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Gordon MacInnes

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Lessons from Roche's NJ Exit: Taxes Aren't the Magic Bullet for Job Creation

Posted: 07/06/2012 5:10 pm

Not even the loss of 1,000 high-paying jobs as Roche abandons its 80-year tie to New Jersey is enough to shake the one-note insistence of Gov. Chris Christie's administration that taxes are all that counts in holding and attracting jobs.

"Roche made the determination that despite the fact that we offered them a very significant package of incentives that they were going to do much better in another state," was the governor's explanation to a Mahwah town hall crowd. The governor neglected to add that New Jersey's offer was made the day before the Roche announcement.

If taxes and tax incentives are as important as Gov. Christie suggests, then one would expect these enviable jobs to be shifted to low-tax Nevada, Tennessee or Wyoming. Actually, the research jobs are going to high-tax Switzerland and Germany, while Roche seeks a place in the high-tax Northeast for 240 other jobs. (The Christie administration says it is doing "everything we can" to ensure the company chooses New Jersey for that facility, a strategy that will undoubtedly include generous tax breaks.)

After Roche purchased Genentech in 2009, it moved 4,000 marketing, sales and headquarters jobs to South San Francisco. Elsewhere in the pharmaceutical world, Sanofi-Aventis announced last year that it would close its Bridgewater facility and decamp to Massachusetts.

New Jersey's share of pharma jobs has shrunk from 21 to 11.8 percent since 1990, with California and Massachusetts two of the largest beneficiaries of the Garden State's loss. For the record, California's tax burden is not much different than New Jersey's, nor is Massachusetts'.

The message that tax cuts -- not investment -- is the route to prosperity is a common theme of today's politics. Too bad it's not true.

Higher tax states tend to be where high-value-added job creators -- like pharmaceutical companies -- want to locate, for a number of reasons -- a high-quality education system that produces a high-quality workforce being a big one. A February review of which states are doing best in digging out of the Great Recession confirms this view.

The graph shows that the nine high-tax states -- including New Jersey -- are economically outperforming the nine without an income tax. Given the drumbeat message of tax cutters, one would expect just the reverse.

The only strategies employed by the administration are to give tax credits for corporations retaining jobs in New Jersey and to push reductions to the only tax constitutionally dedicated to property tax relief. This won't work because it ignores that marginal tax rates are not what drives business location decisions. Workforce quality is much more important in attracting jobs that bring high incomes, wealth and private investment.

 

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