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Low taxes: Is that the formula for job growth?

By SYDNEY P. FREEDBERG, Times Staff Writer
Published October 26, 2003

Do low corporate taxes spur investment and jobs? Or do they simply reward the wealthy while increasing the tax burden on people who can least afford to pay?

While some companies clearly respond to Florida's low-tax lure, others say their investment decisions have little or nothing to do with state corporate income taxes.

The real key to succeeding in today's economy, some business executives say, is a pool of well-educated workers, low crime rates and competent judges who understand complex business laws.

"Big companies want those services," said Martha Barnett, a corporate lawyer who lobbies for IBM and Microsoft in Tallahassee. "It's because we're not meeting those needs that Florida is not enjoying the economic development and expansion that we otherwise should have."

Officials in Gov. Jeb Bush's administration operate on the belief that the economy struggles because of excessive taxation. Raising corporate taxes would put at risk Florida's competitive advantage in attracting investment, they say, adding that the state's low tax rate is a key reason Florida leads the nation in job growth.

"These are real jobs for real Floridians," said Alia Faraj, a spokeswoman for the governor. "We should be proud of these successes."

What Faraj doesn't say is that, like many other states, Florida is losing manufacturing jobs.

And though the Bush administration and some business lobbyists say higher taxes could make businesses pull up stakes, critics cite Florida as a vivid example of a low-tax system that fails to invest in a skilled workforce needed to prosper in today's economy.

They say Florida's tax system - a hodgepodge that relies heavily on the regressive sales tax - rewards wealthy corporations for things they would have done anyway.

Studies exploring a link between low taxes and job growth have had mixed results.

A recent study by a business trade group found that since 1999, businesses have paid more in total state and local taxes while jobs were being cut.

"The correlation is undeniable. As businesses cope with one tax hike after another, something's got to give. Unfortunately, payroll frequently takes the hit," said Joseph Crosby, legislative director for the Council on State Taxation. The council represents 550 multistate corporations.

But a survey last year that measured how states are adjusting to today's economy may support those who say there is little or no link between low taxes and job growth.

Florida, the nation's fourth most populous state, ranked No. 18 in the survey, which was compiled by the Progressive Policy Institute, a Democratic think tank.

States that did better than Florida tended to have higher concentrations of college-educated residents and atmospheres that foster support and innovation.

While Florida scored well in indicators such as "job churning" (a measure of new startups and business failures combined) and "gazelle companies" (companies with sales growth of 20 percent or more for four straight years), the state lagged behind in some key success measures.

It ranked 35th, for example, in workforce education, 39th in technology in schools and 49th in scientists and engineers as a percentage of the workforce.

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