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A Response to Matt Yglesias on the 2014 State Business Tax Climate Index

2 min readBy: Joseph Bishop-Henchman, Scott Drenkard

In the first three hours after its release, we’ve already had several thousand copies of the 2014 State Business Tax Climate PDF downloaded. The overwhelming majority of the coverage so far is positive about the report and its recommendations for state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy, and we’ve been responding to quite a few press calls in the office.

There is however a brief blog post by Slate’s Matt Yglesias that went up this morning, which is along the lines of (1) there’s businesses in California and New York, (2) Tax Foundation criticizes California and New York for their tax policy, so therefore (3) taxes don’t affect business and individual location decisions. Center for Budget and Policy Priorities’ affiliates have already started spreading around Yglesias’s post on Twitter, and we imagine it will show up in other places.

The answer to this is easy. Those high-tax states also have other non-tax qualities—and often legacy investments and industries—that overcome the obstacle of a broken mess of a tax system for many businesses and individuals. We wouldn’t call that success, because with a good tax system, you could be doing even better. Job growth is much better in states with better tax systems.

We’re guessing Yglesias didn’t bother to crack open our lengthy report, but if he did, he might have seen a wealth of economic evidence about the relationship between taxes and economic growth. To cite just two, there’s a study by Bittlingmayer, et al. in 2006 that looked at our report and found, “The State Business Tax Climate Index explains growth consistently.” And Wasylenko, a critic of ranking reports often cited by the other side, has conceded, “[H]igh taxes may be responsible for the low rates of job creation in [some] states,” referring to Minnesota, Wisconsin, and New York.

More to come, and keep spreading the word on the Index!