Company A makes $1 million in profit. Let's have a 35% tax rate plus, say, an 8% state tax rate, that means that in Year 1 Company A is paying $420,000 in taxes (42%).

If in Year 2 it makes $1 million in profit but subtracts the $80,000 in state taxes from the previous year, that means its net profit is $920,000, on which it will still pay 42% or $386,400, but on the slightly smaller amount. However, this is still $36,400 more than if it had not paid the state taxes. On average, the deduction has only halved the effective state tax rate.

Also, because that benefit is for the PREVIOUS year's state tax, rather than the CURRENT year's state tax, it can lead to fluctuations. For example, let's say that Year 2 profit was $0. The state tax deduction is only good to the extent the corporation can roll it forward. If it has several bad years in a row, chances are it won't be able to, so it will pay the full 8% extra for its boom year.

Also, your statement



shows how little you know about how business is actually conducted. US companies are forced to incorporate domestic entities in most jurisdictions or have a "branch office", which is usually taxed the same way and has the same legal effect. Where an entity is incorporated is irrelevant, because the ability to nationalize a company also depends on the nationalizing government's ability to extend its fiat beyond its borders.