State Taxation and Job Growth

JBC writes:

I wondered if you had ever looked over this report [PDF] that compares Vermont job growth to New Hampshire job growth? It is interesting in that it directly refutes the idea that low taxes are business friendly and provides a much more robust explanation for job growth. Namely, most jobs are created inside of states, rather than poached from neighboring states, job stability comes from lots of small employers, not a few huge firms and people, including business owners and corporate executives, like to live in areas with high quality of living. Thought you’d appreciate it:

It is interesting. I actually think this kind of question is better investigating initially through theory. If you’re thinking about Maryland, you can tell a very straightforward story about why lower taxes might lead to job growth. Maryland taxes rich people at a higher rate than does Virginia. Were this to change, rich people who work in DC might be less inclined to live in Virginia and more inclined to live in Maryland. Their migration to Maryland would create further jobs in the personal services sector. That’s not definitive, but it makes sense.

But is a rich lobbyist going to move to Alabama for a tax cut? Obviously not. That doesn’t make sense. The tax competition issue is real, but limited, and the further you get from New Jersey the less real it becomes. Rich people just basically like to complain about taxes. States should worry much less about this and much more about permits, licensing, land use, and the actual quality of their public services. If it were easier to open a bar in DC, there would be more jobs for bartenders. Sensible people would rather pay high taxes and send their kids to great schools than pay middling taxes for bad schools. But are your schools actually good?