INSIGHTS: STATE BUSINESS TAX CLIMATE INDEX
By Guest Column Joe Henchman:
Vice President, Legal and State Projects, The Tax Foundation
Each year the Tax Foundation produces the State Business Tax Climate Index to enable business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While total taxes paid is a relevant measure, another is how the elements of a state tax system enhance or harm the competitiveness of a state’s business environment. The Index reduces many complex considerations to an easy-to-use ranking.
The 10 best states in this year’s 2012 Index are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), New Hampshire (#6), Washington (#7), Montana (#8), Texas (#9), and Utah (#10). Many of these states do not have one or more of the major taxes, and thus do not have the associated complexity and distortions.
The 10 lowest ranked, or worst, states in the 2012 Index are Iowa (#41), Maryland (#42), Wisconsin (#43), North Carolina (#44), Minnesota (#45), Rhode Island (#46), Vermont (#47), California (#48), New York (#49), and New Jersey (#50). While New Jersey remained steady compared with 2011, Rhode Island improved by implementing a modest income tax reform. The states in the bottom ten generally have complex, non-neutral taxes with comparatively high rates.
Illinois moved most dramatically in its Index rank over the past year, falling twelve places after a significant income and corporate tax increase.
Read the Index results and report at: www.taxfoundation.org.
ON THE ECONOMY: OVER THE EDGE?
By John Dunham:
Managing Partner, John Dunham & Associates
President Obama used the State of the Union address to kick-off his reelection campaign. In the speech, the President laid out a laundry list of small and meaningless initiatives for the coming year. Yes, he really suggested that states should require that students graduate from High School.
What the President failed to recognize, and what his potential Republican competitors also have not addressed in much detail, is how government at all levels is stifling American business and the potential for economic growth.
The Economist magazine recently published an article citing a survey from the Harvard Business School which asked its alumni about the state of the American economy and American business. Unsurprisingly, the majority of respondents felt that America was becoming uncompetitive, and only 9% believed that the country was “pulling ahead” of its competitors.
Interestingly, the things that worried these businessmen were all related to the government. According to the Economist, the respondents felt that, “America’s most glaring weaknesses were its political system (this was the number-one complaint by far), its schools, its insanely complex tax code, its macroeconomic policies, its regulations and its legal system.”
When the President urged states to require that students graduate from High School, it was a knee jerk response to the fact that the country’s education system is in decline. High School graduation rates have been falling for decades as the chart below shows. Rather than examining the cause, the President offered a band aid. These types of knee jerk reactions are the standard response today to any slight, offense, or problem experienced by nearly anybody. All too often, the response is to call for a ban. People too fat? Ban transfats. Little Jimmy gets bit by a dog? Ban pit bull terriers. People have heart attacks? Ban salt. Rats on subway platforms? Ban food on subways. Had a warm winter? Ban CO2. Rather than thinking through the reasons why a problem exists or allowing markets to solve them, American governments at all levels simply waive the magic legislative pen and the problem is supposed to go away.
Unfortunately, the world is not the directed, legalistic realm of the political class. Banning things simply leads to other problems. You may recall that trans-fats were a response to a proposed ban on palm oils. Bans on narcotics, prostitution, tobacco, simply drive markets for these products underground and support criminal gangs.
We have long argued that the economy was being held back by a heavy handed regulatory environment. It is difficult to empirically analyze the effect of the growing volume of regulations on behavior as they are not directly related to factors like government spending or employment, but it seems rational that the cost and time involved in complying with regulations cannot be helping the economy.
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