Higher taxes do not kill jobs

America added 2.3 million jobs last year as the economy continued its too-slow recovery from the Great Recession. But it is where those jobs were concentrated that should garner attention. New county-level data from the Bureau of Labor Statistics (BLS) reveal where jobs are increasing and decreasing. According to the numbers, job growth was concentrated in places that raised taxes, such as California, and in already high-tax areas, notably New York City.

Indeed, the empirical evidence indicates that increased or already high taxes appear not to put a damper on jobs, posing new challenges for those who argue that tax cuts are the primary and perhaps sole elixir for our economic woes and that tax increases always and everywhere spell doom for job seekers.

First, consider California, where voters in 2012 elected to increase both sales and income taxes beginning in 2013. Last year California ranked third in job growth at 2.9 percent, much better than the national average of 1.8 percent. 

The best job growth was in rural and lightly populated North Dakota, where the Bakken Shale oil boom resulted in 3.3 percent job growth and a 3.8 percent growth in average weekly wages. Utah ranked second in job growth at 3.1 percent.

Just three California counties accounted for every 16th new job in America last year. Los Angeles County added 76,600 jobs. Santa Clara County, the heart of Silicon Valley, added 38,200 jobs. And San Diego County added 37,000 jobs.

Add in Orange County, the rich suburban area between LA and San Diego, and every 13th new job in America was created in just four counties.

America has 3,144 counties and what the demographers call county equivalents. So about a tenth of 1 percent of counties accounted for more than 6 percent of job growth in America last year.

This highly concentrated growth occurred after the California tax increases took effect for all Californians, but especially the top 3 percent. Proposition 30, which voters approved in the November 2012 general election, increased the state sales tax rate by a quarter of a point to 7.5 percent. Marginal income tax rates also increased significantly in California last year, hitting high-income earners the hardest.

The top state income tax rate had been 10.3 percent on taxable incomes over $1 million or more. Now that rate applies at $250,000. New brackets at $500,000 and $750,000 are each 1 percentage point higher.

For taxable incomes above $1 million, the rate is now 13.3 percent. This new “millionaire’s rate” is a 29-percent increase in the marginal rate compared with 2012. In dollar terms, the cost is an additional $33,000 on each million dollars for those already making $1 million or more.

It's hard to imagine anyone with enough brains to earn more than $1 million a year deciding to flee California over such a small sum of money, though anti-tax advocates make that claim. Anecdotal evidence of this or that very high-income resident deciding to move from California will, for sure, exist.

Nevertheless, in a few years, when we get detailed statistical reports, they will likely show the same pattern as in past years with most state-level tax increases. The tendency is for people who can command big paychecks to go where the high-paying jobs are, not to the lower-tax jurisdictions, which generally have fewer high paying jobs and far fewer cultural amenities.

Across the country we can see what happens in a city long known for its high costs and high taxes: New York County, otherwise known as the island of Manhattan. Last year Manhattan ranked third in the number of new jobs added, the new data show.  

Manhattan last year added 58,400 jobs, a 2.4 percent increase that was well above the 1.8 percent national average. 

To be sure, not all of the job growth in America took place in areas with high taxes or increased taxes. Nor am I arguing that higher taxes mean more jobs. But statements that higher taxes must or do destroy jobs are not supported by the facts.

As for job growth in areas with a strong aversion to progressive taxes, there are factors more important than low taxes for their strong employment numbers. For example, consider Houston and surrounding Harris County, the fourth largest population center in America. Harris County added 64,200 jobs last year, an increase of 3 percent. Dallas performed even better with a 3.2 percent increase in jobs.

Both Texas metropolises benefited from the domestic fossil fuel industry booms. Dallas enjoyed a 5.6 percent increase in trade, transportation and utilities jobs, which more than offset a 4 percent decline in manufacturing jobs.

When it comes to job growth, nearness to markets, reliable electricity and transportation for goods as well as a large labor pool with skills needed by specific industries may be much more important than tax rates or marginal tax-rate increases.

Overall, the 334 largest counties — those with 75,000 or more jobs — account for 71.2 percent of jobs. But last year those counties enjoyed 76.2 percent of jobs added.

Only three states had fewer jobs at the end of 2013 than in 2012 and all are rural and poor: Arkansas and New Mexico, each down minimally at a tenth of 1 percent, and West Virginia, which had 0.6 percent fewer jobs. Put another way, Arkansas and New Mexico lost one job in 1,000, while West Virginia shed one job in 166.

In addition to the fundamental questions about what relationship, if any, tax increases and high tax burdens have on job creation, the new data also reflect a significant and underappreciated trend in America: concentration effects.

Incomes and wealth are becoming more concentrated, with the top 1 percent capturing almost all of the income gains from 2009 to 2012.

Population is also becoming more concentrated. The 2010 census found that urban areas were growing about 25 percent faster than the nation as a whole. New York City, with its infamous housing costs and tiny apartments for all of the wealthiest, now has a record population of more than 8.4 million. The city’s share of Empire State population is on the rise as its population grows while northern and western New York, with all their forests and fields and old industrial cities and towns, experience flat to falling population and jobs.

Jobs are slowly but steadily concentrating in urban centers and their neighboring counties. A host of factors contribute to this, not the least changes in freight rail transportation and access to fiber optic networks that encourage rural manufacturers to relocate closer to urban centers.

The big railroads want to minimize the number of times they must slow down or stop to pick up or drop off just a few freight cars because it’s much more efficient to move cargo with no stops. CSX Transportation, which owns railroads serving the East Coast and Midwest, advertises that it moves a ton of freight nearly 500 miles for each gallon of diesel fuel. True, but that number falls sharply if the train stops and starts repeatedly, or just slows down a lot, to grab or drop off cars on sidings for manufacturers in less densely populated areas. So some manufacturers have moved to China, some to urban areas and others have just closed up shop.

Our shrinking choices among telecommunications providers force many companies to move to the relatively small geographic footprint where fiber optic or other significant broadband capacity and speed are available. Here government policy allowing telecoms to pick and choose where thy build their networks encourages concentration.

Factors such as these are likely much more significant to job-creation trends than tax increases. Indeed, in those states where cutting taxes to promote growth has become official dogma, we are more likely, over the long haul, to see declining numbers of jobs as smaller budgets mean failure to maintain the public furniture — roads, bridges, water, sewer systems and the like — on which commerce relies.

Taxes are not just a burden. They are also a benefit when used to create and maintain the commonwealth property and services that enable wealth creation and jobs. From educating children to making sure bridges are safe to operating the civil and criminal justice systems, taxes produce benefits that more than pay for themselves.