Paul L. Caron

Saturday, November 12, 2022

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

Tax Foundation, 2023 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

9 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.

Wall Street Journal, State Tax Winners and Losers:

Too many Governors in both parties like to cut taxes only as temporary rebates or other sops in election years, but the real economic benefits come from making a state more competitive for the long haul. Americans and their money have never been more mobile, and Florida and other low-tax states will continue to reap the benefits of good policy.

And, if past is prologue, New York and New Jersey will continue to shed taxpayers.

Dan Mitchell, Mirror, Mirror, on the Wall, What State Has the Best Tax Policy of All?:

If you compare this year’s Index with the original 2014 Index, you’ll find that three states have jumped by at least 10 spots and three states have dropped by at least 10 spots.

Institute on Taxation and Economic Policy, Tax Foundation’s ‘State Business Tax Climate Index’ Bears Little Connection to Business Reality:

States at the top of the Index have one thing in common: there is a major tax, usually the income tax, which other states levy that the “best” states don’t. But the Index is constructed in a way that is arbitrary, self-contradictory, and out of touch with the actual tax contributions of U.S. businesses. Moreover, discussion of the Index tends to center around the need for lower (or non-existent) taxation, even though state and local taxes make up a vanishingly small fraction of total business costs and the services paid for with those tax dollars are crucial to the success of every business. In the end, the “State Business Tax Climate Index” measures very little of note about a state’s ability to attract and grow businesses and jobs. ...

The big problem with the Index is that it peddles a solution that not only falls short of the goal of generating business investment, but one that actively harms state lawmakers’ ability to provide the kinds of public goods — like good schools and modern, efficient transportation networks — that businesses need and want.

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