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Putting too much stock in tax rankings?

Thursday, October 17, 2013
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When Texas Gov. Rick Perry announced his business-recruiting trip to New York in June, he made a point to note his state’s favorable ranking in the Tax Foundation’s business tax climate index.

New York has been in the rankings’ cellar for three years, while Texas was at No. 10 for two of those years before slipping to No. 11 in the report released last week by the foundation, a nonpartisan tax research group.

“If you’re tired of the same old recipe of overtaxation, overregulation and frivolous litigation, get out before you go broke,” Perry urged in radio and TV ads that ran in New York City and Albany before the visit.

Similar messages preceded recruiting trips to other states this year — California, Illinois, Connecticut, Missouri and Maryland — where the governor often noted how each state stood, versus Texas, in the Tax Foundation report.

Bragging rights come with rankings like these. The Tax Foundation annually computes an overall “tax burden” for states across five categories of personal and business taxes, giving top rankings to states that levy no or low corporate, personal income or sales taxes.

In the bottom 10 are states that “suffer from the same afflictions,” which the report identifies as “complex, non-neutral taxes with comparatively high rates.”

Says the report, “It is true that taxes are but one factor in business decision-making … but a simple, sensible tax system can positively impact business operations.”

Once the report is released, headline writers and others declare which states are “best” and “worst” for business — which must give a headache to economic development officials looking to lure companies to states at the bottom of the list, even if they’re powerhouses such as New York and California, right? (That’s my guess; several local business promoters I tried to reach by phone and email failed to get back to me.)

Governing magazine, a publication directed at state and municipal officials, offered a rebuttal to the Tax Foundation report in an analysis by data editor Mike Maciag that compared the rankings to other measures of a state’s economy.

Cited, for instance, was Vermont, where above-average income taxes and higher property taxes put the state at the back of the pack in the report, at No. 45. But Vermont had the fifth lowest unemployment rate in the country in August and its employment-to-population ratio was sixth best nationally, according to Maciag’s analysis.

Ditto in Minnesota, he said, which fell in the latest Tax Foundation rankings to No. 47 because of some tinkering done to personal income taxes. But the state’s August unemployment rate was 10th lowest in the country and its employment-to-population ratio was fourth best nationally, according to Maciag.

Responses to the analysis posted online pointed to factors other than taxes that also affect location decisions, including the ability to hire talented workers who want “good schools and universities, great cities, and good parks” — all public benefits supported by taxes.

Wrote one commenter: “Now, a Silicon Valley company can relocate to pretty much anyplace, but will they get the new grads from Stanford, MIT, CalTech, Carnegie Mellon, etc. to go live in Wyoming?” — which has no corporate or individual income taxes and ranked No. 1 in the Tax Foundation report for the third year in a row.

He answered his own question: “Not many, I would bet.”

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.

 
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October 17, 2013
8:58 p.m.
Leilalindi says...

I don't see how tight labor markets in VT and MN would be attractive to businesses. The opposite, if anything.

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