Do business tax cuts create jobs? Data suggests no

Late last week I set out to write a post discussing the value of business tax cuts to the economy and in particular to job creation. Unfortunately, as I researched, it became apparent that there is little to no data to support the idea that across-the-board tax cuts like the ones Gov.  Rick Snyder championed actually do anything to create jobs. Even the governor’s office has been unable to supply any studies to back the governor’s opinion that eliminating the Michigan Business Tax (MBT) will promote job growth.

Perhaps the governor didn’t need to do a bunch of research since he has a business background and a Republican controlled Legislature which also believes that cutting business taxes will help Michigan. Maybe the Michigan Chamber of Commerce would have some supporting documentation? They did, after all, boast that “last year the Michigan Chamber of Commerce was successful in repealing the Michigan Business Tax.”

With this in mind I contacted my representative to see what information they had that made reducing business taxes their number one priority. Their response: “We do not have any data that suggests the specific tax cuts create jobs.”

Making matters worse, it doesn’t seem that either the NFIB or the Heritage Foundation, two business friendly organizations, have any figures to lend credence to the belief that Gov.  Snyder’s business tax cuts will create jobs.

The only source that seems to care about these tax cuts is the Tax Foundation in their state business tax climate index rankings. The only problem is that the Tax Foundation rankings don’t appear to have any correlation to job creation. The Tax Foundation admitted that they do not take every aspect of business climate into account when compiling their rankings,  which might lead to this lack of link between their rankings and job creation.

If the belief is that companies will suddenly decide to relocate to Michigan due to a reduced tax rate, the data doesn’t seem to support this claim. Washington College economics professor Robert Lynch authored a study on the topic and found that “firms don’t necessarily relocate or expand to an area just because it has lower taxes.” He also found that “a lower tax rate … doesn’t necessarily create substantial jobs.”

In Copperas Cove, Texas, the economic development group gathered data on why companies relocate and found that the two most important reasons were access to a larger and/or better talent pool and to acquire additional space. They found that taxes were no more important to the decision than labor costs or regulatory environment.

Maybe the Snyder tax cuts will defy the odds and actually create some jobs but I imagine the “possibility” of job creation is little comfort to those public sector employees who lost their jobs or the elderly who will see their pensions taxed or the charities that will see a drop in donations, all in exchange for business tax cuts that the governor “feels” will be good for the state.