Business Climate, Florida-Style
How well have low tax rates, low labor costs and public-private partnerships served the state?
Gov. Rick Scott and Enterprise Florida recently unveiled a new campaign proclaiming Florida as the “Perfect Climate for Business.” Intended as a fresh way to attract business and jobs to the state, the upbeat message was drowned out by the ill-advised and insensitive use of a necktie to represent the letter “I” in Florida in the logo.
Predictably — how could the creators of the logo not anticipate this? — it prompted an outcry from women’s organizations claiming the new logo communicates a sexist, male-oriented message more along the lines of “Florida: a perfect business climate for men.”
While the state flubbed its public relations campaign, there are more substantive reasons for critiquing the state’s business climate efforts. Namely, they are based on a set of principles and policies that are generally hostile to average working Floridians.
The long-standing “war between the states” over jobs and industry is waged with three primary forms of ammunition — tax rates, labor costs and public-private partnerships.
How well has this three-pronged strategy served the state of Florida?
Scott has made low taxes — and its corollary of less government — a cornerstone of his business-friendly approach. Scott claims that “cutting taxes is essential to economic prosperity” and advances a budget “focused on the goal of shrinking government, reducing your taxes, creating private sector jobs.”
This supply-side economic mantra — that low taxes and less government equals more jobs — has become an article of religious faith among Republicans and Democrats alike. Unfortunately, there is no evidence that shrinking government and reducing taxes will create more jobs or economic prosperity.
An enormous amount of empirical research has examined the relationship between state tax rates and job growth. The general conclusion is that the effects are either nonexistent or negligible, and most agree that there will be no positive effect if government spending is also slashed. This is because, contrary to the prevailing ideology, public spending is an important source of job growth (public and private) and it can also enhance the productivity of the private sector.
There are several reasons for the weak effect of taxes on job growth. First, for most businesses, taxes are a small part of the cost of doing business. When businesses are surveyed about decisions to expand or locate in a state, taxes are rarely a major factor. Second, the more critical factors are the quality of the education system, the condition of the infrastructure and the general quality of life. Starving the public sector will not address any of these factors and, in fact, may only make them worse.
Further, Florida is already regarded as a “low tax state.” The Tax Foundation ranks Florida fifth on the State Business Tax Climate Index for 2013. The absence of a state income tax goes a long way in vaulting Florida to Top 10 status. If there are only four states with a better tax climate than Florida's, why is the state economy so anemic? There are obviously other explanations that have nothing to do with tax rates.
Gov. Scott has also proposed to reduce and eventually phase out the state corporate tax, but it's already the 13th lowest among the 50 states. Again, what do we have to show for our current low corporate tax rate in the way of attracting innovative high tech industry or high-paying jobs?
One thing Florida has accomplished from these tax policies is membership in the “Terrible 10”: states with the most regressive state tax systems. According to the Institute on Taxation & Economic Policy, Florida — which relies heavily on sales and excise taxes for revenue — is ranked No. 2 among the states that “ask their poorest residents — those in the bottom 20 percent of the income scale — to pay up to six times as much of their income in taxes as they ask the wealthy to pay. Middle-income families in these states pay up to three times as high a share of their income as the wealthiest families.”
As it pertains to labor costs, Florida proudly brandishes its status as a so-called “right-to-work” (RTW) state. This law prohibits compulsory union membership and dues collection from employees even when they are represented under its collective bargaining agreement. This law is designed to effectively limit the strength and breadth of union organizing and collective bargaining. The result has been a state that lags behind in worker compensation and quality of work life, but not in poverty. Studies of the impact of RTW laws confirm this pattern. Florida also has the seventh-highest level of income inequality among the states.
In spite of the promise, the right-to-work law has never attracted manufacturing or high tech industries to the state. Florida is 44th in employment in the manufacturing sector. The Information Technology & Innovation Foundation has ranked states on a New Economy Index based on five areas: knowledge jobs, globalization, economic dynamism, the digital economy and innovation capacity. Among the 10 bottom-dwellers on this index, eight are right-to-work states. Florida places 21st on the New Economy Index.
Instead, the low-wage pattern prevalent in the state of Florida has contributed to high levels of economic insecurity among the working population. According to a Rockefeller Foundation study of economic insecurity in the states, Florida ranks fourth on the Economic Insecurity Index (behind the perennial leaders of dubious distinction — Mississippi, Alabama and Arkansas) which measures the proportion of individuals who lose at least 25 percent of their available household income, due to either changes in income or changes in out-of-pocket medical spending, and who lack sufficient liquid financial wealth to fully cushion the loss.
The third piece of the state business climate strategy — public-private partnerships (PPPs) — involves, invariably, taxpayer incentives and subsidies to lure, retain and encourage business expansion. These PPPs have been hyped as the best possible way to solve all economic challenges. Adding “private” to public also makes the policies more legitimate in a political climate that devalues and discredits any role for the public sector. While these PPPs may occasionally generate some innovative and collaborative solutions and projects, more common is simply the public sector financing, subsidizing and catering to the needs of the private sector independent of any gain for the general public; in other words, corporate welfare. This form of “rent-seeking” has been aggravated as corporate interests have captured the political system through direct and unlimited financial contributions to public officials, and as businesses use the threat of capital flight to receive public benefits.
One indication of the severity of this problem is a study conducted by two organizations that make very strange political bedfellows — Integrity Florida and Americans for Prosperity. The study, not the first of its kind, takes aim at Enterprise Florida, the state agency responsible for distributing public monies to corporations, and concludes that the system can be characterized as “pay-to-play” cronyism and “corporate welfare.” Further, it finds that Enterprise Florida has failed to meet its jobs targets, does not hold the welfare recipients responsible for the promised jobs, and has a habit of doling out incentives to well-connected corporations for expansions that had been planned anyway.
At the same time that states and cities are slashing public services that meet the needs of the larger working and economically deprived population, large gifts are handed out to the private sector under the increasingly unassailable banner of public-private partnerships.
In the end, one should question all business climate policies based on the fraudulent claims of neo-liberal supply-side economics — if you give private corporations everything they want — low taxes, weak unions, cheap labor, deregulation and taxpayer incentives — this will bring jobs and prosperity to all. We have a long record of contrary evidence at the national level, starting from the 1980s to the present. As with most policies, some win and some lose, and we now know that the presumed benefits will not “trickle down” and that a rising tide does not “lift all boats.” Record income inequality and the lingering Great Recession are the daily reminders.
If we want to improve the quality of life of Floridians, it will require more than gifts to the corporate class; it will also require government policies that directly improve the employment and living conditions of the working classes. o