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Old 07-28-2010, 12:29 PM
 
286 posts, read 642,888 times
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You hear this story a lot: jobs are flocking from the Northeast and West Coast to Middle America. Why? Low taxes, low regulation, and cheap labor. So look at the data.

Consider a study which ranks the best and worst states for small business taxes. http://www.sbecouncil.org/uploads/BTI2010_2.pdf .

Below I list the 15 states with the lowest taxes on small business with their rank in per capita income in parenthesis.

1) South Dakota (38)
2) Texas (27)
3) Nevada (15)
4) Wyoming (19)
5) Washington (10)
6) Florida (33)
7) Alabama (46)
8) Alaska (4)
9) Ohio (31)
10) Colorado (13)
11) Mississippi (50)
12) South Carolina (40)
13) Tennessee (43)
14) Oklahoma (45)
15) Virginia. (8)

Something immediately jumps out. The states with lowest business taxes tend to be the poorest—with an average per capita income ranking of 28.

The states with highest taxes on small business have a per capita income ranking of 18. Odd that the states with highest taxes on small business are also the richest.



Some might say that these current tax rankings won’t show up in past income rankings: that is, taxes will only impact future growth. Fair enough.

If you compare the income of these states from 1980-2009, there is an increase in income difference between the unregulated poorest states and regulated richest states. The rich get richer. It falls slightly from 1990-1995, but steadily increases from 1995 to the present.

Better yet, take the 4 worst states for small businesses taxes: Minnesota, New Jersey, California, and DC. Compare them to best states. You would think jobs would flow from the worst states and flow to the best states.

Year ............Variation in Income
1980 .................... 0.130 .
1990 .................... 0.171
2000 .................... 0.149
2005 .................... 0.194
2009 .................... 0.218



Long story short, the four states with the highest taxes have only increased their wealth compared to states with the lowest tax rates. This includes the fact the current recession has had disproportionate impact on these wealthier states.

How is this possible if so many jobs continue to flow to the states with lowest tax environments? It’s simple.

The jobs that are flowing to these red states are low-skill, low-wage jobs.

If you have any sort of high-skill business you go where you can find a talented workforce. So these high pay jobs flow to places like San Francisco, Seattle, DC, and Boston. A study by Businessweek basically confirmed this. They listed the best states for entrepreneurs in high-skill industries. They are:

1. Massachusetts
2. New Jersey
3. Maryland
4. Washington
5. California
6. Connecticut
7. Delaware
8. Virginia
9. Colorado
10. New York

Top 10 States for Entrepreneurs

You notice that most of the states are fairly liberal, high-regulation states. Even in the two more conservative states—Virginia and Colorado—most of the entrepreneurial activity is centered around the liberal cities: DC and Denver. The common factor in all of these states is education.

The secondary education rankings for each of these states is:

Massachusetts - 1
New Jersey - 5
Maryland -25
Washington - 8
California -43
Connecticut - 6
Delaware - 24
Virginia - 12
Colorado - 18
New York –22


While California has below average secondary schools, its university system is the best in the nation. It has six public universities ranked 15 or higher.

U.S. Chamber of Commerce - Leaders and Laggards: A State-by-State Report Card on Educational Effectiveness
Best Colleges - Education - US News and World Report

Long story short. What is the path to prosperity? An educated workforce.

How do you pay for an educated workforce? Taxes at the state level.
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Old 07-28-2010, 01:03 PM
 
Location: South Jordan, Utah
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What good is high gross income if your net after expenses and taxes is lower then other states?
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Old 07-28-2010, 02:21 PM
 
5,473 posts, read 5,389,003 times
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Quote:
Originally Posted by hilgi View Post
What good is high gross income if your net after expenses and taxes is lower then other states?
Lol, it took you all of one sentence to expose this canard. Good job
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Old 07-28-2010, 03:01 PM
 
286 posts, read 642,888 times
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Quote:
Originally Posted by hilgi View Post
What good is high gross income if your net after expenses and taxes is lower then other states?
The main driver in the high cost of living on the coasts is housing (in reality, it was housing). If you look back at the 1990's, housing in California or any of these states was fairly affordable. It wasn't until 1998-2010 that housing prices began to deviate from their historical trends and go ballistic. Those prices are coming back down to their historical levels. You can see this in the thumbnail below. True, housing prices--particularly in California--are being bouyed by the bailout, but the housing price decline to historical levels is inevitable.

