Lower State Investment Taxes Not Associated with Strong Economies
The assertion that tax cuts promote economic growth is the zombie of the fiscal policy world: no matter how many times it’s knocked down, it always seems to come back.
The Atlantic’s Richard Florida puts the Council on State Taxation’s (COST) new Business Tax Competitiveness Index to the test and finds no correlation between the index and a host of indicators of economic growth and investment.
The problem is not necessarily with COST’s index, which does likely provide a reasonable, if imperfect, measure of state and local tax rates on new investment; the problem is that “business tax competitiveness” is not the same as “business competitiveness.”
As Florida puts it:
The bottom line is this: Lower state investment tax burdens aren’t associated with stronger state economies, and higher investment tax burdens aren’t associated with worse ones. Tax cuts may be an effective political strategy and lowering business and investment taxes may appeal to corporate interests and attract campaign contributions, but they have little relation to state economies.
When it comes to building robust, resilient and prosperous economies, more fundamental factors than taxes–like human capital, entrepreneurship, and innovation–come into play.