Friday, July 1, 2011

Taxes Don't Cause Job Losses

In response to a recent "study" about taxes and jobs in Colorado, I composed the following piece of commentary, which was featured today in the Denver Post.

Let’s be clear: taxes have one purpose – funding government responsibilities. Period. Taxes aren’t meant to manipulate the economy or employment, and don’t reliably impact either. Thus, Colorado voters shouldn’t try predicting potential job gains/losses from the small, temporary sales and income tax increase proposed by Senator Rollie Heath. Despite warnings from some conservative groups, tax rates don’t influence job choices or migration for average Americans.

When I relocated my family to Colorado from Illinois, the primary reasons were lifestyle – outdoor living, great schools, and cultural experiences. So, while statistics indicate we moved from a high-tax to a low-tax state, taxes had nothing to do with our decision. In fact, as I consider the migrations of many former Illinois residents I know in Colorado, the reasons were education, employment, and lifestyle. Taxes were never a factor.

Recently, the Common Sense Policy Roundtable, a local think tank, published a study warning of job losses in Colorado if Senator Heath’s proposal succeeds. However, the conclusions are hardly definitive. Voters should remember that correlation doesn’t equal causation, and the CSPR study proved no causation between tax increases and job losses. Illinois passed a 66% income tax increase last year, yet its unemployment figures are comparable to Colorado’s. Florida and Nevada, with no state income tax, are in worse shape. Additionally, studies confirm that infrastructure and education spending are far more significant in business location than tax rates. Thus, Colorado could see more growth by sustaining its infrastructure and schools than by cutting funding.

In a desire to connect low taxes and economic growth, many conservative pundits praise low-tax Texas for leading the nation in job growth. Actually, it leads the nation in minimum-wage jobs with no benefits, as well as the percentage of children without health insurance. Texas has one of the worst education records, its unemployment numbers are rising, and it’s facing a $20 billion deficit. Even when jobs and population grow, a myriad of factors are involved. Texas, for example, has lower property values and cost of living, and much of its growth is linked to oil reserves.

Economic systems are far more complex than any single tax rate, and voters are na├»ve to think otherwise. The Bush tax cuts produced a “jobless” recovery and no net job growth after a decade. By contrast, Clinton’s tax hike coincided with America’s greatest economic expansion. Neither situation resulted from tax policy. The 1980s saw two tax cuts and six tax increases. Yet, drops in inflation, interest rates, and oil prices predominantly influenced the decade’s growth. And the Reagan Era also saw a Wall Street meltdown, a housing bubble, a major banking scandal, and a subsequent recession. Clearly, tax policy was not the primary factor of these events.

Voters should make tax policy decisions based on one priority – the needs of the community. Colorado’s strained state budget resulted from revenue drops – not out-of-control spending. In fact, in the last gubernatorial election, Republican candidates couldn’t identify any specific cuts to the Colorado budget, despite repeated media requests. In reality, Colorado’s modest government requires more revenue to meet its communities’ needs. In this regard, Senator Heath’s minor tax increase is actually quite pragmatic precisely because it expires, allowing time for economic recovery. By maintaining well-funded schools, Colorado can continue to promote itself as a great place to relocate businesses and families.

Despite the wishes of conservative groups, government cannot cease functioning when the economy struggles. Regardless of Wall Street drops or rising unemployment, children still go to school, crimes still occur, roads still wear down. Natural forces don’t wait for good economic times, and nature doesn’t limit snowfall based on budget projections. So, even in a downturn the forest department might need more funds for firefighting or CDOT might need more funds for plowing and repairs. In fact, when the economy tanks, the government often needs to sustain spending until the private sector rebounds.

Despite the ideology of groups like the CSPR, tax policy doesn’t drive the economy. And in reviewing predictions about job growth from the economist commissioned by the CSPR, voters should recall the tongue-in-cheek wisdom of Nobel-prize winning economist Paul Samuelson – “Economists have successfully predicted nine of the last five recessions.”

The ideological debate about taxes and economic growth is not going to end - I'm just seeking to promote reasoned and well-informed discussion.

6 comments:

Happy Elf Mom said...

I agree that a small tax here or there wouldn't influence something as large as a move BUT that only goes so far. People still consider the effects of taxes when they make purchases.

I have to admit to shopping on websites that don't charge sales taxes - especially those that offer free shipping if you spend at least x amount - it's cheaper to buy from across the country than from your neighbour. And it's delivered. And I find the colour and size or what-have-you of the item I want without having to hop from store to store to find stuff out of stock.

One person shopping with taxes in mind on a large purchase won't affect much but having many people consider this can in fact have an impact on jobs.

BTW I do not smoke (!!) but several family members in other states do and they make "runs" to buy their cigarettes in New Hampshire and then drive back into their state. So if you tax people *too* much, they will either create a black market or otherwise thwart the tax man. Unfortunately, high taxes don't seem to make people QUIT. :)

But in terms of real estate and relocation? Tax rates/property taxes, etc. wouldn't be the only factor in a decision to relocate but it WOULD be considered. Relocation/ moving/ realtor's fees would have to be offset by something really great in the new place to make me move... so "high taxes" might just damper that. The fact that a teeny house near Boston goes for half a million bucks would put out the idea completely, though.

mazenko said...

And the tax I am writing about is a 0.5% income tax and a 0.1% sales tax that expire after two years.

Thus, you can understand my criticism.

MikeAT said...

Ur link is broken.....hyperlink that is

Happy Elf Mom said...

mazenko, taxes almost NEVER really expire. Usually I find they wind up on the ballot as "no tax increase" bonds or whatever. But yeah, half a percent income tax mightn't make or break it.

BUT my husband works in Kansas City and we're giving up two percent gross. My husband needs a job, and right now, I need not to live in the 'hood... so... we're paying double taxes, really.

mazenko said...

This tax is written to expire - and all taxes in Colorado must be voter approved by referenda. The tax is being put on the ballot, and if it passes, it could not be extended without being put on the ballot again. Thus, I'm pretty certain it would expire unless the voters didn't want it to. It can't be transferred to another bond or any other fee.

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