Cutting Taxes for Reliable Economic Development


When it comes to economic development in blue states like Rhode Island, politicians prefer to focus on subjects like “quality of life.” A recent study published in the National Bureau of Economic Research discussing the impact state taxes have on the migration of top earners should direct attention back to the basics of economic growth.

A few years ago, with the Rhode Island struggling to recover from the recession, legislators mandated an economic development plan. What the state wound up with was a local application of the federal Department of Housing and Urban Development’s six “livability principles,” with the lead benefit, according to then-governor Lincoln Chafee (D), being “pride and appreciation” of local environment, architecture, and culture.

More recently, the speaker of the Rhode Island House, Nicholas Mattiello (D), has backed the expensive idea of moving the Pawsox, the state’s minor league baseball franchise, a few miles down the road, from Pawtucket to Providence. The team has threatened to move across state lines, and advocates like Mattiello see it as part of the state’s culture.

Economists agree that quality of life, geography, and other factors obviously affect an economy, and the NBER report’s authors, Enrico Moretti and Daniel Wilson from the University of California at Berkeley and the Federal Reserve Bank of San Francisco, respectively, acknowledge that tax rates aren’t everything.

Their study specifically looks at “star scientists,” those in the top 5 percent for the number of patents that they file. Moretti and Wilson were not able to predict numbers of star scientists based purely on tax rates. “The effect” of tax rates, they write, “is swamped by all the other differences across states.”

Pointing to that concession, however, is a long way from figuring out which non-tax thing should be changed and, even more, finding politicians to pick the right direction. By contrast, according to the economists, reducing personal income and corporate income tax rates has “large, stable, and precisely estimated effects” on star scientists’ decisions about where to locate.

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  • ShannonEntropy

    In correlating the numbers of star scientists with income tax
    rates ,, you may be confusing cause and effect — a logical fallacy technically known as Post hoc ergo propter hoc

    What if the star scientists donut find The Biggest Little attractive to begin with; and so their high income can’t be taxed cuz they live somewhere else; so the “progressive” pols raise taxes on everyone else to try to make up the difference ??

    The reason I say this is cuz most of your stars are in academia and want to work in major university. Mass has Harvard & MIT; CT has Yale; and NH leads cuz southern NH is basically a bedroom community of Boston

    Rhody has Brown — a D-1 Ivy but academically a JOKE in the world of higher education. I only came here from a university in SC cuz I was heavily recruited with an extremely generous benefits package. My plan was to stay for ~ 2 yrs — a sort of “in house sabbatical” — and then shoot for the UCal system [[ preferaby UCSF near where my first wife was from ]] But then I met the future Mrs ShannonEntropy who was originally from LA but whose entire family lived here now … so we never left

    Brown is notorious for being where the rich or famous or both send their kids, and our student body is not exactly filled with future Nobel-prize winners

    One of my fave stories about the students involves one of its most famous alums, John F Kennedy Jr ’83 — who got an A.B. in History

    From an old email I sent in reply to a colleague who lives in Kansas =►

    > RE : ” Helpern was quite famous in his day, too. There isn’t even a Wiki article on him now. ”

    > My father says that the cemeteries are full of indispensable men… A little story about that
    > Remember when John-John Kennedy’s plane crashed off M/V back in 1999 ?? . .,_Jr.
    > Well ,, All and I mean ALL of the grad students & post-docs I work with were shocked, *shocked!* to learn that his father had been POTUS !! They all thought he was “famous for being famous” ,, like a Kardashian or Paris Hilton !!

    > Donut forget … not only did John-John graduate from Brown in ’83, his dad JFK was a congressman and then a US Senator in Mass ,, and got married in our state in Newport — Jackie’s home town — in one of the most publicized weddings in the history of our nation … and then was assassinated in what was arguably The Crime of the Century …. yet 36 yrs later ,, none of these kids had ever even heard of him !!

    And that is at the graduate and up level. Here are some of our undergrads, in their own words, just so you understand why anyone with serious academic creds would by·pass Brown to work almost anywhere else =►