Another GOP myth debunked by the evidence

In his recent state of the state speech, Gov. Doug Ducey lashed out at California in his Arizona address:

duceyDucey called on lawmakers remove complicated regulations from Arizona’s laws. By doing so, he said he hopes to encourage more business growth and increase competition. He also went for prospective businesses deciding between the two states.

“I want startups in the sharing economy to know: California may not want you, but Arizona does,” he said.

This is yet another GOP myth not supported by the evidence and data.

This approach to job creation actually gets it backwards according new research. Think Progress reports, New Report Debunks Key Conservative Argument For Corporate Tax Breaks:

[H]ow much good do interstate relocations really do to the job markets of the state that wins the race to the bottom on corporate taxes?

Barely 13 percent of all net job creation in any given state in any given year comes from out-of-state businesses either relocating from one state to another or expanding into new states, research from the Center on Budget and Policy Priorities shows. Pure relocations such as the GE move [to Boston] “typically represent only 1 to 4 percent of total job creation each year, depending on the state,” economists Michael Mazerov and Michael Leachman write in the report. The overwhelming majority come from home-grown firms rather than those lured across a border.

“We’re not saying they should ignore [out-of-state firms looking to move], but there’s not a lot they can do to influence it,” Mazerov said in an interview. “They should focus on entrepreneurship and they should focus on helping their existing in-state firms to survive and grow. It’s a matter of priorities not a matter of ignoring [out-of-state companies].”

Even policies that seem like across-the-board stimulus to the business community rather than sweetheart deals with particular CEOs are often ill-suited to the startups and fast-growing young firms that actually drive state job markets, the economists note. Lowering income tax rates doesn’t do much for infant businesses that have very little taxable income in the key early years of their lifecycle.

Because of balanced budget requirements in most states, those governments are even more constrained than their federal cousins in how they allocate scarce budget resources. So when a legislature opts for giveaways to lure flashy brands to relocate or expand, they forgo other policies that would benefit the home-grown firms that generate nearly all job growth.

“There’s a lot of promising evidence about some of these new business accelerators that combine not only a physical facility for startups, but include intense mentoring and financial assistance,” Mazerov said. “Our message is, focus on the basics: Make sure you have good education systems, for instance, so when an entrepreneur starts a business in your community and needs to attract workers the local schools are good enough that people will want to come.”

Kansas, for example, has hollowed out its budget resources through broad income tax cuts that are poorly targeted to actual employers, and left itself with a gigantic underfunding crisis in its public schools. Underpowered schools don’t just deprive children of opportunity; they also undermine the very in-state startups that will create roughly six in every seven jobs gained in a given year.

[Arizona is hellbent on following the lead of Kansas.]

The evidence is even dimmer for the kinds of targeted tax deals that brought GE to Boston. Prior research indicates that nothing good comes when states twirl their budgets into elaborate yoga poses to lure a restless company away from a neighbor.

Most of those businesses “would have been happy to locate in your state anyway,” economists Alan Peters and Peter Fisher concluded in a broad 2004 study of state tax incentives to business. Instead of buying significantly improved job prospects for their taxpayers, these expenditures “simply produce an unending merry-go-round of tax cuts and subsidies whose net effect is to starve government of the resources it needs to finance the services it should be providing,” they wrote. A 2013 study from the Institute on Taxation and Economic Policy arrived at similar conclusions.

Despite these well-documented failings, states don’t even bother to keep track of how that merry-go-round functions, according to a 2012 Pew Trusts survey. The lack of credible data to support these giveaways doesn’t stop politicians from using the headline-grabbing deals for positive press without following through to find out if their decisions did any good.

 Much of the economic stagnation in Arizona and the country is due to public policies enacted in pursuit of myths that Tea-Publicans believe in but which are unsupported by the evidence and the data. It is faith based economic foolishness. People have got to stop electing these ignorant fools to office.

