Report: Tax breaks don’t create jobs in Vermont or U.S.

The vast majority of new jobs that spring up nationwide are created when people already living in a state start or expand a business — not because of tax breaks or incentives that states offer them.

Those were the conclusions of a study released Wednesday by the Center on Budget and Policy Priorities, a left-leaning think tank in Washington, D.C., that often teams up with the Public Assets Institute in Montpelier.

The report on the study is called “State Job Creation Strategies Often Off Base,” and it is the first study in about five years that examines the reasons jobs are created in a given state, according to the authors, who held a conference call with reporters Friday.

“This new information makes an even stronger case against tax cuts and company-poaching strategies,” said Michael Mazerov. He co-wrote the paper with Michael Leachman. Mazerov is a senior fellow at the organization, and Leachman is the director of state fiscal research.

“That is not where economic development comes from, and that is really not where policymakers should focus,” Mazerov said. “They should really focus on homegrown businesses and startups.”

Nationwide, the study says, 87 percent of jobs created in the private sector are “homegrown,” meaning they came from startups or existing in-state businesses. In every state, more than 80 percent of jobs created were from people or businesses already in the state.

In the median state, 11 percent of new jobs came from out-of-state companies starting a new branch, and “a miniscule 3 percent resulted from the actual relocation of pre-existing positions from one state to another.”

Startups across the country created roughly 3 million jobs a year between 1990 and 2009, the study says; businesses older than one year usually lost jobs, and “any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.”

In Vermont, the think tank says, 90 percent of new jobs between 1995 and 2013 came from in-state startups, in-state businesses that expanded their current establishments, or businesses headquartered in Vermont that built a new establishment.

Four percent of new jobs came from businesses headquartered out of state that had establishments in Vermont, according to the think tank. Five percent came from out-of-state companies that established a new branch in Vermont, and only 2 percent of jobs created from 1995 to 2013 moved into Vermont from another state.

“What really struck us in the data is the great uniformity among the states in these percentages,” Mazerov said. “There’s really very little variation, and what variation there is doesn’t seem to have very much to do with rural-urban issues.”

Mazerov said the states that see higher percentages of jobs moving across state borders are often next to large cities.

He cited southern New Hampshire, which is part Boston’s metropolitan area, where he said companies move back and forth.

Erin Mansfield

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35 Comments on "Report: Tax breaks don’t create jobs in Vermont or U.S."

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Ann Meade
9 months 26 days ago

Can we get our million dollars back from Abu Dhabi?

ED Fisher
9 months 26 days ago
I disagree , Kennedy cut corporate taxes , Reagan cut corporate taxes , both of these actions saved our national economies at critical times . Vermont’s problem is over-taxation on everyone , the company AND the employee ! Baiting a company to Vermont from elsewhere ; Is Impossible with this VERMONT taxation formula . Who’s going to relocate to a place where the state fees , taxes and utilities alone will eat up the profits ? Where the is no longer a viable , perhaps younger work force to chose from , Everyone has left Vermont and left the door… Read more »
Doug Hoffer
9 months 26 days ago

Not apples to apples. Kennedy’s cuts occurred when the top marginal rates were 90%. A whole different world. Moreover, it was before globalization so the freed-up money was invested in the U.S. Today, tax breaks result in investments overseas (if at all) so we get little, if any, benefit. Forty-five years of data are clear as a bell; trickle down failed miserably.

As for Reagan, even he had to capitulate and agree to rescind some of his cuts when the economy tanked. Check your history.

Randy Jorgensen
9 months 25 days ago

Doug, pretty sure Ed was talking about Corporate taxes, not personal income taxes.

“…Kennedy cut corporate taxes , Reagan cut corporate taxes …”

Doug Hoffer
9 months 24 days ago

The Kennedy corp. tax cuts were small compared to the cut in the top marginal rate for personal income taxes. Corp. taxes went from 52% to 48%, while the top marginal rate went from 91% to 70%.

Likewise, Reagan’s cut were largely about personal income, rather than corporate. Not only did he / they drop the personal income tax from 70% to 50%, but they drastically cut the capital gains tax. This was the beginning of the massive shift of resources from the middle class to the top 1%.