Once you remove housing prices these states are fairly affordable if you make a decent living. True, you may end up in a smaller house with a smaller yard or no yard, but the pluses are a more viable job market, safer cities, better schools, and more cultural/social opportunity.

All that being said, your answer kind of avoids my main question. Why do so many lucrative jobs continue to stay in these coastal cities despite obvious financial incentives to leave?

For every company that moves to the heartland and provides 200 lowskill jobs, there is a company that moves away from the heartland and takes 100 high-skill jobs with it. See: nGenera Moves Headquarters to Silicon Valley | Business Wire

From all the talk about incentives, you would think Google would be headquartered in Nebraska by now. But that's not happening. In fact, the opposite is happening. I would like to see someone attempt to answer why.
Attached Thumbnails
The Myth of “Business Friendly” States-housing-prices.bmp  
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Old 07-28-2010, 03:54 PM
 
Location: Central Texas
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Are the jobs really flowing to ALL of those states that rank low in business taxes? I don't believe they are.

For example Mississippi is on that list. Is Mississippi really gaining jobs that might have gone to Massachusetts? It might be cheap to start a business in Mississippi - but it may be very difficult to attract people to move there because Mississippi ranks so poorly on other life issues.

I don't think you can take your top 15 list and broad-brush analyze them as good for business or not because your ranking is solely based on taxation. That is just one relevant metric.

Other rankings, such as CNBC's just updated "top states for business" include multiple criteria. In that article the top 5 states are Texas, Virginia, Colorado, North Carolina, and Massachusetts.

News Headlines

I think one reason so many jobs stay where they are (such as in Silicon Valley) is simply inertia. There are so many people with certain skills there that whatever shifts might occur - they will occur slowly. Intel will not pick up its business and move because of lower taxation in another state. It is too expensive, disruptive, and risky to move.

Sometimes the inertia is based on physical assets - such as a coast, ports, or natural resources. Petrochemicals will stay in Texas for a very long time. And the engineers hired to do that work will tend to collect in Texas.

Virginia and Maryland will forever have some of their economic well being tied to the federal government.
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Old 07-28-2010, 08:49 PM
 
2,592 posts, read 4,872,919 times
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Quote:
Originally Posted by hilgi View Post
What good is high gross income if your net after expenses and taxes is lower then other states?
Right on. I live in Massachusetts and I can tell you that many jobs have left here due to the high expense of business and taxes. Add on to that high taxes and expensive housing and you don't have the best business atmosphere. Many have taken jobs in the Carolinas, Texas, Georgia, and even in New Hampshire because they can make about the same amount of money but have more disposable income. Disposable income is really what is important.

It isn't much different than people in Massachusetts saying housing is expensive because people want to come here. That isn't the reason...the main reason is because it is difficult to build, not a lot of buildable lots, and strict zoning laws keep the supply low.

Connecticut always ranks as one of the highest states for overall income, but you have to realize it is one of the most heavily taxed states and very expensive, so it is deceptive. I've heard stories of people making $90,000 in Texas and then moving to NYC and taking a $130,000 job, and with the job in Texas they were wealthy and the one in NYC with a family they were living modestly.
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Old 07-28-2010, 10:50 PM
 
9,803 posts, read 14,383,012 times
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Many Minnesotan companies have relocated to South Dakota.

The auto plants that were built moved to TN,MS, AND AL.

Make what you want of that.
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Old 07-29-2010, 08:10 AM
 
22,769 posts, read 27,819,709 times
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Quote:
Originally Posted by mcredux View Post
You hear this story a lot: jobs are flocking from the Northeast and West Coast to Middle America.
seriously? most stories you hear about middle america are of population and manufacturing decline.

Quote:
Originally Posted by mcredux View Post
The main driver in the high cost of living on the coasts is housing (in reality, it was housing).
housing was also a driver of increased wealth and income in those high-cost areas.

when you have billions of new borrowed dollars joining your economy, wealth and income tends to grow.

by pointing to taxes, you're trying to say that the tail is wagging the dog. places like Boston and SF and NYC can afford to have high taxes, because they are desirable areas for productive people to live. Arkansas and Wyoming can't afford the luxury of high taxes, because they don't have Ivy League institutions, or perfect weather and beaches, or natural ports, or wine-growing climates, or 300 years of international immigration, or any of the other historical and natural amenities that high-cost areas enjoy.

high taxes aren't what built Boston or Manhattan. south carolina can't raise taxes, and have an institution like Harvard suddenly pop up, or *poof* grow a wall street. south carolina can't snap its fingers and become next door to the national capital, like Maryland or noVA.

