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Taxes and Economic Development

Research indicates that tax policies can have statistically significant effects on the economic growth of a state or metropolitan area. The consensus among economists is that taxes on corporate and personal income are particularly harmful to economic growth, with consumption and property taxes less so. This is because economic growth ultimately comes from production, innovation, and risk-taking.

Others argue that consumption and property taxes are regressive, placing a disproportionately higher burden on those in the moderate to low income brackets. Small businesses can also be negatively affected by sales taxes if there are not exemptions in place for businesses services and business-to-business expenditures. Certain industries are particularly impacted by high property tax rates.

Tax incentives or tax rebates are commonly used by states and local municipalities to attract and retain businesses. Many believe that sound tax policies should be enough to encourage economic growth. However, tax incentives have become a necessary tool in today’s competitive, ‘pay to play’ economic development environment.

For Chambers of Commerce, economic development policy positions are often focused on incentivizing on reducing taxes on specific types of business or industry niches where they have the most opportunity for potential growth.

The reality is that it likely takes a combination of both – competitive tax policies and a creative mix of incentives to compete for business relocation and expansion projects.

Articles and Resources on Taxes and Economic Development

Policy Positions on Taxes and Economic Development

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