Tax climate not related to jobs

In recent days there has been a lot of talk and back patting by Governor Snyder and the media about Michigan’s ascent in the Tax Foundation’s rankings of State Business Tax Climate. The only real increase was in the area of corporate income tax, where Michigan moved from the 49th best state in the nation to 7th after the changes that the governor implemented last year. What I don’t understand is why this ranking is generating such excitement.

Like any ranking, the methods used to determine the order are certainly debatable but it should be noted that the Tax Foundation is a conservative leaning organization with recent board of director members including the following group:

• Citizens for a Sound Economy, Director of OMB under Pres. Regan
• Exxon Mobil, VP Tax
• Mobil, VP Tax
• Koch Industries Dir. of Federal Affairs, Citizens for a Sound Economy, Americans for Prosperity
• Chairman of President Bush’s Council of Economic Advisers
• American Action Forum; chief economic adviser to presidential candidate John McCain in 2008
• Skadden, Arps; senior economic adviser to the Bush-Cheney campaign and formerly Assistant Secretary of Treasury for Tax Policy under Pres. Bush

While just being conservative leaning or having a board of directors who are inclined to glorify low corporate tax rates doesn’t mean that their data is inaccurate or that their rankings are wrong, but it certainly is worth questioning if the method for ranking states might rely too heavily on the corporate tax component over areas like sales tax, income tax, property tax and unemployment insurance tax.

These rankings are really only important if they show some correlation to unemployment or job creation and unfortunately for the Tax Foundation and Governor Snyder, there is no correlation. Below are graphs showing the rankings on the tax climate index and the unemployment levels and job creation for the corresponding state.  Roughly an equal number of states rank high

The reality is there is no more correlation between unemployment and the Tax Foundation rankings than unemployment and what letter of the alphabet a states name starts with. Conversely, a study by the Kauffman Foundation last year found that there is a correlation between the age of a business and job creation. Unfortunately the corporate tax breaks that the governor implemented benefit large old companies more than small new businesses.

Perhaps hollow accomplishments are the goal of Governor Snyder.  I imagine they are good for his reelection. But I’m guessing the residents of Michigan would value jobs over corporate sponsored rankings.

So before we put together a ticker tape parade extolling the virtues of Snyder’s policies we should ask the question,  if having a good tax climate doesn’t create jobs or lower unemployment, then why celebrate the loss of revenue for the state, which ironically costs the state jobs?