Frequently Asked Questions

What Does the Index Measure?

The Index measures how well each state structures its tax system, not how much it collects. A state with low, broad-based, neutral taxes scores well; a state with high rates, narrow bases, and complex rules scores poorly.

How Should I Think About Tax Competition?

Tax competition is a little like WAR—not conflict, but “Wins Above Replacement.” The term comes from baseball, where it is intended as a sabermetric statistic to measure how many more wins a team can claim due to a specific player above the amount that would be generated by a replacement-level player. It’s much the same way in public finance: a well-structured tax code won’t make the Wyoming Basin a metropolis, nor will poor tax structure make Manhattan a ghost town. But tax structure does play a role in a state’s economic successes or failures, and often a substantial one. Every state can benefit from a simple, neutral, transparent, pro-growth tax structure.

Taxes are not everything, but they do matter, and they are within the control of policymakers. Even within a given revenue target, there are better and worse ways to raise revenue.

The Index measures tax structure, not all the other things businesses care about, like an educated workforce, quality of life, proximity to relevant markets, or even the weather—and some of these things involve trade-offs. Taxes, however, are an important part of the mix, and modernizing a state’s tax structure helps position it for growth. States that rank better on the Index have better-structured tax codes, and states with better-structured tax codes get Wins Above Replacement.

How Are Scores and Ranks Calculated?

Each of more than 150 variables is scored from 0 to 10, with 10 the most competitive. Variables roll up into five components (corporate, individual income, sales, property, and unemployment insurance taxes), which are combined into the overall score. A rank of 1 is best and 50 is worst. States that do not levy a tax rank first on that component together.

Why Does the District of Columbia’s Rank Have an Asterisk?

DC is scored so it can be compared with the states, and its rank shows where its score falls among them. That rank is not counted against the 50 states, so DC’s rank does not affect any state’s rank. The asterisk marks that difference.

How Do I Compare Specific Tax Rules?

Every state page ends with a tax data explorer that lists the rates, brackets, exemptions, and other rules behind the scores. Add up to four other states to see them side by side, or search for a rule by name. The Compare page has the same explorer for any two states.

Where Can I Read the Full Methodology?

The full report, including the methodology and every variable’s definition, is at taxfoundation.org.