Do Businesses Base Decisions on Taxes?

The answer to this question should be obvious, but many liberals believe that taxes can be hiked, and hiked, and hiked some more, and businesses won’t do a thing but verbally complain.

That’s wrong. Businesses will locate will locate their operations rationally. They will seek to maximize net income. That could mean locating in a high tax area if there will be additional revenue to offset the higher taxes.

I can think of an obvious example where a business relocated because of taxes. Nissan Motors of America moved their corporate offices from Torrance, California to Tennessee. Tennessee is a low tax state while California is anything but a low tax state.

Washington state discovered the truth behind this. Boeing will locate the final assembly line for its 787 Dreamliner in Charleston, South Carolina. Historically, most of Boeing’s airplanes have been built near Seattle.

Mish notes that the unions refused to give Boeing a ten-year no-strike pledge for work on the 787 in Seattle; this apparently led (along with grants and tax breaks offered by South Carolina) to the decision.

For those who still say that businesses won’t react to costs and move, think again. Taxes matter, and if you increase them too high businesses will relocate.

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One Response to “Do Businesses Base Decisions on Taxes?”

  1. Dick Hawkins, EA says:

    You couldn’t have set it better. We (SC) is a strong right to work state and we love the unions being an economic generator for us. Boeing is soon to roll out the first 787 and is already causing other spin off companies to move here. Our legislators are also studying the effects of our business tax structure and proposing changes to further aid in economic development