Owen Courreges: Avoid an entrepreneurship tax

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Owen Courreges

The at-large city council election to replace departing Councilman Arnie Fielkow is looming, so none of the candidates are too anxious to commit any embarrassing political gaffes. Councilwoman Stacy Head, for example, is smartly avoiding the issue of traffic cameras (although Head is generally a good egg, her support of these things is baffling).

Rep. Austin Badon, however, recently laid out a daring and potentially polarizing policy proposal: an earnings tax.

Earnings taxes have been implemented in roughly a quarter of major cities in the US, but mainly in the old manufacturing centers of the rust belt in the northeast and midwest. These taxes are imposed on income earned within the city limits so that workers who live outside the city and commute in from the suburbs are brought back into the tax base. The idea is that commuters are being made to “pay their fair share.”

It’s a lousy idea, and an outdated one. The crucial flaw is that employers can move and new businesses can open elsewhere. If I can choose between setting up an office in Orleans, with an earnings tax, or set up shop right across the parish line in no-tax Jefferson, I’m going to seriously consider Jefferson.

A 2006 study of earnings taxes by University of Missouri economist Joesph Haslag concluded that earnings taxes were negatively correlated with economic growth in cities versus suburbs. “The economics is quite straightforward,” wrote Haslag. “By adopting an earnings tax, a city gives businesses and residents an incentive to locate production outside the city. People go where they will obtain the highest after-tax return on their labor or investments.”

Policies like earnings taxes are fed by resentment over suburban flight, which is understandable. Suburbanization has depleted much of the city’s tax base. The response, however, should be to make the city a more desirable place to live and do business. An earnings tax, conversely, would be cutting off our collective nose to spite our collective face.

New Orleans has been bleeding people and money into Jefferson Parish for several decades. We don’t need to accelerate this further by adding another disadvantage when competing for business. We’ve finally begun making some headway in being more inviting to entrepreneurs and existing businesses, but it would be all-too easy to reverse that trend and go back to business as usual.

Badon should know better. He’s generally fairly moderate and level-headed, including with respect to tax policy. Alas, he’s dead wrong here. New Orleans should run screaming from failed Rust Belt tax policies that distract from our real problems.

Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.

10 thoughts on “Owen Courreges: Avoid an entrepreneurship tax

  1. I agree some businesses might move to Jefferson Parish but each city is different and there are plenty of reasons that businesses want to be in New Orleans and not on the Northshore and Metairie. New Orleans is primarily the reason people come to visit or do business here.

    There are many more reasons that people want to live outside of New Orleans, i.e. safety, schools. But if these folks are earning their income in New Orleans proper, then, I believe they need to contribute to the tax base, so that we can provide for better safety, better infrastructure, etc. Mr. Courreges, I am not convinced that your argument against an earnings tax is valid.

    • David,

      I didn’t really get into this in my column, but the truth is that people who commute into the city do indeed contribute to the tax base. They pay sales taxes, their employers pay inventory and real estate taxes, and they contribute to the local economy. On top of this, they exploit public resources at far lower rates than do residents.

      However, this isn’t about some ill informed definition of “fairness,” but about what’s best for our economy. It is almost certain that an earnings tax in New Orleans would harm economic growth and send a clear message that we are not business-friendly. There are many variables that determine where a business locates, but guess what – taxes and the percieved business climate are significant variables. This is the type of damaging, backwards policy that has put this city in the position it is in today – playing catch up economically.

      • Mr. Courreges,

        The best way for employees living in the suburbs NOT to pay an earnings tax is to move back to the City of New Orleans. Let’s call it an incentive tax.

        • David Z,

          It won’t work that way. People aren’t going to move back into New Orleans because New Orleans imposes punishing taxes. In fact, I’d say they’re less likely to.

          • Mr. Courreges,

            They are less likely to NOW because of our abhorrent school and safety issues. We have a reduced population in the City of New Orleans substantially because of those issues.
            If you take away those issues, you would see suburbanites flocking to the City. Really, take a poll on anyone living on the Northshore, commuting to New Orleans – in a heartbeat they would move back – BUT it takes a healthy tax base to make the City properly work.

            In general, I would not be in favor of an earnings tax. Given the uniqueness of New Orleans and the fact there is no other city within hundreds of miles of New Orleans that one would pine for, I would not see a substantial number of businesses leave New Orleans. As long as we use the increase in City Revenue to make marked gains in the quality of life in New Orleans.

            In any event, I would like to see how much revenue an earnings tax would bring to the City. Then we could argue the net effect.

  2. The conclusions and thinking in the study cited, although only 6 years old, and in this article are woefully outdated. Suburban America is quickly dying as clearly demonstrated in the latest US census (a local example being Kenner). Suburbs are slated to become the blighted communities of our country as Americans, mostly those of means, are choosing urban life over suburban and semi-rural. They are tired of commuting and they are attracted to the urban atmosphere and amenities. With the continuing rise of gasoline prices coupled with the lack of public transportation options in most cities, it makes less sense to live 30-plus miles away and to commute across a large lake.

    Earnings taxes wouldn’t necessarily cause New Orleans businesses and residents to flock to the suburbs. More likely, they would be attracted other similar-sized or larger cities with an urban lifestyle and an absence of earnings taxes.

    • I only today caught your response. Owen, I have been a consultant in the civil engineering and land planning business for over 20 years and I read articles similar to the one you provided ad nauseum. Based on the logic in that article and the statistics used, Las Vegas has done great and has a wonderful future.

      Here’s another view, although it is op-ed, that I find salient in my professional experience: http://www.nytimes.com/2011/11/26/opinion/the-death-of-the-fringe-suburb.html?_r=1

      The “wait and see” approach espoused by the article you provided is relevant in that we have yet to see the effect of the faster-than-the-cost-of-living rising gas prices coupled with the nacent economic recovery. As I witnessed on the west coast, high-earning businesses are unlikely to build in dying suburbs where their high-earning employees don’t want to live or commute from.

  3. I think Roog is right, as least insofar as New Orleans is concerned.

    New Orleans is an old port city. Similar cities (New York, San Francisco, Boston, Charleston) are extremely “hot” right now. Everybody wants to live there because the “texture” of those places cannot be duplicated (sorry, New Urbanism, Seaside,FL etc.).

    Jefferson parish is basically a reclaimed swamp with non-descript tract style housing. It’s main “attractive” feature for many years, frankly, was its absence of minorities. I think the place now is crumbling before our eyes. Veterans Blvd looks like a post-Armageddon science fiction movie set.

    As far as an earnings tax goes, that idea went out with the tide awhile ago when people started rediscovering cities. If New Orleans has good, responsible leadership, things will take care of themselves.

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