Morton Marcus: The benefits of low business taxes aren’t so clear

We have discussed in this column taxes on business and how Indiana is ranked favorably in 10th place among the 50 states by the reputable Tax Foundation. Favorably to business, that is.

The story is: If we rank well, we will see our economic status improving over time. But in what dimensions should this improvement be found?

Does that mean Indiana’s Gross Domestic Product (GDP) as a share of the nation’s GDP should be rising? Lo and behold, in 2017 Indiana’s GDP was 1.823% of the nation’s GDP and rose to 1.827% in 2022.

Please, don’t belittle small percentage changes when dealing with trillions of dollars. That tiny 0.004% represented a billion dollars more of GDP produced in Indiana than if we did not have that extra sliver of advantage.

Yet, our total GDP slipped from 16th to 19th place among the states. Our growth was 31.6% (not adjusted for inflation) compared with booming Idaho and Utah, respectively at 52% and 49%.

Thus, Indiana’s share of the nation rose slightly, but our relative place (our ranking) declined. Which is more important: our relative improvement or our relative decline? Only our state-sponsored economic development gurus could possibly tell us.

Jobs? Not so good. Between 2017 and 2022 Indiana added nearly 240,000 jobs, but slipped from 16th to 18th place in the nation. If we’d kept pace with the nation in adding jobs, there would have been another 81,700 jobs in Indiana.

“Labor productivity” rose faster in the Hoosier State than in the nation. Or we could say changes in production, including automation and redefinition of jobs, sacrificed about 82,000 Hoosier jobs so that our average compensation per job could improve from 29th highest to 26th place in the U.S.

In 2017, Hoosier workers averaged $88.96 for each $100 in compensation of the average worker nationally. That rose to $89.46 per $100 in 2022 That slight achievement might not impress the average Hoosier who saw the spread between “us and them there in other states” increase by $807 from $5,868 to $6,675.

Thanks for sticking with me. I know this is a lot of numbers that seem to be a jumble of mixed digits, but that’s the point. There is no clear evidence that states with lower business taxes necessarily improve their economies or the well-being of small businesses, consumers, homeowners, renters, working and retired people.

Nor can we prove or disprove that tax cuts for business show up denying necessary improvements in public services, through the erosion of roads, dams, education, public health, parks and other amenities.

The irony is that some Indiana politicians are now shifting from jobs and income to focusing on something else they cannot define or measure: the quality of place. But that’s another story for another time.

Morton Marcus is an economist. Reach him at [email protected]. Follow his views and those of John Guy on “Who Gets What?” wherever podcasts are available or at Send comments to [email protected].