2004 book review

Today I came across a 2004 Oregon Center for Public Policy review of a book entitled Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development. The book was written by economist Robert Lynch of the Economic Policy Institute and the review came under the caption of "New Book on Economic Development: 'State Tax Breaks Don't Create Jobs.'"

The folks at OCPP and EPI are like me in that they do not particularly like state tax breaks. But for the most part our reasons for disliking tax breaks are different. I see tax incentives as an inefficient, second best way to attract investment in terms of tax policy. Organizations like OCPP and EPI do not like tax incentives because they "undermine government's ability to provide public services." They never seem to address the suggestion that perhaps the private market is a better provider of these types of services than the government. But I digress.

Jeff Thompson, the economist who wrote the book review for OCPP, does make a halfway decent point, however when he says "business tax cuts are about the least efficient means of job creation conceivable." While socialism and higher taxes are far less efficient, it's good that he questions the link between tax cuts and job creation. Contrary to popular wisdom, politicians, whether they are the U.S. President or the local state representative, do not create jobs through their policy measures, whether the measure is a tax cut or increased spending. Job creation is a reflection of supply and demand and the decision of an investor to offer a job to another. One factor in this decision may be the tax ramifications.

This relates to one of the underlying premises of my blog: when one has to worry about the tax ramifications of his or her investment, things need to be changed.