The assumption here - one that seems to be universally accepted - is that tax policy is enough to drive business away from one state or locality to another. And that any losses in revenue will be more than made up by increased business activity.
Where is the evidence that this is so? Because it seems like everyone in charge of a statehouse these days believes it:
It should come as no surprise that Republican governors are ruling out tax hikes. According to a Stateline tally, at least 11 new Republican governors - and one Democrat, Andrew Cuomo of New York - made campaign pledges not to raise taxes. Several other governors of both parties have announced no-tax-hike intentions in state of the state speeches delivered to lawmakers in recent weeks.
OK, it's their "conviction," but where's the actual evidence?More surprising is that GOP governors in Florida, Iowa, Michigan and elsewhere want to go a step further. In what is widely considered the worst year yet of states' four-year budget crisis, these governors are promising big tax cuts for businesses and, in some cases, individuals. The proposals reflect their conviction that one of the best ways to spur business growth and job creation is to reduce taxes for those who do the hiring.
One of my favorite books - and by that, I mean a book that makes my blood pressure skyrocket - is David Cay Johnston's Free Lunch. It chronicles, in nauseating detail, the political class's fealty to the premise that all business tax cuts results in economic benefits.
But the evidence is virtually nonexistent:
According to the Center on Budget Policy and Priorities, a Washington, D.C., think tank that is critical of broad tax-cut plans, only Ohio has done what Scott is proposing to do in Florida - completely phase out its corporate income tax. That makes Ohio a prime test case for other states seeking to cut or abolish business taxes in the hopes of spurring growth.
Michael Mazerov, a CBPP economist, found in a September study that "despite a more than $1 billion annual reduction in business taxes, Ohio's shares of national income, employment and investment have all fallen slightly since 2005," when the phaseout of the state's corporate income tax began.
At least they're honest about it, like David Stockman and Bruce Bartett owned up about Reagan's tax cuts not paying for themselves. You'd think there would be something to learn from that history - apparently not.Ohio tax officials concede that the plan has not produced a windfall of new business activity. But they are quick to point out that they never expected one, predicting beforehand that eliminating the corporate income tax would amount to a net loss in revenue for the state, at least in the short term.
Seriously - where's the evidence? On what basis are we to believe all these business tax cuts will pay for themselves many times over; so much so that teachers should cut their pay by up to 30% to pay for them?
Maybe my good friends at the Tax Foundation would care to weigh on on this?
Tax Foundation! Tax Foundation! Tax Foundation! Tax Foundation! Tax Foundation! Tax Foundation!
Let's see if they come running...