When we think about business, we … must think
about taxes. However much we improve our schools or make
our neighborhoods safe, we will not be able to bring New
York all the way back unless we also confront the issue
of taxes. There may have been a time in the past when
taxes were less important than they are today. Some regions
of the country lacked adequate infrastructure. In many
states, public schools and universities were underfunded.
But if taxes may have been less important in the past,
no one can seriously make that case today, although I
realize that some will continue to try. Other regions
of the country have clearly caught up. Computers and the
Internet have changed the way the world does business.
And capital has never been more mobile. The growth of
publicly traded companies, in tandem with the shareholders
rights movement, has also changed the landscape of business.
Nowadays, managers face more pressure than ever to meet
their numbers, maybe too much pressure. So, yes, taxes
matter. They clearly affect business location decisions.
And they clearly affect investment decisions.
Large corporations think long and hard about where they
want to allocate their investment dollars. It makes headlines,
when a company decides to move into or out of a state,
but over the long term, investment decisions are just
as important. A company that can earn a higher after-tax
rate of return in one state rather than another is more
likely to invest in new facilities and technology, where
it can earn the most money. That does not mean that company
directors will immediately shut down a factory, or close
an office or processing center, just because taxes are
high. But decision making can change rapidly in a recession.
When managers have to retrench, it only makes sense they
will concentrate their efforts in states where taxes are
highest and operations least efficient. So yes, taxes
matter. They matter a lot.
