Download The Truth About Taxes: They Don’t Matter Much

David Schultz
Hamline University
[email protected]
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GOP contenders think so
Public officials think so
Folk wisdom says yes
Popular press says yes
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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.
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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.
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Kieschnick, Michael, Taxes and Growth: Business Incentives
and Economic Development.
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Need to consider the relative weight of taxes
compared to other costs of doing business.
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Factors affecting business relocation
decisions
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Workforce quality and costs
Access to markets
Access to suppliers
Transportation costs
Energy costs
Taxes
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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.
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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.
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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
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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.”
United States GDP Growth
and Taxes: 1930-2010
120.0
100.0
80.0
GDP change
40.0
Highest Individual
20.0
Top Corporate
0.0
-20.0
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
1942
1939
1936
1933
-40.0
1930
Axis Title
60.0
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“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
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Top corporate tax rate and GDP r =0.32
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Top individual tax rate and GDP r =0.29
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Top corporate and individual tax rates and
GDP r =0.1
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R = -0.02
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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
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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.”
Questions and thank you