In a recent column in the Tampa Bay Times, Tom Feeney, president and CEO of Associated Industries of Florida, paints a bit of a grim picture for the state if President Joe Biden’s tax increase proposals pass.
He states that higher taxes for small business owners who pay through their individual return, and increases in corporate taxes, will hurt Florida’s manufacturers, making it harder for them to sustain their operations, let alone grow their businesses and create jobs.
So, if what Feeney is stating is true, then that same logic would imply that Florida’s businesses were unable to grow and hire workers during the post-recession tenure of President Barack Obama when taxes were higher. Was Florida’s economy in the tank pre-2017? Let’s see.
The graph shows that Florida’s real GDP grew at a healthy clip during President Obama’s second term, peaking at an unsustainable 5.8 percent in 2015. The first two years of Trump’s presidency show a slight increase in Florida’s GDP growth rate followed by a small decline in 2019. A reminder: A lot of Florida’s economic growth is caused by population increase.
Methinks Mr. Feeney doth protest too much. An article that I wrote for the Times showed that there was more job creation in the United States during Obama’s final three years when taxes were higher than during Trump’s first three years.
Feeney states that in the two years after the tax reforms were enacted — before the pandemic hit — Florida added more than 400,000 jobs, experienced historically low unemployment, and held a private-sector job growth rate that significantly out-performed the nation’s rate.
But did a lot of that job growth occur because of the migration of retirees and others to Florida? The country is aging. About 10,000 citizens are reaching the age of 60 every day, and quite a few of them are moving to Florida. So are young workers who are needed to provide services to the senior population. Additionally, much of that job growth would have occurred regardless because as the economy grows, so do jobs.
To determine the untainted effect of tax cuts on economic performance, you would need an equal decrease in government spending, so that the fiscal deficit remains the same. Not so with Trump’s tax cuts, which were not accompanied by spending cuts. In fact, government spending increased, which coupled with tax cuts, increased the federal deficit by 45 percent over that two-year period. Quite ordinary performance once you factor in the significant deficit increase.
Feeney goes on to state that the tax policy changes would be disastrous across the board. The National Association of Manufacturers (NAM) released a study that finds the United States would see a decline of one million jobs within two years, averaging losses of 600,000 jobs each year to follow. There would be long-term declines in wage growth, investment and overall economic activity, amounting to a loss of $117 billion in GDP over the first two years.
Well, an analysis performed by an independent source would have more credibility than the National Association of Manufacturers, which has an ax to grind. Often, studies performed by trade groups have a fair amount of embellishment built into their numbers.
Surprisingly missing from his article is the number of new jobs that will be created by Biden’s infrastructure and other spending proposals. Biden claims that his plan will create 19 million new jobs nationwide. I am sure that a lot of embellishment is built into this forecast, too. But you get the point. The analysis is sorely lacking if it mentions job losses without including the job gains.
My two cents’ worth: Taxes do impede growth, but the question is by how much? Economic growth was robust in most years between 1950 and 1980, when tax rates were sky high. It is doubtful that the proposed increase in taxes will hurt Florida, especially when you factor in the spending increases. For instance, building a high-speed rail line between Tampa and Orlando will add to GDP and employment.
Neither should the higher taxes alter the lifestyles of the business owners who Feeney says say will bear most of the burden. But it might reduce the inheritance of their progeny, which is for the best.
Let them earn their own money. Their prosperity should be determined by their contribution to the economy rather than their parents’ contribution. Conservatives have always maintained that you should earn your income rather than receiving handouts. If welfare payments reduce the incentive to work, so would bequeathing large sums of money to progeny.
Murad Antia teaches finance at the Muma College of Business, University of South Florida (USF), Tampa.