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Growing Apart

A Political History of American Inequality

Colin Gordon, Author

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The Shell Game of State and Local Tax Breaks

The same shaky logic, assuming tax breaks will galvanize economic growth, takes place across state and local governments. The flaw in this logic is threefold. First, state taxes are such a small share of business costs, there is no evidence to suggest differences (often quite small) in state tax rates has an impact on business location decision. Indeed, a generation of academic research finds business decisions shaped much more by local infrastructure, proximity to suppliers and customers, or the quality of the local labor market—exactly the sort of things that taxes help pay for. Second, there is no evidence—across states-- for a causal link between low taxes and economic growth. Disparate rates of state growth have much more to do with the way in which states experience national trends (business cycles, the decline of manufacturing) , and with dumb lock (the discovery of oil or gas, for example). And third, local and state tax breaks are at best a shell game, pirating investment from one location to another while bidding down tax rates and revenues everywhere. See Peter Fisher, Grading Places: What Do the Business Climate Rankings Really Tell Us? (Good Jobs First, 2013); Greg LeRoy et al, The Job Creation Shell Game (Good Jobs First, 2013); and Peter Fisher, Selling Snake Oil to the States (Good Jobs First and Iowa Policy Project, 2012).

Back to: Who Pays? Taxes and American Inequality
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