Nevada and California are at war

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Nevada's senseless war on California --

In case you haven't heard, California and Nevada are at war. Not an old-fashioned war with bullets and tanks, but a newfangled media battle over which one is the last best hope for entrepreneurs and businesses in these troubled times.

Nevada started it. The Nevada Development Authority launched a campaign that will spend a million dollars over a year to air a series of ads enticing California businesses to move to Las Vegas. The spots boast about Nevada's low taxes and workers' comp fees and feature a chimpanzee and a really bad actress portraying a television newswoman who turns into a pig wearing bright red lipstick.

So what?

But the real significance of the spat is that it furthers a dangerous and phony economic myth -- that hordes of nomadic businesses are roaming the country, plopping down for a year or two in a tax haven and then packing up and moving on the minute a neighboring state bats an alluring low-tax eye.

The fact is the come-hither look is useless: Relatively few businesses, once they're formed, pick up and move across state lines. Over the last several years, the nonpartisan Public Policy Institute of California has done exhaustive research trying to measure precisely how many jobs California has lost because of such moves, while also measuring the offsetting number we have gained from businesses moving into the state. The conclusion? The impact is tiny. The researchers found that the average annual job loss was only .06% of California's total employment. Just to be clear, that's not 6%; it's six one-hundredths of 1%.


In other words, most businesses live and die where they are born, thriving or failing on the merit of their product, the wisdom or imprudence of their managers' decisions and the luck of the marketplace.

When that truth is ignored, often because of the kind of one-upmanship foolishness embodied in both the Nevada and California ads, states can participate in a tax-cutting competition that does them more harm than good. Taxes, after all, fund things that businesses need.

Want to improve the business climate? Invest in good schools to produce better-educated workers. Build infrastructure projects on which all businesses depend, like transportation and water systems. Put more cops on the streets and pay for proven social programs so that workers have attractive neighborhoods in which to raise their families. Low taxes are good, but they're not a panacea.


And those who think tax competition is a) effective or b) beneficial had better read and absorb the rest of the article becasue it really puts the nail in their coffin.