NJPP Monday Minute: 2/1/10 High tech investments yield solid returns

"I'm tired of New Jersey getting its lunch eaten by other states, particularly by Pennsylvania," is a sentiment often expressed by some New Jerseyans when discussing the possibility that New Jersey businesses are moving to Pennsylvania. How true is the rhetoric? Are New Jersey companies and jobs really being lost to Pennsylvania because of the Keystone State's low taxes and more lucrative job subsidies (a common misconception)?

The answer is no, according to a recent study by Good Jobs First, a national policy research center that promotes accountability in economic development and smart growth. The report, "Growing Pennsylvania's High-Tech Economy: Choosing Effective Investments", focused on the competition for high-tech jobs between Pennsylvania and its neighboring states and uncovered provocative findings. For example:

• Pennsylvania's tax rates when compared to those of neighboring states were not always lower. This challenges the oft-repeated mantra that Pennsylvania is always a lower tax state than New Jersey. In fact, Pennsylvania's 9.99% corporate tax rate is higher than New Jersey's top corporate rate of 9% - disputing the notion that Pennsylvania has rock-bottom tax rates as many in New Jersey argue.
• High-tech job creation and loss is overwhelmingly driven by events inside Pennsylvania, not by interstate relocations. From 1990-2006, the study found that Pennsylvania's interstate in-migration or out-migration of high-tech jobs was dwarfed by the impact of company startups, closings, expansions and contractions within Pennsylvania. In other words, a large part of Pennsylvania's job growth is not fueled by jobs sucked out of New Jersey, as many contend.

Some say that the Keystone State's flat 3.07 percent personal income tax rate is a boon to small businesses. In fact, the income of married couples who earn less than $70,000 a year is taxed at the top marginal rate of 2.45 percent in New Jersey-less than Pennsylvania's flat 3.07 percent. In addition, the income of married wage earners making under $20,000 is not taxed at all in New Jersey, while in Pennsylvania it is still taxed at 3.07 percent. Furthermore, New Jersey does not have local income taxes as Pennsylvania does, which means more tax savings.

The Good Jobs First report recommends that Pennsylvania continue its Industry Partnerships program that integrates workforce and economic development needs. This program brings together businesses to identify common training priorities, thereby investing in technology industries' human capital infrastructure. New Jersey has made similar investments using the Edison Innovation Technology Fellowship Fund, which provides salary money to life-science and tech companies to hire recent PhDs from New Jersey colleges.

Given New Jersey's large number of science and technology PhDs (and the large number of patents granted annually), the state should continue to invest in its high-tech workforce. Technology changes quickly and the future will be increasingly reliant on the progress made today. Better policy choices will further New Jersey's competitive edge much more than tax cuts and business subsidies.