TAX RATES AND JOBS CREATION
Arkansas advocates of raising taxes claim tax rates are not a key factor considered by businesses and entrepreneurs that create jobs, hire workers and provide incomes. Even a cursory review of U.S. Securities and Exchange Commission (SEC) public records reveal how wrong these advocates for higher taxes are as they pursue policies that will cause more good jobs and salaries to flee Arkansas. Tax rates are a factor affecting job creation, according to a comprehensive study commissioned by the Arkansas legislature and records filed by companies with the SEC.
Fluor GLS, a South Carolina siting and consulting firm, retained by the Arkansas legislature to survey the state's ability to attract a manufacturing superproject compiled a "Tax Strength-Weakness Analysis" for legislators. The Fluor GLS study was undertaken at the behest of former state Sen. Bill Gwatney, D-Jacksonville, after other states in the region, including Mississippi, successfully landed manufacturing superprojects. The Fluor GLS study, and a related report ('Project Rosewood') examined Alabama's successful campaign to attract a Daimler-Benz manufacturing superproject. The Fluor GLS study, which is more than 500 pages (including appendices), compares Arkansas to 12 other states in the region, and concludes business tax rates are an important factor that firms consider when making siting decisions for manufacturing super-projects. . The study found Arkansas is not competitive in key areas of tax policy. The Fluor authors observe:
"A state's tax structure can be beneficial or detrimental to a company's long term profitability. Firms seeking to locate or expand a facility understand that taxes are a necessary burden that enables the government to provide services to all businesses and citizens of the community. Businesses realize that any location they choose will result in a tax burden for the company. Therefore, companies take into consideration the tax and assessment rates at which taxes are levied in areas being evaluated.”
Fluor observed, "The State of Arkansas, must understand this fact and take the necessary steps to minimize the state tax burden on companies interested in locating or expanding their operations in the state."
Businesses and entrepreneurs consider tax rates as a factor when making decisions. The 30 firms that comprise the Dow Jones Industrial Average include a discussion of their effective tax rate in SEC reports. Many cite tax rates as a factor that could “significantly impact” results. The SEC is the Washington agency that enforces federal securities laws.
General Motors, the largest U.S. industrial corporation, explained in a June 2003 SEC filing that changes in tax rates are one of many factors affecting the firm’s operations. The filing illustrates the complexities of managing a large industrial enterprise. According to the filing, other factors include, “Changes in economic conditions, currency exchange rates, significant terrorist acts, or political instability in the major markets where the Corporation procures material, components, and supplies for the production of its principal products or where its products are produced, distributed, or sold (i.e., North America, Europe, Latin America, and Asia Pacific.” Other factors affecting GM’s business are, “Shortages of fuel or interruptions in transportation systems, labor strikes, work stoppages, or other interruptions to or difficulties in the employment of labor in the major markets where the Corporation purchases material, components, and supplies for the production of its products or where its products are produced, distributed, or sold.” Other factors are, “Changes in the laws, regulations, policies, or other activities of governments, agencies, and similar organizations where such actions may affect the production, licensing, distribution, or sale of the Corporation’s products, the cost thereof, or applicable tax rates.” (emphasis added)
American Express, another Dow component, cited "changes in laws or government regulations, including tax laws (emphasis added) affecting the Company's businesses or that may impact the sales of the products and services that it offers..." as a factor in a March 2003 SEC filing.
The manufacturer Caterpillar, in a July 2003 filing, noted “higher taxes” (emphasis added) are a factor of business decisions. Caterpillar also observed: "Political factors in the U.S. and abroad have a major impact on global companies. In 2001, the U.S. Congress enacted a tax cut with the first reductions effective in the third and fourth quarters of 2001 and with additional benefits in 2002, which is having and should continue to have a positive impact on the U.S. economy."
Intel, the semiconductor manufacturer, reported in a March 2003 filing: "Our future results of operations and the other forward-looking statements contained in this "Outlook" section, and in our "Strategy" and "Critical Accounting Estimates" sections, involve a number of risks and uncertainties—in particular, the statements regarding our goals and strategies, expectations regarding new product introductions, plans to cultivate new businesses, market segment share and growth rate assumptions, future economic conditions and recovery in the communications businesses, revenue, pricing, gross margin and costs, capital spending, depreciation and amortization, research and development expenses, potential impairment of investments, the tax rate (emphasis added) and pending legal proceedings."
Dow components are not the only firms that cite tax rates as a factor of doing business. Daimler-Benz located a manufacturing superproject in Alabama and reported in a February 2003 SEC filing:
“Apart from general economic conditions, the political environment in the markets in which we operate also affects our sales. More stringent legislation on emissions and fuel consumption, regulations on energy prices or luxury or other taxes (emphasis added) could affect the growth in different product segments, and thus our profitability.”
Other industrial enterprises note similar concerns about taxes. U.S. Steel is the largest integrated steel producer in North America. Through a subsidiary, USSK, the firm is the largest integrated flat-rolled producer in Central Europe. In a March 2003 SEC filing U.S. Steel said:
USSK does business primarily in Central and Western Europe and is subject to market conditions in those areas which are influenced by many of the same factors which affect domestic markets, as well as matters peculiar to international markets such as quotas and tariffs … In particular, USSK is subject to economic conditions and political factors in Europe, which if changed could negatively affect its results of operations and cash flow. Political factors include, but are not limited to, taxation, (emphasis added) nationalization, inflation, currency fluctuations, increased regulation, and quotas, tariffs and other protectionist measures.”
of raising taxes claim tax rates are not a key factor considered by businesses
and entrepreneurs who create jobs and provide incomes. Others grudgingly
acknowledge tax rates are a factor but claim they are a “minor” or “final”
consideration in the job creation process. Neither claim withstands scrutiny.
The consultants (Fluor) retained by the Arkansas legislature found tax
rates are an important factor that firms consider when making siting decisions.
They found Arkansas is not competitive in key areas of tax policy. Public
records filed by some of America’s largest manufacturing enterprises with
the SEC also show tax rates are a factor for businesses operating in the
U.S. and abroad in the global economy.