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Fact Check: Do Income tax cuts make us More Competitive?


Income tax cuts will make us more competitive

BELIEF:  Income-tax cuts will make us more competitive RATING: Very Misleading

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A competition for the lowest income-tax rate is the wrong competition for Ohio, instead we should compete for the best quality of life, best schools, and greatest state in which to live and invest.

Tax cuts do not make a state more competitive, but cost state valuable investments in infrastructure, education, and a better quality of life for residents. The theory is fairly simple, but the facts don’t measure up. Many claim that if a state cuts its taxes, more people and businesses will move to that state for the lower rates. However, people do not move because of a lower tax climate, people move for jobs, education, adventure, and family.

The theory has been tested and the results show us that state tax policy has little to no impact on decisions about where people decide to live, go to school, or set up a business. In 2005, Ohio passed a 21% income tax cut, and since that time Ohio has lost residents and over 200,000 jobs.  People like to live near family and friends. Businesses set up near their consumers, where the owner lives, and near other similar businesses businesses.

Comprehensive research on Ohio migration between 1988 and 2008 shows there is no significant relationship between income taxes and interstate migration. The research finds that interstate migration is based mostly on job opportunities and not on a minor reduction in income tax.  The state income tax is a fairly minor expense for most people. Most Ohioans currently spend less than 3cents on the dollar for their state income tax, and this amount is deductible on your federal taxes.  Most states are within a penny or two of Ohio as well.  When comparing costs, income tax rates are fairly minor throughout the country, and often-lower income tax rates mean fewer services or more taxes somewhere else.

Businesses will likely start where the owner lives, not move a continent away for a tax savings. Research has shown that graduates of M.I.T are likely to start businesses in Massachusetts, even though Massachusetts is a high income tax state, because the recent grads know the community and have networks. Businesses also tend to cluster. Many Internet companies have settled in the Silicon Valley, because they want to be near others in technology, even though California is a high tax state. Business owners also want to live where there is a high quality of life for an affordable amount.  Our low cost of living and great public parks are a better investment than more tax cuts.

Cutting Ohio’s income tax rate by 7% (as proposed by the Ohio House) or 20% (as proposed by the Governor) will not make Ohio more competitive. We can be more competitive by guaranteeing a great quality of life through our highly accredited state parks, outstanding institutions of higher education, and safe communities. These are investments that will encourage new families and entrepreneurs to pick Ohio over other states.

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