Virginia GOP Wrong on Tax Cuts and Attracting Entrepreneurs

Republicans in the Virginia General Assembly constantly blather that cutting taxes is the way to attract new businesses and entrepreneurs to Virginia.  Meanwhile, they seek to slash education spending, allow the Commonwealths infrastructure to crumble and maintain a societal atmosphere that enshrines Christofascist religious values into the civil laws, making Virginia look like it is governed by the Christian Taliban.  Based on a new study, the Virginia GOP has things ass backwards to put it mildly.  Quality of life, good schools and other factors are much more important in attracting entrepreneurs than low taxes.  But then again, today's Virginia GOP has most things ass backwards.  Here are highlights of a review of the study findings:

Cutting state taxes to attract entrepreneurs is likely futile at best and self-defeating at worst, a new survey of founders of some of the country’s fastest-growing companies suggests.  The study, which is consistent with other research, should be required reading for state policymakers — especially those in [Virginia,] Michigan, Missouri, Nebraska, Ohio, Oklahoma, South Carolina, and Wisconsin who are pushing for large income tax cuts.

The 150 executives surveyed by Endeavor Insight, a research firm that examines how entrepreneurs contribute to job creation and long-term economic growth, said a skilled workforce and high quality of life were the main reasons why they founded their companies where they did; taxes weren’t a significant factor.  This suggests that states that cut taxes and then address the revenue loss by letting their schools, parks, roads, and public safety deteriorate will become less attractive to the kinds of people who found high-growth companies.

• “31% of founders cited access to talent as a factor in their decision on where to launch their company. . . .  A number of founders also highlighted the link between the ability to attract talented employees and a city’s quality of life.”
• “Only 5% of entrepreneurs cited low tax rates as a factor in deciding where to launch their company” and only 2% mentioned “business-friendly regulations” and other government policies.

Kansas, North Carolina, and Ohio have cut personal income taxes significantly in the last two years, and in each case the governor argued that it would give a big boost to creating or attracting new firms.  This new study provides more compelling evidence that that’s the wrong approach.  Let’s hope other states don’t start down the same dead-end path.

Richard Florida who coined the term the "creative class" has further observations in The Atlantic:

But what really attracts innovative entrepreneurs who create these economy-boosting companies?

The answers: talented workers, and the quality of life that the educated and ambitious have come to expect – not the low-tax, favorable-regulation approach that many state and local governments tout.

Endeavor identified two fundamental patterns.

For one, size matters. These top business-creators gravitated towards cities with at least a million residents in the metro area. This offered the scale and diverse array of offerings needed to attract talent.   

A city also needs to be able to appeal to the young and the restless. The entrepreneurs surveyed were a highly mobile bunch when they first started out. 


The top rated factor by far was access to talent. Nearly a third of those surveyed mentioned it as a key factor in their decisions for where to live and work (many specifically prized access to technically trained workers). Entrepreneurs explained that they proactively sought out the places that educated and ambitious workers want to be.

The study found that two other key factors in the location choices of entrepreneurs are major transportation networks (like airports and highways that can connect them to other cities) and proximity to customers and suppliers. This echoes MIT’s Eric von Hippel's claim that end-users and customers are key innovators.

Perhaps even more interesting from the perspective of urban policy are the location factors that did not make the cut – those that high-growth entrepreneurs found to be of little consequence in their location decisions. At the very bottom of the list were taxes and business-friendly policies, which are, unfortunately, exactly the sorts of things so many states and cities continue to promote as silver bullets. Just 5 percent of the respondents mentioned low taxes as being important, and a measly 2 percent named other business-friendly policies as a factor in their location decisions.

Here in Hampton Roads we meet the 1 million plus population factor, but thanks to years of neglect and GOP refusal to raise taxes our transportation system is inadequate.  Adding to the problem is the poor air service available at the regions two airports.  If Virginia wants areas like Hampton Roads to prosper, they need to (i) drastically improve the transportation infrastructure and quality of air travel service and (ii) cease trying to drag Virginia back into the 1950's.  For now, Washington, DC, and Northern Virginia alone meet this requirements and, as a result, they are booming while areas like Southwest Virginia atrophy and become increasingly unattractive to anyone other than religious fanactics and rednecks.