Wandering Job Creators are getting to be right up there with The Hook as a tale to scare gullible Minnesotans.
You've heard of them, I'm sure. Those heroic figures who daily fling themselves against hostile government regulation and confiscatory tax rates to bring you jobs that would not have existed without their brilliance, perseverence and wealth. Especially wealth, which, as you know allows them to live anywhere they choose — including South Dakota.
But what job creator would move their residence and business just for a more friendly tax climate?
This urban myth has been repeated often by state Republicans, including House Speaker Kurt Zellers, Senate Majority Leader Amy Koch and state party chair Tony Sutton, whose main authority on the subject of jobs comes from killing them during his tenure at Baja Sol.
In one version, Rep. Zellers, about 3:10 into this interview, describes a hypothetical small businesswoman forced to relocate her business to Sioux Falls, SD, or Hudson, WI, in order to "keep her doors open" because Minnesota raised its top tax rate and her business income flows to her personal tax return.
The scenario is unlikely in so many respects.
Assuming our Hudson-bound owner is successful to have a household taxable income of $300,000, the Dayton income tax proposal would take an additional $1550 in taxes. The higher rate would not affect her ability to pay the tax deductible expenses associated with the business, so it's difficult to see how the owner might have to close her doors. She would have slightly less disposable income if her business sales remained flat; if sales declined she would earn less and pay less tax, and if sales rose, she'd make more money and pay a bit more in taxes, too.
To save that $1550, she'd have to change her state of residence and sell her house or add the cost of acquiring a second residence in the new state. In the current housing market, the sale would unlikely be quick or profitable for the owner.
To establish her business in the new location, at minimum she would have to locate new space, change her business communications (letterhead, phone, website, signs), reinstall systems, reregister vehicles, etc. If she is a professional or tradesperson, she may also have to obtain a license in the new state, register her business and become acquainted with state rules and tax regulations. There will likely be some business interruption and revenue loss associated with a move.
She might be able to count on retaining her customers if her business is conducted virtually or if they remain in the same geographic radius. If she has employees, they may decide to move to the new location with her — or she will have to go through the work and risk of finding a new and comparably performing work force.
She will encounter new competition in a new location and may have to introduce herself to new customers and suppliers. For about 15 years, my company has maintained a sales office in Atlanta that we tried to expand into a second creative shop. The regional business culture made it a struggle and we eventually stopped pouring money into the attempt. Unless a business serves national clients, it will be challenging to pick up new customers as the new kid in town.
Relocating retail and service businesses — the vast majority of businesses affected by the Dayton tax proposal — is risk-laden for the owner, but not necessarily bad for jobs here because other companies will fill the need left behind. For example, Sen. Amy Koch is associated with two family businesses — one in property management and the other providing services to local utilities. If she relocated, could she take those jobs with her or would they have to stay in Minnesota because the properties and utility lines are here?
Yes, we may lose some of the income from the departing high earner, but the greater local loss of jobs is not through migrating owners — it's due to cutting teachers and other public jobs. The idea cutting these positions frees capital to create private sector jobs has some validity, but the impact of losing real jobs is greater than the benefit some phantom jobs. Ask Speaker Zellers about the impact on his family of losing his wife's job as a public school teacher. Would he trade it for his tax cut "job creation?"
When you look at these claims in light of reality, they fall apart, and the media should insist on real examples and data that show this is an actual problem whenever this storyline resurfaces.