Gary Hufbauer is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics.
A seminal thinker and world-renowned expert on international trade, commerce, and taxation, for the past...
This morning, Good Jobs First released a second edition of their Grading Places: What Do Business Climate Rankings Really Tell Us?, wherein Peter Fisher offers critiques of the State Business Tax Climate Index and public policy rankings of other organizations. This piece is a rehashing of critiques Fisher proffered in his first edition in 2005, with additions for some new indices that have been created since then. We actually already include a response to Fisher’s 2005 edition in our literature review section of the Index, which is worth reading (starts on page 7), but I feel obliged to comment here as well.
Fisher’s main conclusion is that we should throw out all business climate rankings because they "contradict" each other. This argument is a non-sequitur. States score differently in different indices because the indices measure different things. Our Index is a measure of how well each state conforms to the principles of sound tax policy: simplicity, neutrality, transparency, and stability.
Fisher additionally pits the COST/Ernst and Young business tax burden study against our Index, ostensibly to claim that we should weight our property tax variable more heavily to comport with their findings on burdens (they generally find property taxes to be a major business tax cost). The problem here is that we do not claim to measure business tax burdens. We measure and rank tax structures, and this because the size of a tax is less important than the economic distortions it creates. This is a fundamental error in Fisher's understanding of tax policy. As a side note, economists also generally find property taxes to be the least destructive taxes to growth.
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