BusinessWeek Features State Business Tax Climate Index; State-Local Tax Reports in Editorial Pages This Week

December 31, 2008

Two days ago, BusinessWeek featured the Tax Foundation’s State Business Tax Climate Index in an article from small business reporter John Tozzi entitled “Where to Locate Your Business.” He argues that “choosing the right place can mean the difference between success and failure for entrepreneurs.”

Aside from the labor pool, tax rates differ significantly from state to state, and they may be more important for small businesses with few employees. S-corporations and other companies that don’t pay corporate income taxes can benefit from states that have low personal income tax. Moving from California to Washington state, for example, could save a small business owner 9% or 10% of taxable income, according to data from the Tax Foundation, a nonprofit Washington, D.C. research group.

Areas with low taxes often also have lower costs, and the combination can entice entrepreneurs who are priced out of places that are more in-demand, says Tax Foundation economist Josh Barro. “If you’re looking for a place where you can start your small business with reasonable costs, you might not be able to do it in New York or New Jersey, but you might be able to do it in Florida,” he says.

Tozzi also has a slide show of the top 25 states in the 2009 State Business Tax Climate Index.

The Tax Foundation’s state and local tax reports are also being used by editorial boards and columinsts this week.

The Asbury Park Press (NJ) pens an editorial bemoaning the fact that “13 New Jersey counties [are] among the top 20 counties in the nation with the highest property taxes” according to our recently released property tax rankings.

According to the Tax Foundation, New Jersey residents have been paying more in taxes than those in any other state for the past three years. That isn’t only because of the state’s relative wealth. It also is attributable to the decisions being made by public officials about what services to provide and what kinds of salaries and benefits to give those who are providing them.

Rather than addressing that core issue, [Governor John] Corzine and many of his colleagues in Trenton want to spend more — ostensibly to help the state work its way through these difficult economic times. Asking the federal government for help is one thing. Further mortgaging the state’s future by playing Franklin D. Roosevelt in New Jersey is quite another. Taxpayers must make it known in no uncertain terms that Corzine and his allies seeking re-election next year will pay the price if they even attempt to do so.

The New Hampshire Union Leader‘s editoral board uses the same property tax rankings and the State-Local Tax Burden report in comparing their state’s tax burden with Vermont’s:

The Tax Foundation this month ranked U.S. counties by property tax burden. It is no surprise that New Hampshire has six counties in the top 100. (They are Cheshire, Grafton, Hillsborough, Merrimack, Rockingham and Strafford.) That is because New Hampshire has no broad-based tax, so the bulk of government is financed by property and business taxes.

What might surprise some readers is that Vermont has four counties in the top 100. Two of them, Windsor and Windham, border New Hampshire. Also, New Hampshire has not a single county in the top 20. Only four states are represented in the top 20: New Jersey, New York, Connecticut and Illinois.

How could New Hampshire, which has no sales or income tax, have not a single county in the top 20 as ranked by property tax burden? And how could Vermont have four counties that rank higher than four New Hampshire counties?

The answer, of course, is that sales and income taxes do not replace property tax revenue. They supplement it …

Once again, the data show that having high sales and income tax rates do not lower property taxes. Government finds ways to take all the money it can rather than replace one tax with another.

South Carolina Governor Mark Sanford (R) cites the State Business Tax Climate Index in a column on his stipulations before accepting any federal government loans for a state unemployment fund:

A loan without reforming our unemployment benefits system will mean one thing down the road — a tax increase on businesses. What’s already being contemplated will mean roughly doubling the tax employers pay for unemployment insurance. Doubling this tax from the current $300 million will mean a less competitive business climate–and by extension higher unemployment and less economic opportunity. According to the nonpartisan Tax Foundation, our state is roughly in the middle of the pack on our business tax climate, except when it comes to unemployment taxes — where we rank ninth-highest in the country, our least business friendly tax ranking. Given the economic times we find ourselves in, we don’t think it makes sense to pass this cost on to businesses and those they employ.

Finally, Alex Newman of the New American magazine discusses the auto bailout, offers alternatives to the bailout and uses the State Business Tax Climate Index to talk about Michigan’s business climate:

Government regulation and taxation have also harmed the automobile companies (as they have the entire economy). GM paid $37 billion in taxes in 2007. Foreign competitors pay what’s called a Value Added Tax (VAT) on each vehicle sold, which works against the American companies. For instance, German car companies pay a 19-percent VAT, but this entire tax is reimbursed to the companies if they export the vehicle (no tax). If an American car is sold in Germany, the VAT gets added to the American car, making it hard for American companies to compete overseas. Those are just the federal tax problems. The Tax Foundation rates Michigan’s corporate tax structure as the worst in the nation. Additionally, the current financial meltdown has contributed to the sales slump and compounded the problem of paying off huge debts …

There are plenty of ways the government could constitutionally help the automakers and the economy as a whole — lowering taxes, lessening the regulatory burden, ending compulsory union membership, and allowing the free market to work would be a good start.

Happy New Year!

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