Tax cuts alone won’t boost jobs.
Tax cuts or state subsidies committed to Orlando-based soup maker Chef Creations won’t save 110 jobs that will be eliminated now that the business has been sold to a Boston firm. That’s just one more reminder that Florida — like many other states – needs to reconsider its current economic strategy.
Despite Gov. Rick Scott’s siren song of jobs, jobs and more jobs, the reality is that tax cuts and business subsidies do not result in significant economic activity or job creation. It’s time to broaden the conversation here in Central Florida and across the state about how to grow a strong economy and build widespread prosperity.
At the Florida Policy Institute, a new, independent, nonprofit research organization, we believe debate has to get beyond whether to cut this tax or that tax. Floridians need to hear the full range of options available — and that includes the job-creating potential of public investment in schools, transportation, safe communities and other tried-and-true building blocks of economic growth.
We recently released a report, “Florida’s Budget Conference Process Focuses on Tax Cuts and Business Subsidies at the Expense of Investments that Could Lead to Economic Growth,” about the budget discussion now underway in Florida. While the early results of that discussion have reduced the budget’s focus on these strategies, Florida should still consider the following key questions:
Are tax cuts and business subsidies likely to achieve their stated goal of increasing economic activity and job creation?
Since states must balance their budgets, every dollar in tax cuts must be offset by matching reductions to service levels or additional revenue taken from somewhere else. This means fewer police officers protecting us, or perhaps forgoing that road repair that might speed your commute to work. And we just assume that firms that receive the benefit will keep their jobs in the state. Chef Creations is the latest to prove that a bad assumption.
Even Scott says cuts are not enough to drive business investment in the state. His proposed solution, the Florida Enterprise Fund, would have taken $250 million from other state priorities to poach jobs from “rival” states like Texas. But that doesn’t work, either. Nationally, more than 80 percent of new jobs come from homegrown startups. In Florida, the number is 90 percent.
Is the level of revenue reduction that accompanies these cuts and subsidies affordable now and in coming years given an uncertain economic future?
In the Senate, Tom Lee, chair of the appropriations committee, labeled $1 billion in tax cuts “fiscally irresponsible.” Estimates by the Office of Economic and Demographic Research put in question the governor’s proposal for the coming year. The possibility of an economic downturn in the near future puts the wisdom of permanent revenue reductions even further in doubt.
To its credit, the Legislature seems to have heeded Lee’s warning, agreeing to a smaller $400 million package of tax cuts, but the inclusion of even this level of cuts leads us to ask:
Is there a potential alternative use of state resources that is more likely to achieve the goals espoused by the governor and the Legislature?
Irresponsible planning for the future is not the only problem. Tax cuts and business giveaways come at the expense of public investment that drives economic growth.
So why are we taking resources away from the things that make Florida attractive, when those are the very things that encourage entrepreneurs to start a business at home?
To our current state leaders, the path to widespread prosperity is further tax cuts at the expense of strategic public investment. It is important to have an open, frank debate in this state about whether that really is best. Serious research and the experiences of states across the country have consistently shown that tax cuts and business subsidies fail to significantly boost economic activity and job creation.
If we want to foster smallbusiness job creation, we have to promote thriving communities with high-quality K-12 schools and higher education, roads and bridges in good repair, and adequate fire protection and police services.
The Florida Policy Institute aims to promote wide-open discussion of these and other issues important to the economic future of our state.