Saturday, February 8, 2014

IBJ: Experts See Limits to Indiana's Low Tax Strategy

From the Indianapolis Business Journal:

Thanks to a concerted effort to lower taxes and government spending, Indiana ousted Texas this year in the Tax Foundation’s annual ranking of business tax climates.

Indiana now holds the No. 10 spot and could rise higher by eliminating the business personal property tax, an equipment tax that experts say deters investment.

Gov. Mike Pence made phasing out the equipment tax his top legislative priority.

“We all recognize that low taxes are essential to attracting investment and good-paying jobs,” he said in his state-of-the-state address.

But economic development experts say there are limited benefits to continuing Indiana’s low-tax strategy. Some experts believe the state could go further by boosting its reputation for quality schools and attractive places.

“This is sort of the old school versus new school economic development model,” said Bruce Race, professor of practice in Ball State University’s College of Architecture and Planning. “The new economy’s based on innovation; it’s not based on cost.”

The state’s tax climate helps the Indiana Economic Development Corp. attract new business, but as Ball State University researchers noted in a recent paper, even in the IEDC’s best year on record, 2010, the agency had a hand in no more than one of every 22 jobs created.

“Taxes matter, but they matter less the better your tax climate is,” said Ball State economist Mike Hicks, who co-authored the paper, which calls for Midwestern cities to stop relying on traditional tools like tax abatement and focus on livability.

“Good businesses are increasingly wise to the fact that good local public services in the long run helps the bottom line,” Hicks added. Skilled workers want to live in places with good services, he said. “Households are the real key to economic impact, not the business itself.”

Alex Rosaen, director of public policy and economic analysis at Anderson Economic Group in East Lansing, Mich., agrees.

“Taxes are not the only thing that’s important for business, and they’re not even the most important thing,” he said.

See the full article here: