Tax Policy Blog

The Tax Foundation's Tax Policy Blog has two recent posts relevant to state tax breaks and incentives.

First, Andrew Chamberlain introduces the Tax Foundation's 2007 State Business Tax Climate Index. He points to the highlighting of simplicity in tax regimes:

It is commonly argued that more economically developed states like New Jersey and New York have slower growth rates because their economic indicators, such as population and median income, are so much higher than those of developing states. Texas, however, debunks the myth that economically developed states do not have room to grow.

One of the largest states in the union in both population and output, Texas comes in seventh in population growth, 11th in output growth, and 17th in increasing personal income. While its big-state brethren lag far behind, Texas remains near the top by embracing favorable conditions for businesses such as the absence of a state income tax.

Size is no excuse. State tax systems that are simple, fair, broad-based and low-rate can experience significant growth regardless of size or level of economic development.

Second, Curtis S. Dubay also discusses the 2007 SBTCI and points out that "[t]ax incentives- whether in the form of targeted tax incentives to specific companies, or special credits or exemptions- are bad tax policy and an ineffective form of economic development. " Dubay's post concludes that

Lawmakers can go to their respective state houses tomorrow, improve the competitiveness of their state’s business tax climate and instantly help businesses in their state and possibly attract new companies. While global competition remains a concern for all states, most business relocations occur between states. So lawmakers need to be keenly aware of where their state’s competitiveness ranks.

The top ten states in the 2007 SBTCI are as follows:

1. Wyoming
2. South Dakota
3. Alaska
4. Nevada
5. Florida
6. Texas
7. New Hampshire
8. Montana
9. Delaware
10. Oregon

The bottom ten states are:

50. Rhode Island
49. Ohio
48. New Jersey
47. New York
46. Vermont
45. California
44. Nebraska
43. Iowa
42. Maine
41. Minnesota

Obviously, Ohio's tax scheme is a major hindrance to economic growth. While the Tax Policy Blog has said that "this year Ohio residents also have a hotly contested gubernatorial race that is catching headlines in the tax policy world," I doubt whether either of the major party candidates for governor will explicitly criticize the Buckeye State's tax incentive approach to development.