare. In response, recent proposals have included delimiting the ability of states and localities to fashion tax policies. Not only are such proposals unworkable, but they fail to harness the creative energy and ideas of development practitioners because they act competitively to foster growth and development. The authors propose an alternative basis on which to fashion state-local taxation of business—that is, the so-called benefit principle—which aligns business taxes with costs of government services received by business entities.