There are some out there that like to make the claim that lower taxes do not = increased economic growth. After all, despite the moderate cut in Ohio’s income tax, the state’s unemployment rate still increased, right?
For the sake of brevity, we’ll mostly ignore the fact that Ohio’s taxes on business are particularly harmful:
Ohio is one of just seven states to impose a gross receipts tax, which is imposed on businesses regardless of their profitability. While politicians like gross receipts taxes because they have deceptively low rates and they are thought to be a more stable source of tax revenue, economists have found gross receipts taxes to be particularly harmful because they tax all transactions, including intermediate business-to-business purchases of supplies, raw materials and equipment. As a result, gross receipts taxes lead to taxes on taxes—something economists call “tax pyramiding.
But I digress.
An article in the Wall Street Journal recently took us across the pond to Europe for a better understanding of how a low tax environment can help state economies explode:
Switzerland’s states, known as cantons, are offering rock-bottom tax rates meant to tempt multinationals into establishing regional headquarters or other operations in their jurisdictions. In doing so, other cantons are trying to take business away from Zug, the Swiss canton that has mastered the game of attracting business to such a high degree that it is beginning to run out of space.
The battle for multinational business comes as companies have become savvier about relocating more activities to regional headquarters to lower their tax burdens. According to consultancy McKinsey & Co., Switzerland attracted more than 180 regional headquarters of large foreign companies between 1998 and 2008. In just the last several years, Kraft Foods Inc., Yahoo and Google Inc. have established European headquarters in Switzerland, and more than 150 U.S. companies now have a presence here.
Because running to Washington and begging for $1.1 billion in taxpayer dollars isn’t it.