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GOP contenders think so Public officials think so Folk wisdom says yes Popular press says yes
Do high taxes impede economic growth and job creation?
The Sun does not revolve around the Earth. The Earth is not flat. Big Foot does not exist. Elvis and Marilyn are not alive…
And taxes have a limited impact on economic growth and job creation.
What everybody thinks is not always true
Hundreds of academic studies and analysis demonstrate that taxes have a limited impact on business investment decisions.
Two examples: Wasylenko, Michael, “Taxation and Economic Development:
The State of the Economic Literature,” State Tax Notes, June 23, 1997, pp. 1883-1895.
Kieschnick, Michael, Taxes and Growth: Business Incentives and Economic Development.
Academic Studies
Need to consider the relative weight of taxes compared to other costs of doing business.
Taxes are a marginal cost affecting business investment decisions
Factors affecting business relocation decisions◦ Workforce quality and costs◦ Access to markets◦ Access to suppliers◦ Transportation costs◦ Energy costs◦ Taxes
Surveys of businesses list taxes as a tertiary factor or cost affecting investment decisions
Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals.
National Federation of Small Businesses (NFIB) recently completed a survey asking small businesses what is the single biggest problem they face. Taxes came in third, with poor sales listed as the biggest issue.
Businesses admit taxes have minimal impact
The Bureau of Labor Statistics compiles data on reasons for mass layoffs. In their most recently survey that covers 2010 and 2011 factors such as cancellation of a contract or order for goods, insufficient demand for products, and increased automation account for the vast majority of layoffs. High taxes do not even appear on the list as a reason.
Government studies of layoffs find taxes had little impact
Enterprise Zones such as JOBZ Taxes incentives to encourage business
relocation Tax incentives produce costly jobs Everyone is doing it so the effects are
negated Jobs gained in one place mean jobs lost
elsewhere
Studies on tax incentives show marginal impact/high costs/inefficiency
If taxes are so important, then why is Minnesota doing so well and Mississippi so badly?
Tax cuts will not necessarily lead to higher employment◦ Chamber of Commerce quote: “I will not hire
anyone until more consumers buy my products.”
Anecdotal stories
Historical Evidence: No statistical correlation between tax rates and economic growth
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
United States GDP Growth and Taxes: 1930-2010
GDP changeHighest IndividualTop Corporate
Axis Title
“Correlation” examines a statistical connection between two items such as tax rates and economic growth
r= 1 perfect relation r = -1 inverse relation r= 0 no relation
Statistics 101: Correlations examine statistical relationships
Top corporate tax rate and GDP r =0.32
Top individual tax rate and GDP r =0.29
Top corporate and individual tax rates and GDP r =0.1
Minimal correlation between tax rtes and economic growth
R = -0.02
No statistical connection between taxes and unemployment rates
Taxes are a marginal costs compared to other expenses.
Taxes need to be considered along side of what they buy or purchase for a business.◦ Education◦ Infrastructure
Taxes are a marginal cost
Government creates the Infrastructure for the Economy Adam Smith’s 1776
Wealth of Nations◦ “The third and last duty of the
sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”
ConclusionQuestions and thank you
