Gov. Rick Perry, Republican of the Lone Star State, has started to run ads outside of Texas to lure away businesses from their home states.
“When you grow tired of Maryland taxes squeezing every dime out of your business, think Texas,” Perry said in the ad. Texas has a small tax on businesses, but does not collect personal income tax.
“For we have created more jobs than all other state governments combined. Where you’ll find limited government, low taxes, and a fair legal system…” continues the ad. Perry’s ads have also run in California, Illinois, Missouri and New York.
The move offers a display of all the malpractice of state economic development.
First, there is little to no evidence that businesses transfer over to states with lower taxes. Or that a businessman in New York, which has a corporate income tax rate of 7.1 percent, will move him and his family to Utah to incorporate under their corporate income tax rate of 5 percent.
Businesses consider a number of factors when they look for new areas to develop. Location relative to necessary resources and markets, labor cost and the skill level of the local workforce are all factors that enter into a company’s considerations.
Low taxes matter very little when your state cannot adequately fund education. In February, a state court ruled that the funding levels for education in Texas were so inadequate that they were unconstitutional.
The state constitution says “it shall be duty of the legislature of the state to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.”
Gov. Martin O’Malley, a Maryland Democrat, responded to Perry in an opinion piece that ran in the Washington Post. “The contrast is clear: Should we slash taxes on the wealthiest Americans – crippling our ability to invest in schools, job training, infrastructure and health care – because we believe that even lower taxes for our wealthiest will magically lead to jobs and robust economic growth?”
“Or should we make tough choices together that provide the resources to invest in schools, bolster growing industries and create quality middle-class jobs?”
O’Malley continues to make the point that while Perry has implemented his ideas, “cutting taxes and slashing funding for critical middle-class priorities such as public schools,” the result has been fewer college graduates and employment that pay low wages.
Much of the economic development heralded by state leaders, Democratic and Republican, has not actually been much to cheer for.
They’ve stolen jobs away from other states, not overseas competitors or sponsored any local economic development. Would anyone have voted for Snyder had he said his plan for job creation was to steal opportunities away from Ohio?
Part of the reason states have been able to do this is not because they truly offer a better business climate, but rather they’ve been able to offer companies a money pot filled with tax subsidies, exemptions from sales tax, and low interest loans.
In the “United States of Subsidies,” a series by The New York Times, writer Louise Story tells the tale of two states and their attempt to enchant businesses like Applebee’s and American Movie Classics Entertainment.
Kansas and Missouri both tried to make themselves home to AMC’s headquarters. In 2011, Kansas offered AMC tax subsidies to move from Missouri, which it did. Afterwards, Kansas announced it would cut how much it put towards education.
In retaliation almost, Missouri offered business incentives to Applebee’s and lured them out of Kansas a few months later.
There is no winner in this race to the bottom.