Steven Farnham
9 months 26 days ago

Johnny One-note, here. Isn’t this a powerful argument for Montpelier to keep shoveling welfare payments into the coffers of the Emir of Abu Dhabi?

Janice Prindle
9 months 26 days ago

The evidence is clear. We don’t need a “better business climate,: as Bruce Lisman claims along with the Koch brothers, Wall Street, and die-hard trickle-down economists who have been totally discredited over the past 40 years.

We need working people to earn enough that they can spend money, right here in Vermont, supporting Vermont businesses, so they can grow and add more jobs.

And the best state spending on job creation would follow the New Deal model: a public work project,. We have plenty of need for that….

Robert Rich
9 months 25 days ago

What you’re saying is you believe government should completely control commerce, and that politicians should direct the resources of society to conform to the central planners’ views of who should have what. Have you ever wondered where the money will come from once everyone is working for the state? I wonder how many times socialism has to fail before it loses its luster and people refuse to be hoaxed further with it.

Janice Prindle
9 months 25 days ago
Government always controls commerce. There is no free market, and never has been. . The question is how it controls commerce: for the benefit of the few, or the many. Democratic socialism, since you brought it up, exists alongside of for-profit, private enterprise throughout the rest of the Western world, where citizens enjoy a much higher standard of living. The government controls commerce for the benefit of the many. It’s not a hoax. Your libertarian Ayn Rand crap is the hoax. The New Deal, with government spending to create jobs that needed to be done, jump-started our economy even before… Read more »
Janice Prindle
9 months 24 days ago
No, it’s not what I’m saying, nor does that even logically follow. Economics 101: Governments always control commerce; there is no free market. That’s a myth. Likewise that democratic socialism can’t exist alongside free enterprise: it does, in Europe, where people enjoy a much higher standard of living. The hoax is in the libertarian notion that a democratic government, the will of the people, should play no role in protecting the many over the few, and that “a better business climate,” the mantra of the libertarian Koch brothers,Reaganites, and trickle-down economists who brought us to this state, means general prosperity.All… Read more »
Tom Sullivan
9 months 25 days ago

” We don’t need a “better business climate”

Well, you got your wish, we have a poor business climate.

Janice Prindle
9 months 24 days ago
My wish is that we grow good business, local business. Throwing money at big out of state companies who don’t deliver is a waste of my hard earned money. Vermont has always faced geographical challenges in growing our economy; “business climate” isn’t the problem, that’s a code word today for tax breaks, loopholes, giveaways that we know haven’t worked. We don’t have a “poor” business climate; here or nationally. We have a need for growth, and that is not achieved by government throwing more money at the people who already have it, but by spending to create jobs that will… Read more »
Paul Richards
9 months 24 days ago
“We have a need for growth, and that is not achieved by government throwing more money at the people who already have it…” So is this why obama created the “stimulus” and bail outs that gave all of our money to wall street, the big banks and the union controlled big businesses? What happened to the “shovel ready” projects? Where did all of the money go? I’m sick of hearing about how bad our infrastructure is. This is code language for; “we need to replenish our slush fund.” More lies and deceit. These liberal actions and our liberal tax code… Read more »
Janice Prindle
9 months 24 days ago
Our tax codes are not “liberal,” far from it. Nor did liberals create them; the dismantling of our tax code happened under Reagan, and hasn’t substantially changed since, so for the past 40 years, the corporate share of federal taxes has shrunk from 30 to 10 percent, and working folks — no longer much of a middle class — have picked up the burden, with the “handouts” going to corporations through tax loopholes, breaks — including “incentives”–.plus outright subsidies, including the taxpayers subsidizing less than living wages for workers at Walmart and McD’s, by picking up the tap for food… Read more »
John Greenberg
9 months 23 days ago

Janice Prindle:

A modest correction. The organizations involved in dark money politics are generally 501(c)(4), not (c)(3) organizations. The latter are strictly limited in their political spending. (c)(4) organizations can spend ALL of their money on issues lobbying entirely legally. The other major difference is that contributions to (c)(3) organizations are tax-deductible whereas those to (c)(4) organizations are not. There are other differences as well.

