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Tax Cuts vs Investment: Economic Experiments in the Heartland

Talking Points Memo has some good coverage of the cagematch between Missouri Governor Jay Nixon and Texas Governor Rick Perry that centers on the relationship between tax rates and jobs. TPM raises a point that is significant in view of the upcoming veto session, where at least some state GOP lawmakers will vote to override the Governor's veto of the disastrous HB253. The bill would take a tiny nibble out of the income taxes of most middle-income earners and a great big giant bite out of already very low corporate income taxes:

Tax rates, like what Perry and Scott have been flaunting, are oftentimes the favored incentive for governors hoping to lure new business from elsewhere. Actually, Muro said, there is little research to suggest that a business actually sees larger profits or more job creation from moving to a state with a lower tax rate.

"That one's a particularly fatuous offering because many relocation studies notice that taxes often aren't a huge part of the operating budget so that that is often the peripheral consideration," Muro said.

Muro pointed to a study he did with Kenan Fikri, also of Brookings, which found that states are better off trying to foster homegrown businesses rather than through bringing in business from other states.

"The best way to create more jobs in a state is to grow them at home, rather than poach them from elsewhere," the report said. "Some 95 percent of all job gains in a year in an average state come from the expansion of existing businesses or the birth of new establishments."

The article notes that Texas has had its credit rating downgraded under Perry's leadership. Kansas has also seen its creditworthiness downgraded since it started the process of eliminating income taxes — a somewhat cloudy effort it should be noted, since in order to avert total disaster, Governor Brownbeck is trying to come up with more indirect revenue raising schemes, including higher sales taxes.

What is clear about the Kansas experiment, though, is that whether or not there is eventual growth it will be hard times for many years:

What these changes will mean for the Kansas economy over the long-term is a matter of intense debate. A study by the state Department of Revenue predicted 23,000 new jobs for the state by 2020, above and beyond the job growth Kansas otherwise would have experienced. Others are skeptical. A forecast from the Kansas Legislative Research Department, which didn't account for any economic benefits from the tax cuts, said that they will result in a series of shortfalls that add up to $2.5 billion through fiscal year 2018.

As for job growth, if it ever happens in Kansas, expect to see low-wage jobs and sweat-shop conditions since wrecking unions seems to be a related goal of the tax-cutters. Bad schools, a poorly educated, poorly paid population with no public services to alleviate their situation, after all, equals a corporate paradise for select types of industry. As for forward-looking, entrepreneurial businesses offering good salaries, expect to see them thriving in more enlightened parts of the country.

The current employment situation in Texas tends to support this thesis:

As Gov. Rick Perry continues to tout Texas' low-tax, low-regulation business climate as the secret to the state's relative economic strength, critics have pointed to Texas' [high] unemployment rate and low-wage jobs, noting that Texas ties Mississippi for the highest percentage of minimum wage workers.

While the loose regulatory environment which has permitted many environmentally dangerous practices in the energy sector have probably contributed to growth of Texas' biggest engine of new jobs, energy extraction, even supporters of the Texas low-tax climate have to admit that as far as the energy industry goes:

... the governor cannot take credit for recent discoveries of shale formations, the price of oil or "many other factors that have provided Texas with a competitive advantage in recent years."

I have to admit that I am beginning to think that all the talk about growth is a smokescreen and that the point of this tax-cutting is precisely the social service cuts that everybody pretends to deplore. Jobs...who cares? If job creation were to pick up in Kansas while the same folks hold the reins of the state government, you shouldn't expect to see the money going to education, which has been cut way past the bone, or to provide other services. The tax cutting experimenters, after all, are usually the ideologues who oppose the very idea of public education, call for privately-owned toll roads, and privatization of almost all government functions. I suspect that these folks are getting just what they want — and that many of their compères in Missouri, the ones that are capable of figuring out how to open a paper bag unaided, that is, actually want the same thing.

If none of this sounds too appealing, perhaps you should let your state legislators know that you won't be too happy if they vote to override HB253, Senators can be found here and representatives here.

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