Wednesday, December 12, 2007

The "tax-hell" obsession

"Wisconsin is a tax hell." We've had it drilled into our heads that Wisconsin's tax climate is amongst the worst in the country. Furthermore, we are told by some experts that this burdensome tax environment is responsible for slowing job and population growth in our state.

An opinion piece in this week's Wall Street Journal adds kindling to the tax-hell fires by highlighting a report which links "high-tax" states (New York, Wisconsin, Ohio, etc.) to their comparatively slower rates of population, job and income growth.

Over the past decade, the 10 states with the highest taxes and spending, and the most intrusive regulations, have half the population and job growth, and one-third slower growth in incomes, than the 10 most economically free states. In 2006 alone 1,500 people each day moved to the states with the highest economic competitiveness from the states with the lowest competitiveness.
A recent study by the Public Policy Forum confirms the migration of households from Midwestern metro areas (Milwaukee, Minneapolis, Chicago) to warmer climates (Florida, Arizona). In our report, we speculate that the Milwaukee region's sustained losses of households are driven chiefly by retiree's migrating to retirement hot-spots like Phoenix and Palm Beach.

So, who's right? Are households leaving our state to seek shelter from Wisconsin's snow or Wisconsin's taxes?

Unfortunately, we don't know the motivations of those that leave the Midwest for points south. Absent perfect data, we can only infer as to who these people are and why they choose to leave the snowy environs of the upper Midwest and Northeast.

We know people are leaving, we just don't know why.

If we don't exactly know why people are leaving, why the obsession with taxes? The reason is that it fits a particular ideology.

Like it or not, political ideology plays a central role in the crafting of economic development policy. Those on the left push for "investment" while those on the right advocate for "cost reduction" as the proper economic stimulus. Truth is, you need both. Economic development needs investment in land, labor and capital while simultaneously keeping a watchful eye on costs.

In a recent article in the Rocky Mountain News, the Forum suggests that investment into our economic infrastructure as key to our ability to expand and attract employers and their workers. We do not arrive at this conclusion lightly.

A survey of 177 manufacturing employers in the Milwaukee region conducted for the M7 in 2006 had respondents rate the average importance of 14 specific "business climate" elements. The following were the top seven most import factors according to area manufacturers:
      1. Workforce quality
      2. Workforce availability
      3. Health care expenses
      4. K-12 education
      5. Technical education
      6. State taxes
      7. Universities/colleges
Note that five of the top seven elements concern investment, while two are associated with costs.

Just cutting taxes won't automatically result in a thriving community. Instead, both Wisconsin and Milwaukee need to pull up their collective sleeves and do the hard work to control costs (taxes, fees, health care, regulation) while simultaneously making critical investments in our economy (workforce development, brownfield cleanup, K-12 education, quality early childhood education, the development of a sustainable transportation system, university and corporate R&D, etc.).

See "Doyle bets on innovation: He will push tax, regulation changes to spur economic growth" in today's Journal Sentinel which picks up on the theme of coupling cost reductions measures with specific investments to spur economic growth.

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