If you are a state governor or big city mayor and want to cut taxes, don’t expect those tax cuts to automatically boost economic growth and pay for themselves. Those tax cuts might not boost growth much at all, actually, depending on how you do it. And if they do boost growth, it might take awhile. So you need to think about why you are cutting taxes.
So how about this: Cut top tax rates to attract star scientists to your state or region. Why would this be a good idea? Well, star scientists may well be top one-percenters who’ll buy a big house, a nice car, lots of pricey electronics. But that is hardly the most important reason. From the new paper “The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists” by Enrico Moretti and Daniel Wilson:
… more fundamentally, star scientists are an important group of workers because their locational decisions have potentially large consequences for local job creation. Unlike professional athletes, movie stars and rich heirs – the focus of some previous research – the presence of start scientists in a state is typically associated with research and production facilities and in some cases, with entire industries, from biotech to software to nano-tech.
And lower taxes, the researchers find, can help attract those valuable star scientists:
For taxpayers with income at the 99th percentile of their state, we find a long-run elasticity of about 1.7: a 1% decline in after-tax income in state d relative to state o driven by a change in the MTR for the top 1% of income earners is associated with a 1.7 percent increase in the number of star scientists who leave state o and relocate in state d in the long-run. As an illustration, our estimates imply that the effect of New York cutting its marginal tax rate on the top 1% of earners from 7.5% to 6.85% in 2006 was 12 fewer star scientists moving away and 12 more stars moving into New York, for a net increase of 24 stars, a 2.1% increase. … Overall, we conclude that state taxes have significant effect of the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.
Twelve new scientists? That’s it? Hardly seems worth it. But if those few transfers start what becomes a mini-Silicon Valley or tech cluster in your state, it just might be. Seattle, for instance, got lucky when two former residents decided to move back in 1979, as Fast Company tells the tale:
But in 1979, Seattle was the last place you’d think to find a growth business. It had more in common with today’s Rust Belt than Silicon Valley—its economy centered on a declining manufacturing base and the lumber industry, both of which were shedding jobs. Starbucks was just a tiny local company with three stores serving standard-issue coffee. The Economist had labeled Seattle the “city of despair” and a billboard appeared saying “Will the last person leaving Seattle—turn off the lights.’
So what changed? Two Seattle natives decided to move their 13-employee company there in 1979 from Albuquerque. The two natives were Bill Gates and Paul Allen. And the company was Microsoft. Is it possible to ascribe Seattle’s entire economic trajectory to just one company? Well, today over 40,000 people work at Microsoft in the region, and 28,000 of them are highly paid engineers. Approximately 4,000 businesses have been started by Microsoft alumni, many of which are in the region. Just one of these companies, RealNetworks, employs 1,500 people. Expedia, originally a Microsoft spinoff, employs another 14,000. The Gates Foundation itself has another several hundred employees. The economist Enrico Moretti estimates that Microsoft’s growth has directly created 120,000 regional jobs for services workers with limited educations (cleaners, taxi drivers, carpenters, hairdressers, real estate agents, etc.) and another 80,000 jobs for workers with college degrees (teachers, nurses, doctors, architects).
The growth of Microsoft also influenced Jeff Bezos to locate Amazon there in 1994 when he was looking for a city with ample tech talent to build an e-commerce company. Today, about 17,000 of Amazon’s 51,000 employees live and work in the Seattle region. If Microsoft had not been there, Bezos could easily have migrated elsewhere. The day-to-day needs of these 17,000 Amazon employees have given rise to another 85,000 skilled and unskilled service jobs locally. That’s another 100,000 jobs.
It’s hard to imagine that two people transplanting their then-tiny firm to their hometown could change a city’s economic history for decades to come. Yet this phenomenon isn’t uncommon. You can see similar impacts with Dan Gilbert relocating Quicken Loans to downtown Detroit and Tony Hsieh moving Zappos to downtown Las Vegas—these effects are simply easier to see because these firms already have thousands of employees. In Microsoft’s case the company had yet to grow and mature.
Love that story. But there is a caveat: “Of course, taxes are not the only factor that determines the location of star scientists. Indeed, we find no cross-sectional relationship between state taxes and number of star scientists as the effect is swamped by all the other differences across states. California, for example, has relatively high taxes throughout our sample period, but it is also attractive to scientists because the historical presence of innovation clusters like Silicon Valley and the San Diego biotech cluster. Indeed, California does not lose stars to Texas, even though Texas has no personal income tax and a low business tax rate.” And darn California’s temperate Mediterranean climate! Oh, you might want to take a look at regulation, too.
from AEI » Latest Content http://ift.tt/1A3tzFU
0 التعليقات:
Post a Comment