Commentary

Powerful new report: State tax cuts aren’t what produces job growth

The wonks at the Center on Budget and Policy Priorities are out with a new report that, once again, derides the central premise  of the “economic development” strategy being pursued by Governor Pat McCrory and the General Assembly.

Here’s the opening to “State Job Creation Strategies Often Off Base”:

To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ? not on cutting taxes and trying to lure businesses from other states.  That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:

  • The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year, depending on the state.  Jobs created by out-of-state businesses expanding into a state through the opening of new branches represent less than one-sixth of total job creation.  In other words, “home-grown” jobs contribute more than 80 percent of total job creation in every state.
  • During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs.  During the Internet-driven boom of the late 1990s and early 2000s, for example, startup firms (those less than one year old) and high-growth firms — which are likely to be young — accounted for about 70 percent of all new jobs in the U.S. economy.  Firms older than one year actually lost jobs on average; any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.  In short, startups and young, fast-growing firms are the fundamental drivers of job creation when the U.S. economy is performing well.

State economic development policies that ignore these fundamental realities about job creation are bound to fail.  A good example is the deep income tax cuts many states have enacted or are proposing.  Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income.  And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require.  Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

If only our state policymakers would pay attention and abandon their archaic and failed , tax cuts uber alles approach to the economy, North Carolina might really be making some hay. Unfortunately, that clearly is not the case.

Click here to read the entire report.

2 Comments


  1. Scott

    February 3, 2016 at 12:01 pm

    …but that would require them to give up their big campaign (slush fund) donations.

  2. Laurie

    February 4, 2016 at 10:14 am

    Amen.

    Any good investment strategy requires diversification. With over 59% of NC economy being classified as Small Business entities, why this simple fact escapes some baffles me.

    TPP modeling says 50K jobs will be lost each year till 2030. 2030 is when they think education and training priorities will change for emerging US markets. NC already knows the results of these Trade Agreements, should have already made these adjustments.

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