It’s no secret that the cause de jour lately in Obamatown has been deficit deduction, or at least paying lip service to deficit reduction. Whether it is discussions on raising the debt ceiling or lowering unemployment, reining in runaway spending seems the cure for many federal maladies. The link between the lack of jobs and the deficit is clear, who wants to expand their business and hire more people if your tax liabilities are onerous, the bureaucratic regulations keep you hobbled and the uncertainties of both getting worse increase with each passing day as government keeps kicking that can down the road.
It is interesting to see how each state has attempted to tackle both their deficit spending and their unemployment problem. The great(?) state of California has it worse then most. If the national unemployment rate is roughly 9%, ours is 11.9%, and why is it higher then the national average, here is one answer:
California currently ranks #49 among U.S. states for “business tax climate” (Tax Foundation) and #48 for for “economic freedom” (Mercatus). It shouldn’t be any surprise then that companies are leaving the “Golden State” in record numbers this year (see chart above) for “golder pastures” and more business-friendly climates in other states.
You would think that businesses would be flocking here, perfect climate, abundant food and resources, cutting edge technology, proximity to the Far East, and myriad leisure activities to satisfy even the most finicky of clients. It would take something pretty cataclysmic to chase away all these businesses (and in the process skyrocket the unemployment rate) stifling taxation and regulation will do that, see, the bottom line is profits and if you can make more money in another state (increasing that state’s coffers with your tax dollars and increasing that states job markets), moving is elementary.
The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars. The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.
If we look at the tax date chart, we can see why. Further below in the chart you can see how the individual states stack up against foreign countries again, we hobble ourselves needlessly.
If we look at the above chart we can see that although our personal tax rate is moderate compared with the rest of the world, our corporate tax rate dwarfs all others except for Japan.
I am willing to concede that lowering the personal tax brackets does nothing for job creation, Bush and Obama proved that (although, to be fair, when in the throws of a recession as both were, income tax rates no matter where they are is insufficient for this) but what about corporate taxation? How many decades have we seen Japan’s inability to get out of it’s own way in growing it’s economy, think that high corporate tax rate has anything to do with that?
Obama has flirted with this idea and Ryan’s plan has this as part of it’s tax strategy, if the individual states can show a correlation between the corporate tax rate and productivity, maybe Washington should pay attention.