Janice Prindle
9 months 22 days ago
Thanks, John, you are correct, I misremembered because c3s and c4s are similar in many ways, but it is the c4s the Kochs and others are using to funnel their dark money, to avoid disclosure requirements under 527, and although they are supposed to pay a “gift tax” on the donations to c4s, the IRS doesn’t collect it, and further, amended the rules so that the c4s need not be “exclusively” but only “primarily” spending their donations on “social welfare,” so that 49 percent of their donations can be purely political speech. Now Congress has barred the IRS from addressing… Read more »
John Greenberg
9 months 23 days ago

Paul Richards:

The Wall Street bailouts you refer to occurred under the watch of George W. Bush in late 2008. Obama took office afterwards, in January 2009.

Neil Johnson
9 months 26 days ago

Yet our state makes it difficult or any business. Our town for example, Waitsfield, there is no business use by right. In our industrial park the only use by right is AGRIULTURE, to add injury to insult, it’s in a gravel pit (farmers will understand what that means).

Our latest ads across the state are hounding subcontractors to be employees or face stiff fines! Many just don’t get it…..

Robert Rich
9 months 25 days ago
Neil, as you may know, one of the primary state objectives of the state in converting people from self-employed to W-2 employees is to fatten the unemployment tax coffers. Ironically this initiative directly contradicts the idea of “homegrown jobs.” The unemployment system is so rife with fraud as to be laughable if not so costly to Vermont employers. It is a system where unemployment benefits are handed out practically indiscriminately and the burden is put on employers to fight wrongful claims. When I have brought truly heinous claims examples to the attention of my legislators I’ve been told if I… Read more »
edward letourneau
9 months 24 days ago

“..unemployment benefits are handed out practically indiscriminately and the burden is put on employers to fight wrongful claims.” Maybe we need employers to become smarter. Like keeping records on job performance, etc..

Neil Johnson
9 months 26 days ago

Wonder how much grant money was spent on this? Grant money aka tax payer funded. We must be known as the business center of the United States, guess nobody told us.

Neil Johnson
9 months 26 days ago

It’s interesting that the study deemed the management of cash flow the most critical item. This should be taught in every high school. It’s the basis for the entrepreneurial endeavors, it also allow you to know and understand profit and loss statements. It would help our government run much more efficiently.

Peter Galbraith
9 months 26 days ago

Vermont’s economic development strategy relies heavily on tax breaks and subsidies to large corporations. These are taxpayer gifts to those who need the money the least. investment decisions are driven by whether a company stands to make money, not by tax breaks and subsides that represent a minor addition to the bottom line. (Does anyone seriously believe that the a few million dollars in public money made any difference to the $1.5 billion IBM-Global Foundries deal? ) This study underscores the fact that we are being played for suckers.

Robert Rich
9 months 25 days ago
Yet by most reliable measures, Vermont ranks nearly dead last among the 50 states in economic opportunity and the citizens’ ability to make a living. It is clear the current leadership in Montpelier has no idea how to lift us from our economic malaise, and no concept that they are contributing to it. In fact, they are hard at work putting more government control on business by mandating small employers offer paid sick leave. From an emotional standpoint it sounds great. From a reality-based perspective some small business simply cannot afford it. This is how central planning creates business failure… Read more »
Doug Hoffer
9 months 25 days ago

“Yet by most reliable measures, Vermont ranks nearly dead last among the 50 states in economic opportunity and the citizens’ ability to make a living.”

Although often heard from some quarters, this statement is not supported by the evidence. If you have any, please provide it.

Mark Keefe
9 months 24 days ago

Here in VT, average medium household income is within about 2% of national average and the cost of living is about 16% higher than national average – not good news. In 2015 USA Today, Business Insider, and Forbes all rated Vermont in the top ten worst states to make a living. Business Insider/Economist 2015 ranked VT as one of the five worst states for small businesses.
I love living here and am interested in straight dialog on the issues. Hope this helps.

Doug Hoffer
9 months 24 days ago

Thanks. I don’t have time to get into it right now, but here is a quote from a very reliable source about the methodology used by Forbes to do one of its rankings.

