Employers Threaten to Leave States Seeking to Boost Taxes
Business owners and their advocates have long argued that higher taxes make it difficult for companies to thrive and create more jobs. Lately, those arguments have gained a more sympathetic ear as pro-business allies have been elected to governorships and state legislatures across the nation.
In other states, however, officials are more concerned about closing huge budget gaps and have pushed plans to raise more revenues through higher taxes.
They include California Gov. Jerry Brown, who just days ago signed into law legislation that includes a provision to levy sales taxes on Internet purchases within the state.
Online retailers reacted swiftly to the new law, which took effect immediately. Amazon.com and Overstocks.com immediately dropped all of their California-based affiliates, who earned commissions by referring so-called click-through customers, as the Los Angeles Times explains, to avoid having to collect sales tax in the state.
Seattle-based Amazon and Overstocks, headquartered in Salt Lake City, told their affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers, suggesting that California may see a wave of companies soon depart for less-taxing locales.
Connecticut Gov. Dannel Malloy, who like Brown is a Democrat, is pushing to raise income taxes by $2.6 billion in a bid to close a $3.3 billion deficit in his state budget during the next two years. He also wants to lay off 6,500 state workers to trim $1.6 billion in costs.
The move has caught the ire of the state's vocal hedge fund association, which says raising income taxes may prompt some hedge funds to move out of state.
Bruce McGuire, founder and president of the Connecticut Hedge Fund Association, said Florida and even Shanghai have expressed interest in gaining a portion of the hedge fund industry.
"There are other parts of the country and other parts of the world that would very much like to have what we have here in Connecticut," McGuire told The Associated Press.
Noting that the industry is portable, McGuire said that each time income taxes are raised, "there is a potential for some of these higher earning hedge fund types to decide to move somewhere where they don't have income taxes or have a lower rate."
Whether a company can simply up and move to avoid new or higher taxes depends on the size and type of business, John Alan James, professor of business management at Pace University, told AOL Jobs.
Larger companies with a lot of employees and significant infrastructure in a state probably won't opt to move lock, stock and barrel. But they may choose to show their displeasure at higher taxes by siting a new plant or subsidiary somewhere else.
That's especially true in today's global marketplace where cheaper labor can be found in countries around the world, says James, who served as Connecticut's first director of International Business Economic Development.
Higher taxes may indeed result in companies moving out of state, but lowering taxes doesn't insure that firms will stay put, according to Sen. Kirsten Gillibrand, D-N.Y.
Speaking to reporters during a recent conference call to discuss budget negotiations in Washington, Gillibrand noted that New York State lost 330,000 jobs after President George W. Bush's tax cuts for the wealthy were implemented nearly a decade ago.
That's proof, Gillibrand said last week, that there would be no harm in increasing taxes on wealthy Americans -- who are defined (as part of ongoing negotiations to raise the nation's debt ceiling) as those earning more than $1 million a year.
"We can't afford tax breaks for the wealthiest few Americans who are doing just fine in this tough economy," Gillibrand said, according to the Buffalo News.
Eliminating the Bush-era tax breaks would boost government revenues by $22 billion a year, which could be used in part to help fund tax breaks for businesses that create jobs, she said.
Business-friendly Republicans, of course, feel differently. Raising taxes during the current weak recovery will make it less likely that jobs will be created, says Rep. Tom Reed, whose district is in western New York state.
Speaking to the media on a separate conference call, Reed said, "Every economist I've talked to will say that higher taxes on the private sector will make it less likely you are going to be able to put people back to work."
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