7 responses to “Another GOP myth debunked by the evidence

  1. Frances Perkins

    The Tax Foundation is a corporate shill, which picks and chooses data for the benefit of its corporate masters. Pew is more honest. The fairest system is always the lowest rate with the widest possible base. In Arizona we have narrowed the base to a great extent and pick and choose exemptions for every constitutent group. This lawless legislature constantly expands the list and amount of tax credits, and exemptions to income, then claims there is not enough money to fund universities, community colleges, K-12, and JTEDs. But plenty of money to increase private prison funding. I see in the Arizona 140 booklet there are over 30 tax credits, all essential, I’m sure. (With the donations, corporate and individual, for private school tuition organizations among the most obscene). Plus all the exclusions from income for all those special people and an expanded list of dependents that give more tax breaks. Even during the depths of the Grat Recession, tax credits were not frozen but expanded.

    The latest obviously Goldwater generated arguments, is the transfer from voter approved, dedicated funds to the General Fund to mask what is happening to the General Fund. Heritage and HURF, in the past, now the assault on First Thing First, with claims of too much administration and bureaucrats, the usual arguments. Both the legislature and Ducey, trying to move the chairs around in the deck of the Titanic, while saying how generous they are to public schools. The truth is different.

    • John Huppenthal

      You are correct on the sales tax, but we are very close to the highest. From an economic growth standpoint, there is not much difference between a 9% sales tax and a 9% income tax.
      Why would anyone buck? We have crime under control, the murders have dropped from 464 in 2007 to 276 in 2013 (DPS annual crime report). Child deaths from DUI and other motor accidents have dropped from 164 in 2006 to 57 in 2014 (DHS Annual Child Fatality Review Report). That is the equivalent of avoiding 4 Sandy Hooks per year.
      In the 1990s and early 2000s, RAND did a series of reports ranking Arizona schools as high as 21st nationally. No one has since duplicated the quality of these reports. However, if you look at the most recent NAEP report, you see that our African American students on free and reduced lunch tied for having the highest test scores in the nation when compared to the other states. That is a rough comparison absent a more sophisticated study like RAND that took into account a roster of variables that affect academic achievement. However, looking at the trend in test scores, it is very likely that our schools would be in the top ten were RAND to duplicate their study with the most recent data.

      For 17 years, we defeated Texas every single month in economic growth (1992 through 2008). No longer. The villain to look at, since it was most closely associated with the switch is the E-Verify legislation. That legislation represents a threat to a businessman that they could lose everything, their entire life savings. An easy mistake to make at that. And, we have already seen that happen. It remains to be seen if we will ever get back on track for results of that incredible boom time. Even now we are barely back at our 2008 peak employment of 2.8 million.

      • If we’re so damned good, why are we the first in and last out of economic hard times? Where’s all the investment in Arizona? Even the JBLC admits the massive tax breaks we’ve been giving to corporations and the wealthy is akin to using tax dollars to feed a bon fire. Republican policies are massive failures. Just look at Kansas, Wisconsin, North Carolina and Louisiana . . . it’s the direction Arizona his heading. Why do republicans like you want citizens to be under-fed, under-educated, under-paid, under-insured, unsafe, unable to vote, over populated, over armed and over paranoid?

    • John Huppenthal

      “Corporate shill” is an easy retort but his analysis is entirely too in depth and sophisticated for that retort to stick. Read his analysis and his backup references. They are solid.

  2. Although we do have a relatively high sales tax it is not the highest in the nation.
    We are actually 11th highest. I’ve lived in Arizona most of my life but this recent race to the bottom is hard to understand. I keep expecting the voters to vote these losers out of office but we never do.

  3. John Huppenthal

    http://taxfoundation.org/article/what-evidence-taxes-and-growth
    William McBride does an excellent job of summarizing the published research on the relationship between tax rates, types of taxes and economic growth both at the country level and state level.

    The economic benefits of tax reduction accrue slowly and compound relentlessly over time.

    Arizona hasn’t benefitted as much as it might have from taxes rate reduction because our cities are pigs at the trough. We have the highest sales taxes in the nation as a result.

    You are correct in your analysis of buying growth. Loser states buy growth with special tax deals for specific companies or new companies.

    You are also correct in your analysis of Kansas. Anyone who reduces taxes expecting a benefit the next year is fooling themselves. You need a long term perspective.

    The philosophy of reducing tax rates every year a little bit is the best keeping a relentless focus on operational effectiveness.

    Taxes are only one aspect of economic growth. Regulatory efficiency is critical. So is answering the phone. Transportation and crime control are also critical. Efficiency and effectiveness of the whole enterprise is the key