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Wednesday, June 27, 2012

Some Jersey comeback, eh?
Posted by Jill | 8:31 PM
New Jersey's corpulent governor, Chris Christie, has had a rollercoaster ride this year. He went from making a thrill go up Joe "Dead Intern" Scarborough's leg as a drool-worthy VP running mate for Willard Rmoney to a less-than-flattering Newsweek cover story titled "Has Christie Blown It?".

And through it all, Christie has been touting "The Jersey Comeback". For two years he's been painting himself as a responsible fiscal conservative, despite planning in 2010 to borrow even more money for the state's Transportation Trust Fund and even now, with revenues less than expectations, insisting on an income tax cut and presenting a budget with increased spending.

Yesterday, Christie's touting of himself as a "job creator" had a giant bucket of slops poured over it as Roche Pharmaceutical announced that it would close its Nutley, NJ US headquarters, eliminating almost 1000 jobs.

Christie was quick to blame the state's tax structure, saying the state's high taxes make it hard to compete with lower-tax states like Pennsylvania.

Except for one thing: Roche is not moving the jobs to a lower-tax state. The company is moving its operations to Germany and Switzerland.

Germany has a significant corporate tax structure:
A German corporation (AG or GmbH) is subject to corporation tax in Germany. From 2001 until 2007, distributed and retained income was taxed at a uniform rate of 25 percent. Since 2008, profits are subject to a corporation tax rate of 15 percent. In addition, corporations have to pay a so called solidarity surcharge which is calculated with 5.5 percent on corporation tax. Based on a corporation tax rate of 15 percent, solidarity surcharge amounts to effectively 0.825 percent. Corporations are also subject to trade tax which amounts to an average rate of 14 percent. The overall tax burden for corporations in Germany therefore amounts to around 30 percent.
Germany also has robust worker protections, unemployment insurance that doesn't run out, and paid parental leave. Rather than laying off staff, German companies will cut hours or institute job sharing. Say what you will about the high taxes paid in Germany, but German citizens get a lot of bang for their tax buck, unlike in the US, where far too much of our taxes go into the black hole of the military. Switzerland, by contrast, is an low-corporate-tax country at a total of about 13.5%. But it too boasts a robust social safety net.

So it isn't taxes that drove Roche out of New Jersey; if it were, Roche would have moved to Pennsylvania, or Mississippi. But as the Star-Ledger editorial board noted today:
If you listen to Gov. Chris Christie, this is all about taxes. His economic program boils down to this single piece of dogma: Cut taxes, especially on the rich, and the economy will boom. Raise taxes, and you will kill jobs.

The Roche case shows that this formula is simplistic nonsense, and that there is much more to it. Note, first, that Roche had already moved its top executives and its sales and marketing operations to San Francisco, which has higher taxes than New Jersey. The work it now does in Nutley will move to Switzerland and Germany, two more places where taxes are higher than here.

These facts are not likely to penetrate the governor's conviction that lower taxes are the holy grail. President George W. Bush promised his tax cuts would create a jobs boom, and the strategy failed miserably, leaving behind only a mountain of debt.

Now Mitt Romney promises more of the same. This stuff is baked into the GOP's DNA.

The reality is that many other factors are at play when a company selects a spot to invest. An educated workforce counts. A modern transportation system. The pharmaceutical companies that have left New Jersey often go to high-tax states, like California and Massachusetts, where they can form partnerships with elite research universities. Companies also look at quality of life, and good public schools for their kids, both major draws for high-tax New Jersey.

If it were all about taxes, then Mississippi's economy would be booming.

Mississippi has the lowest literacy rate in the nation, with 20% of adults unable to read. Somehow I don't think a state like that is going to appeal to a pharmacuetical or other high-tech company, no matter how low the taxes are.

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Blogger New York Crank said...
When God made blogging, it was so that pieces like this would be out there on the Internet. It's a great, well-referenced analysis that spreads the word on Governor Fatso's perfidy for those of us who don't read the Newark Star-Ledger. First rate job. Congratulations.

Crankily yours,
The New York Crank