Quote:
How do you pay for an educated workforce? Taxes at the state level.
i am not sold on this, either. you can't buy demographics. DC spends more than anyone per student. how does that work out for them?

Last edited by le roi; 07-29-2010 at 08:38 AM..
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Old 07-29-2010, 01:37 PM
 
286 posts, read 642,888 times
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That was a good report. Thanks for posting it.

I agree that a low tax rate (which is also a proxy for low regulation) is not the only indicator for a business friendly environment. But the pro-business crowd treats it as such. How many times do you hear "we're going to lower taxes to lure in businesses and grow the economy."

It's total bullsh*t, and obviously depends on what kind of business you're trying to attract. Rarely do you hear "we need a better, more-educated workforce."

Reading over the report, I notice it lumps Science and Innovation into it's own category. Take California. It ranks #1 in the Sci&Tech category. But it's not a mystery why California leads the pack in Science and Innovation. It's a direct result of universities in California. Silicon Valley is basically an outgrowth of Stanford and Berkeley.

California doesn't have good universities by accident. It's because a sustained, systematic effort to make sure they have budgets for research, with the most recent example being Proposition 71. And you see this across the country. Pockets of affluence are increasingly centered around science-oriented universities in cities or a cluster of universities.

Consider some less extreme examples. You mention Mississippi as an example that ranks low on quality of life. Compare Oxford MS to Madison WI. Both are fairly small, out of the way places. Neither has direct flights in from major cities. Meanwhile, Madison is increasingly becoming a tech hub for Wisconsin, where Oxford remains a city devoid of high-skill jobs.. Why so? Because the people of Mississippi want it that way. They would rather dump money into football programs and new frat houses than science labs.

The recipe for growth is not mysterious. It has little do with historical advantages or geography. Take Raleigh, NC. Thirty-five years ago, Raleigh was a backwoods, regional Southern city at best. Fast forward now, and it is one of the major tech centers in the United States. How did this happen? Look at the universities in the area.

And this only deals with higher education. While secondary education alone may not result in innovation, it does result in a workforce that can fill office jobs and make companies run smoothly.

For the most part, middle America is a sinking ship. Look at the fools they elect and their priorities, and it's not mystery as to why.



Quote:
Originally Posted by hoffdano View Post
Are the jobs really flowing to ALL of those states that rank low in business taxes? I don't believe they are.

For example Mississippi is on that list. Is Mississippi really gaining jobs that might have gone to Massachusetts? It might be cheap to start a business in Mississippi - but it may be very difficult to attract people to move there because Mississippi ranks so poorly on other life issues.

I don't think you can take your top 15 list and broad-brush analyze them as good for business or not because your ranking is solely based on taxation. That is just one relevant metric.

Other rankings, such as CNBC's just updated "top states for business" include multiple criteria. In that article the top 5 states are Texas, Virginia, Colorado, North Carolina, and Massachusetts.

News Headlines

I think one reason so many jobs stay where they are (such as in Silicon Valley) is simply inertia. There are so many people with certain skills there that whatever shifts might occur - they will occur slowly. Intel will not pick up its business and move because of lower taxation in another state. It is too expensive, disruptive, and risky to move.

Sometimes the inertia is based on physical assets - such as a coast, ports, or natural resources. Petrochemicals will stay in Texas for a very long time. And the engineers hired to do that work will tend to collect in Texas.

Virginia and Maryland will forever have some of their economic well being tied to the federal government.
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Old 07-29-2010, 04:30 PM
 
Location: Central Texas
13,719 posts, read 27,257,766 times
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Talent and brains are big issues no doubt. There is plenty of history to show how Stanford in particular was a big force in the development of Silicon Valley.

But lets recognize that we are past the incubation stage for many of these kinds of industries. Geographic location with your brain people is not mandatory any more. It is easier (if not easy), to build or base a company in lower cost area away from many employees, and be successful.

The tipping point to cause a location change for any particular person or company differs. Taxation COULD be a factor - as could energy costs.

Texas recognizes that it needs more than two tier 1 universities - so there has been recent activity and funding to beef up its tier 2 schools.

Mississippi on the other hand, may not be as forward looking.
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