Days after Massachusetts residents began feeling the sting of new tax increases, Florida’s Republican governor, Rick Scott, cheerfully reminded them that they have other options.
On Aug. 6, Scott sent letters to 100 Massachusetts business owners, inviting them to relocate to the Sunshine State “because we have the perfect climate for your business.” He trumpeted his state’s “incredible economic turnaround,” and drew a few pointed contrasts: “While Florida’s unemployment rate has seen the second-largest drop in the country, Massachusetts’ June unemployment rate increased to the highest since November 2011,” Scott wrote. “While Florida ranks fifth in the nation for our business tax climate, Massachusetts is stuck at No. 22, according to the Tax Foundation.” And now that taxes are up again — Beacon Hill raised taxes on gasoline and cigarettes, and enacted a 6.25 percent sales tax on software and computer services that has the tech sector in an uproar — “it’s bound to get worse in Massachusetts.”
From Scott’s Democratic counterpart in Boston came a huffy response. “I am not surprised that other states wish they had the successful and growing innovation businesses that we have here in Massachusetts,” said Governor Deval Patrick’s economic development chief, Greg Bialecki. Low taxes may be venerated in red states like Florida, but the governor of bluest Massachusetts worships at a different altar. “We have committed to long-term investments in education, innovation, and infrastructure, all good news for companies doing business here,” Bialecki said.
But if hiking taxes and spending is such good news for Massachusetts entrepreneurs, it’s hard to understand why the Massachusetts High Technology Council and the Massachusetts Taxpayers Foundation, two of the state’s leading business advocates, have launched a campaign to repeal the software tax. Or why it isn’t only analysts at the Tax Foundation who judge the business tax environment in Florida to be far more appealing than the one that prevails in Massachusetts. In May, the tech-focused business magazine Fast Company ranked Florida the best state in the nation for business innovation and start-up culture. Massachusetts came in at No. 42.
If tax-more-spend-more were really the formula for spurring growth and encouraging entrepreneurs, why isn’t Patrick the one sending out invitations? Unlike Scott, who points out that his state has no income tax, Patrick could try to interest business owners in the advantages of moving to a state where the combined state and local tax burden (as a percentage of income) is the nation’s 8th heaviest. He could make the same pitch to business leaders in Florida and other low-tax states that he has repeatedly made at home — that the way to “significantly improve our economic tomorrows,” is with big tax and spending increases today.”
He could cite Forbes magazine, which gives Massachusetts top marks for quality of life — reflected in strong schools, a healthy population, arts and recreation opportunities, and stellar universities — while simultaneously observing that business costs and regulations in this state are among the most onerous in America. A worthwhile tradeoff? Forbes seems to think so: It ranks Massachusetts higher than all but 16 other states, including Florida.
The argument can be made, but will it convince taxpayers, entrepreneurs, and business innovators to move to Massachusetts? Jim Stergios of the Pioneer Institute, a market-oriented think tank in Boston, notes that between 1990 and 2007, the number of companies headquartered in Massachusetts fell from 16,000 to 11,000 — accounting for the loss of about 250,000 jobs. Over the past two decades, he says, Massachusetts has experienced no net employment growth. Massachusetts today “is still 100,000 jobs short of even our 2001 employment levels.” And all the while taxpayers keep moving away from states like Massachusetts, where taxes are high, and migrating to states like Florida, where the tax burden is low.
Is it all about taxes? Clearly not; decisions about where to live and work are affected by all kinds of considerations, from weather to family to education. But it is preposterous to imagine that nobody changes their economic behavior in order to minimize their tax bill. If that is true for individual shoppers deferring a purchase until the sales-tax holiday, how much more so is it true for entrepreneurs and investors deciding where to do business? Massachusetts may be a perfect fit for your business. But if it’s not, Florida’s governor would like to remind you: You’ve got other options.