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More Evidence That You Can’t Lure Entrepreneurs With Tax Cuts: Live from La Farine LXXXXXV: February 26, 2014

Michael Mazerov: More Evidence That You Can’t Lure Entrepreneurs With Tax Cuts: "Cutting state taxes to attract entrepreneurs is likely futile at best and self-defeating at worst, a new survey of founders of some of the country’s fastest-growing companies suggests....

The 150 executives surveyed by Endeavor Insight... said a skilled workforce and high quality of life were the main reasons why they founded their companies where they did.... This suggests that states that cut taxes and then address the revenue loss by letting their schools, parks, roads, and public safety deteriorate will become less attractive to the kinds of people who found high-growth companies.  (Hat tip to urbanologist Richard Florida for calling attention to the study.) As I wrote last year on why studies show state income tax cuts aren’t an effective way to boost small-business job creation:

Nascent entrepreneurs are not particularly mobile.  Rather, they tend to create their businesses where they are, where they are familiar with local market conditions and have ties to local sources of finance, key employees, and other essential business inputs....

The new survey... found that:

The most common reason cited by entrepreneurs for launching their business in a given city was that it was where they lived at the time... personal connections... specific quality of life factors... access to nature or local cultural attractions.... 31% of founders cited access to talent as a factor... the link between the ability to attract talented employees and a city’s quality of life.... 5% of entrepreneurs cited low tax rates as a factor... [2% mentioned] business-friendly regulations....

Kansas, North Carolina, and Ohio have cut personal income taxes significantly in the last two years, and in each case the governor argued that it would give a big boost to creating or attracting new firms.  This new study provides more compelling evidence that that’s the wrong approach.  Let’s hope other states don’t start down the same dead-end path.

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