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The Truth About Taxes: They Don’t Matter Much. David Schultz Hamline University dschultz@hamline.edu. Do high taxes impede economic growth and job creation?. GOP contenders think so Public officials think so Folk wisdom says yes Popular press says yes.

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the truth about taxes they don t matter much

The Truth About Taxes: They Don’t Matter Much

David Schultz

Hamline University

dschultz@hamline.edu

do high taxes impede economic growth and job creation
Do high taxes impede economic growth and job creation?
  • GOP contenders think so
  • Public officials think so
  • Folk wisdom says yes
  • Popular press says yes
what everybody thinks is not always true
What everybody thinks is not always true
  • The Sun does not revolve around the Earth.
  • The Earth is not flat.
  • Big Foot does not exist.
  • Elvis and Marilyn are not alive…
  • And taxes have a limited impact on economic growth and job creation.
academic studies
Academic Studies
  • Hundreds of academic studies and analysis demonstrate that taxes have a limited impact on business investment decisions.
  • Two examples:
  • Wasylenko, Michael, “Taxation and Economic Development: The State of the Economic Literature,” State Tax Notes, June 23, 1997, pp. 1883-1895.
  • Kieschnick, Michael, Taxes and Growth: Business Incentives and Economic Development.
taxes are a marginal cost affecting business investment decisions
Taxes are a marginal cost affecting business investment decisions
  • Need to consider the relative weight of taxes compared to other costs of doing business.
surveys of businesses list taxes as a tertiary factor or cost affecting investment decisions
Surveys of businesses list taxes as a tertiary factor or cost affecting investment decisions
  • Factors affecting business relocation decisions
    • Workforce quality and costs
    • Access to markets
    • Access to suppliers
    • Transportation costs
    • Energy costs
    • Taxes
businesses admit taxes have minimal impact
Businesses admit taxes have minimal impact
  •  Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals.
  • National Federation of Small Businesses (NFIB) recently completed a survey asking small businesses what is the single biggest problem they face. Taxes came in third, with poor sales listed as the biggest issue.
government studies of layoffs find taxes had little impact
Government studies of layoffs find taxes had little impact
  • The Bureau of Labor Statistics compiles data on reasons for mass layoffs. In their most recently survey that covers 2010 and 2011 factors such as cancellation of a contract or order for goods, insufficient demand for products, and increased automation account for the vast majority of layoffs. High taxes do not even appear on the list as a reason.
studies on tax incentives show marginal impact high costs inefficiency
Studies on tax incentives show marginal impact/high costs/inefficiency
  • Enterprise Zones such as JOBZ
  • Taxes incentives to encourage business relocation
  • Tax incentives produce costly jobs
  • Everyone is doing it so the effects are negated
  • Jobs gained in one place mean jobs lost elsewhere
anecdotal stories
Anecdotal stories
  • If taxes are so important, then why is Minnesota doing so well and Mississippi so badly?
  • Tax cuts will not necessarily lead to higher employment
    • Chamber of Commerce quote: “I will not hire anyone until more consumers buy my products.”
statistics 101 correlations examine statistical relationships
Statistics 101: Correlations examine statistical relationships
  • “Correlation” examines a statistical connection between two items such as tax rates and economic growth
  • r= 1 perfect relation
  • r = -1 inverse relation
  • r= 0 no relation
minimal correlation between tax rtes and economic growth
Minimal correlation between tax rtes and economic growth
  • Top corporate tax rate and GDP r =0.32
  • Top individual tax rate and GDP r =0.29
  • Top corporate and individual tax rates and GDP r =0.1
taxes are a marginal cost
Taxes are a marginal cost
  • Taxes are a marginal costs compared to other expenses.
  • Taxes need to be considered along side of what they buy or purchase for a business.
    • Education
    • Infrastructure
government creates the infrastructure for the economy
Government creates the Infrastructure for the Economy

Adam Smith’s 1776 Wealth of Nations

“The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”

conclusion

Conclusion

Questions and thank you