In Florida, what’s the deal with taxes and growth?
In a recent chronicle of Tampa Bay Times, Tom Feeney, president and CEO of Associated Industries of Florida, paints a somewhat grim picture for the state if President Joe Biden’s tax hike proposals pass.
He says higher taxes for small business owners who pay on their individual income and increases in corporate taxes will hurt Florida manufacturers, making it harder for them to maintain their businesses, let alone grow. their businesses and create jobs.
So if what Feeney is saying is true, then that same logic would imply that Florida businesses were unable to grow and hire workers during President Barack Obama’s post-recession tenure when taxes were higher. Was Florida’s economy in the reservoir before 2017? Let’s see.
The graph shows that Florida’s real GDP grew at a steady pace during President Obama’s second term, reaching an unsustainable high of 5.8% in 2015. The first two years of Trump’s presidency show a slight increase in Florida’s GDP growth rate, followed by a slight decline in 2019. A reminder: Much of Florida’s economic growth is caused by population growth.
I think Mr. Feeney protests too much. An article I wrote for the Time showed that there was more job creation in the United States during Obama’s last three years, when taxes were higher than during Trump’s first three years.
Feeney says that in the two years since the tax reforms were enacted – before the pandemic hit – Florida created more than 400,000 jobs, experienced historically low unemployment and maintained a rate of employment growth in the private sector which has greatly exceeded the country’s rate.
But is much of this job growth due to the migration of retirees and others to Florida? The country is aging. About 10,000 citizens turn 60 every day, and many of them move to Florida. The same goes for the young workers who are needed to provide services to the elderly population. Plus, a lot of that job growth would have happened anyway, because as the economy grows, so do jobs.
To determine the intact effect of tax cuts on economic performance would require an equal decrease in government spending, so that the budget deficit remains the same. This is not the case with Trump’s tax cuts, which were not accompanied by spending cuts. In fact, government spending increased, which, combined with tax cuts, increased the federal deficit by 45% over that two-year period. Fairly ordinary performance once you factor in the significant increase in deficit.
Feeney goes on to say that tax policy changes would be disastrous across the board. The National Association of Manufacturers (NAM) released a study that found the United States to see a decline of one million jobs within two years, with average losses of 600,000 jobs each year to come. There would be long-term declines in wage growth, investment and overall economic activity, which would represent a loss of $ 117 billion of GDP in the first two years.
Well, an analysis done by an independent source would have more credibility than the National Association of Manufacturers, which has an ax to grind. Often, studies done by commercial groups have a good deal of embellishment built into their numbers.
Surprisingly, his article misses the number of new jobs that will be created by Biden’s infrastructure and other spending proposals. Biden says his plan will create 19 million new jobs nationwide. I’m sure there are a lot of embellishments in these predictions as well. But you get the point. The analysis is sorely lacking if it mentions job losses without including job gains.
My two cents: Taxes hinder growth, but the question is how much? Economic growth was robust most of the years between 1950 and 1980, when tax rates were sky-high. The proposed tax hike is unlikely to hurt Florida, especially when you factor in the increased spending. For example, the construction of a high speed rail line between Tampa and Orlando will increase GDP and employment.
The higher taxes are also unlikely to change the lifestyles of business owners who Feeney says will bear most of the burden. But it could reduce their offspring’s inheritance, which is for the best.
Let them earn their own money. Their prosperity should be determined by their contribution to the economy rather than by the contribution of their parents. The Conservatives have always argued that you should earn your income rather than receive donations. If welfare benefits reduce the incentive to work, so too would bequeathing large sums of money to offspring.
Murad Antia teaches finance at Muma College of Business, University of South Florida (USF), Tampa.