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 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: 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 taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. 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.
Follow Scott Drenkard on Twitter at @ScottDrenkard.
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