From the Center on Budget and Policy Priorities: More Evidence That You Can’t Lure Entrepreneurs With Tax Cuts

This cuts against an argument commonly made by Texas politicians:

Cutting state taxes to attract entrepreneurs is likely futile at best and self-defeating at worst, a new survey of founders of some of the country’s fastest-growing companies suggests. The study, which is consistent with other research, should be required reading for state policymakers — especially those in Michigan, Missouri, Nebraska, Ohio, Oklahoma, South Carolina, and Wisconsin who are pushing for large income tax cuts.

The 150 executives surveyed by Endeavor Insight, a research firm that examines how entrepreneurs contribute to job creation and long-term economic growth, said a skilled workforce and high quality of life were the main reasons why they founded their companies where they did; taxes weren’t a significant factor. This suggests that states that cut taxes and then address the revenue loss by letting their schools, parks, roads, and public safety deteriorate will become less attractive to the kinds of people who found high-growth companies. (Hat tip to urbanologist Richard Florida for calling attention to the study.)

. . . The new survey provides further evidence for these arguments. It found that:

- “The most common reason cited by entrepreneurs for launching their business in a given city was that it was where they lived at the time. The entrepreneurs who cited this reason usually mentioned their personal connections to their city or specific quality of life factors, such as access to nature or local cultural attractions.”

- “31% of founders cited access to talent as a factor in their decision on where to launch their company. . . . A number of founders also highlighted the link between the ability to attract talented employees and a city’s quality of life.”

- “Only 5% of entrepreneurs cited low tax rates as a factor in deciding where to launch their company” and only 2% mentioned “business-friendly regulations” and other government policies. The report’s authors concluded, “We believe that the lack of discussion of these factors indicates that marginal differences in these areas at the state or municipal level have little influence on great entrepreneurs’ decision-making processes.”

Kansas, North Carolina, and Ohio have cut personal income taxes significantly in the last two years, and in each case the governor argued that it would give a big boost to creating or attracting new firms. This new study provides more compelling evidence that that’s the wrong approach. Let’s hope other states don’t start down the same dead-end path.

From the NYT: How Is the Payroll Tax Cut Doing?

An NYT columnist argues that the payroll tax cut - which was extended earlier this semester - is having a positive impact on the economy, but this impact is likely to be reversed once the tax cut expires:

My calculations last year, based on the proposed cut of 3.1 percentage points, suggested that the payroll tax cut “could raise employment by at least a million, albeit the duration of job creation is related to how long the tax cut lasts.”

Do tax cuts pay for themselves?

From a link in the previous story, the answer is no.

From the Washington Post: Just how effective is the payroll tax cut?

Here's an overview of the debate regarding whether payroll tax cuts have an impact on jobs and the ecoonomy.

The Economist is Confused by Conflicting Stances Taken Towards the Deficit

Story here:

I'M HAVING trouble writing about the GOP effort to reach a compromise over whether to cut $100 billion out of the 2011 budget, or just $50-60 billion. My problem is that I can't really write about the advantages or disadvantages of one or another version of the cuts when the entire enterprise appears completely senseless to me. The notion, apparently, is that continuing unemployment and slow growth in America are caused by the federal budget deficit. So shrinking the deficit by $50-60 billion will presumably lead to faster economic growth and renewed hiring. Yet exactly one month ago, these same Republican leaders eagerly agreed to a tax-cut package that raised the federal deficit for 2011 by over $400 billion. Even if there were a plausible argument that unemployment and lethargic growth today stem from the current budget deficit, any impact congressional leaders hope to see from their spending cuts will add up to no more than noise around the edges of their tax cuts.