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Cyclops: Do taxes really impede business growth?
May 14, 2014 | 2293 views | 0 0 comments | 41 41 recommendations | email to a friend | print
Bryan Gray
Bryan Gray

The opinions stated in this column are solely those of the author and not of The Davis Clipper.

A common thread among Utah politicians is to equate low taxes with increased business development. 

Gov. Gary Herbert has often praises the state’s relatively low tax rates as a reason for top-performing job growth. 

Just last week, one of the nation’s largest corporations, Pfizer, attempted to purchase a European company in order to receive a lower tax rate by moving Pfizer’s “corporate headquarters” to another country.

The argument would appear to hold water.  After all, none of us enjoy paying taxes. For most of us, taxes rate right along with spoiled milk, tooth decay, rodents, and Brussels sprouts. 

It is human nature that people want goodies from government but would prefer not to pay for them. (Actually, we would prefer the “other guy” pays for them.  If my neighbor receives a tax benefit, I call it a tax loophole; if I receive a tax benefit, I call it tax reform.)

But I have to question whether business growth is directly linked to tax policy.  The company I work for moved its headquarters to Utah primarily due to the easy transportation access through Salt Lake International Airport.  I have heard of other companies relocating to Utah due to the diverse language skills of the population (thanks in part to LDS missionaries returning from foreign countries). 

A friend of mine is planning on opening another restaurant.  He never thought, “Gee, if I build another store and make another $50,000, I’ll have to pay more taxes!” 

In fact, I’ve never met any business owner who said he would put expansion on hold simply because he didn’t want to pay a larger tax bill on the expected profits.

Think about it...if someone offered you $10 and then told you $4 of that would be taken away and sent to your Uncle Sam, would you refuse the $10 bill?

Last week a study backed me up.  The Brookings Institute reported that less business start-ups have been created, a drop of about 50 percent between 1978 and 2011.  In fact, there were more business bankruptcies than there were new businesses.

One might think that more businesses would be created in low-tax states.  But that wasn’t the case.  New York, for instance, was ranked in the Tax Foundation’s 2014 Business Tax Climate Index as the country’s worst tax nightmare.  Yet, New York showed the lowest drop in new business formation in the entire country.  Conversely, the least-taxed state, Wyoming, saw one of the worst new business declines, and the libertarian Alaska showed the largest drop of all.

The analysis, according to the Brookings Institute:  There is not significant relationship with the tax burden in different states and business entrepreneurship.  According to the Washington Post, “At the very least, the findings suggest that when it comes to luring new business to a given state, there are a lot more factors at play than straightforward calculations of corporate tax rates.”

It still makes sense to me that, all things being equal, companies would locate where taxes are low. But Americans create companies and put them in play for many different reasons.

Even if North Dakota had no income tax, no property tax, and no sales tax, it couldn’t convince me to move there and brave its icy winters and rugged plains.  I bet most of you would feel the same.


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