Monday, January 11, 2010

US state candidates seeking to eliminate corporation taxes

The U.S. states of South Dakota, Nevada, Wyoming and Texas don't have a corporation tax, and two of the four Republicans running for governor in cash-strapped Iowa say they want to eliminate the tax there too, according a recent report on radio Iowa.

"Iowa could position itself in a very favorable way to attract business to relocate to the state," one of the candidates breathlessly announced.

Citizens for Tax Justice in Washington say in a new report that two other states - Florida and Idaho - are thinking about cutting corporate taxes. And CTJ adds what TJN officials know, from their own experiences in business, that:

"any business person will tell you that he or she wants to hire workers whenever there is demand for their products. . . . there is ample evidence that corporate taxes aren't a major factor in business location decisions because those decisions are affected by numerous other factors. For instance, Tropicana will not try growing oranges in Alaska just because Alaska offers a tax break."

This is a good time to remind ourselves of another in-depth research report from the Washington-based Economic Policy Institute, which looks at the hard evidence and numbers to see how effective tax breaks are for creating jobs and growth. As the report's executive summary notes, they reviewed "hundreds of survey, econometric, and representative firm studies" and found that

"An analysis of the relevant research literature, however, finds little grounds to support tax cuts and incentives—especially when they occur at the expense of public investment—as the best means to expand employment and spur growth."

We don't take a position on whether taxes should be high or low -we merely seek to explain that the tax-cuts-at-all-costs-and-for-any-eventuality mentality that has come to prevail in the world is based on ideology, not evidence. As the report continues:

"there is little evidence that state and local tax cuts—when paid for by reducing public services—stimulate economic activity or create jobs. There is evidence, however, that increases in taxes, when used to expand the quantity and quality of public services, can promote economic development and employment growth."
. . .
Even with optimistic assumptions, for each private-sector job created by state and local tax cuts, governments may lose between $39,000 and $78,000 or more in tax revenue annually. This substantial revenue loss forces governments to lay off public employees in numbers that probably exceed the number of jobs created in the private sector. The net effect of tax cuts is thus likely to be a loss of employment.

In a related issue, see this October 2009 paper about the effect that tax incentives for the film industry have failed to achieve their goals, arguing that:

"the dozens of film incentives offered in the U.S. are ridiculously generous and fiscally irresponsible in many cases. The classic race to the bottom situation is playing out in spectacular fashion. . . . The current use of production incentives is creating a public policy disaster that trumps the underlying reason for their creation, a means to fight runaway production."

Just sayin'. (And as another reminder, you can find items like this, and many more on a wide range of topics, archived on our A-Z page here.)


Blogger Physiocrat said...

The trouble is that world-wide, countries impose the wrong sort of taxes, which created perverse incentives and inhibit wealth creation. This has brought taxation generally into disrepute.

If taxes were levied on non-wealth-creation, and fell instead on the rental value of land, the community's natural source of revenue, the case against them would be much harder to make.

3:29 pm  

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