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Many states show no clear link between tax cuts, jobs

WEST PALM BEACH — As the state's sputtering economy struggles to put nearly 1 million job seekers to work, Florida's favorable tax climate has taken center stage.

Business boosters long have boasted about Florida's lack of a personal income tax, and Gov. Rick Scott has proposed eliminating the corporate income tax as part of his promise to create 700,000 jobs.

But it's unclear whether low state taxes lead to economic prosperity. Connecticut, Illinois, Massachusetts, New York and New Jersey are among the states with both higher tax burdens than Florida and lower unemployment rates.

And such high-tax states as California, New York and Massachusetts are home to far more corporate headquarters and fast-growing startups than low-tax Florida.

During a recent trade mission to Canada, Scott met with executives of Montreal-based security company Garda, which this year decided to open a regional headquarters in Boca Raton. Scott also announced that two other Canadian companies would hire workers in Florida.

"Many companies here in Canada have expressed their desire to do business with Florida because of our excellent business climate and commitment to cut taxes and grow jobs," Scott said.

While Scott calls tax cuts a crucial part of Florida's job creation, others aren't so sure. University of Central Florida economist Sean Snaith, a registered Republican, points to a recent Tax Foundation survey that rates Florida's business tax climate as fifth-friendliest in the nation, after only South Dakota, Alaska, Wyoming and Nevada.

"There is not much room for improvement as far as the tax climate in Florida is concerned, and trying to be the cheapest date in the country is not going to bolster the number of suitors Florida has," Snaith wrote in a recent report on Florida's economy.

Despite its low taxes, Florida can boast relatively few Fortune 500 headquarters. The state has fewer than one Fortune 500 company per 1 million residents.

The national average is 1.6 Fortune 500 companies per 1 million people. Connecticut has 3.4, New York 2.9, New Jersey 2.3, Massachusetts 2.0 and California 1.4.

Many economists and economic developers say taxes play only a small role as executives decide where to add workers. Tech firm 3Cinteractive is the sort of fast-growing venture that Florida business boosters crave, but taxes weren't even discussed when the Boca Raton company decided to set up shop here five years ago, said co-founder and president Mike FitzGibbon.

"It didn't factor in," he said.

There seems to be no clear link between low state taxes and a thriving state economy. Although Florida has the fifth-best tax climate in the latest Tax Foundation survey, its 10.8 percent unemployment is well above the national average.

New York has the nation's most burdensome tax climate, according to the Tax Foundation, yet its 7.9 percent unemployment is below the national average.

Some states are experiencing both low taxes and low unemployment rates. Texas, for instance, collects no personal or corporate income tax and has an 8 percent unemployment rate.

And California offers an example of a high-tax state with a weak labor market. Joblessness there stood at 11.9 percent in April. But it wouldn't be accurate to say employers are fleeing California. The state is home to Apple, Google and dozens of other Fortune 500 companies.

Many states show no clear link between tax cuts, jobs 06/16/11 [Last modified: Thursday, June 16, 2011 10:31pm]
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