Paul L. Caron

Saturday, January 1, 2022

New State Business Tax Climate Index: Blue States Are Worst, Red States Are Best

Following up on Thursday's post, New U.S. Census Data: Major Migration From Blue States To Red States, which noted that 9 of the 10 states with the largest population losses voted for Joe Biden in 2020, and 8 of the 10 states with the largest population gains voted for Donald Trump:  Tax Foundation, 2022 State Business Tax Climate Index (interactive map tool):

The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.

Tax Foundation

8 of the 10 states with the worst business tax climates voted for Joe Biden in 2020, and 8 of the 10 states with the best business tax climates voted for Donald Trump.

The Tax Foundation’s State Business Tax Climate Index is a hierarchical structure built from five components:

  • Individual Income Tax
  • Sales Tax
  • Corporate Income Tax
  • Property Tax
  • Unemployment Insurance Tax

Using the economic literature as our guide, we designed these five components to score each state’s business tax climate on a scale of 0 (worst) to 10 (best). Each component is devoted to a major area of state taxation and includes numerous variables. Overall, there are 125 variables measured in this report.

Tax Foundation, The State Business Tax Climate Index Is Your Guide to Economic “Wins Above Replacement”:

Tax competition is a little like WAR—not conflict, but Wins Above Replacement. The term comes from baseball, where it is intended as a sabermetric statistic to measure how many more wins a team can claim due to a specific player above the amount that would be generated by a replacement-level player. It’s much the same way in public finance: a well-structured tax code won’t make the Wyoming Basin a metropolis, nor will poor tax structure make Manhattan a ghost town. But tax structure does play a role in a state’s economic successes or failures, and often a substantial one. Every state can benefit from a simple, neutral, transparent, pro-growth tax structure. ...

The Index measures tax structure, not all the other things businesses care about, like an educated workforce, quality of life, proximity to relevant markets, or even the weather—and some of these things involve trade-offs. Taxes, however, are an important part of the mix, and modernizing a state’s tax structure helps position it for growth. States which rank better on the Index have better-structured tax codes, and states with better-structured tax codes get Wins Above Replacement.

Daniel Mitchell, The Best and Worst States for Tax Policy

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