“…there is not sufficient detail available for Forbes’ Best States for Business, making it impossible to evaluate how the index was generated in terms of variables, sources, weights, and aggregation methods.”

Footnote 6, “Public Policy, State Business Climates, and Economic Growth.” Jed Kolko, David Neumark, and Marisol Cuellar, National Bureau of Economic Research Working Paper No. 16968

Seriously, such rankings are nearly useless. I will try respond again later.

Cynthia Browning
9 months 25 days ago

This is very useful — I have been saying for some time that what we need is to eliminate all the special tax provisions for particular industries and groups and use the extra revenue to LOWER tax rates for ALL businesses. We need to provide good basic infrastructure and low and stable tax rates for all Vermont businesses. For example, see my column in this past weeks Manchester Journal.

Rep. Cynthia Browning, Arlington

William Hays
9 months 25 days ago

Cynthia: I must agree. As a Berkshire Hathaway shareholder, it is interesting to note that “The Boss”, Warren Buffett, said we wouldn’t be holders of ‘alternative energy’ (which we are big-time) outfits if they didn’t receive tax-breaks and subsidies. The wind-energy business is, largely, in the hands of Spainards. The solar panel production is done in Asia. The money comes from US taxpayers, for these inefficient (without taxpayer help) scams.

John Greenberg
9 months 24 days ago

William Hays:

Warren Buffett doesn’t invest in technology companies either. Does that mean they’re all bad businesses?

Randy Jorgensen
9 months 23 days ago

Warren Buffets has a large a large holding in IBM, which is a technology stock. Do you have any evidence otherwise? From all my reading he DOES invest in technology stocks.

http://www.cnbc.com/berkshire-hathaway-portfolio/

IBM Profile:

“International Business Machines Corporation is a technology company. The Company operates in five business segments: Global Technology Services (GTS), which includes Strategic Outsourcing, Integrated Technology Services, Cloud and Technology Support Services, and also provides information technology (IT) infrastructure and business process services; ..”

http://data.cnbc.com/quotes/IBM/tab/4

9 months 25 days ago
Yes–economic development in Vermont cannot depend on the dream of a large company moving in and relocating their workforce along with them; but, if you read Vermont Community Economic Development (CED) strategies, that’s often the push (or the pie-in-the-sky strategy). Most CED plans overlook our future talent completely. Our state is not alone in this. I have read more than 50 rural CED plans from around the nation, and found only one that mentioned the local high school as a strength or opportunity. CED committees need to put the value they place on our children into writing. If a company… Read more »
Glenn Thompson
9 months 25 days ago

From the article,

“The vast majority of new jobs that spring up nationwide are created when people already living in a state start or expand a business — not because of tax breaks or incentives that states offer them.”

How ridiculous! Should we instead tax the hell out of them and give those startup businesses and existing businesses no incentives to succeed? Even in the Democratic controlled state of NY, they have tax free zones. This report is pure nonsense!

http://startup.ny.gov/

Doug Hoffer
9 months 25 days ago

“Should we instead tax the hell out of them and give those startup businesses and existing businesses no incentives to succeed?”

No one suggested that. BTW – In capitalism, the incentive to succeed is supposed to be profit, rather taxpayers’ money.

“Even in the Democratic controlled state of NY, they have tax free zones.”

Such schemes are grossly unfair to existing businesses that might be forced to compete with firms that get the tax breaks.

“This report is pure nonsense!”

The report presents facts, which should help inform discussion about policy.

Glenn Thompson
9 months 24 days ago
Doug Hoffer, “Such schemes are grossly unfair to existing businesses that might be forced to compete with firms that get the tax breaks.” That’s a legitimate claim. NY’s tax free zones were created to attract new businesses. How it impacts existing businesses in a NY tax free zone is unclear. I would ask the question, wouldn’t attracting a large business to a specific area create the opportunities for existing businesses to thrive? Here is an article on how NY attracted GlobalFoundries to Malta, http://www.timesunion.com/business/article/GlobalFoundries-cash-grant-largest-ever-awarded-2209888.php I still reject the claim tax breaks and incentives don’t lead to job growth and economic… Read more »
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