Thursday, March 02, 2006

State Business Tax Climate Index

Enlighten-New Jersey, Dynamobuzz, and NJ Fiscal Folly have all hit on The Tax Foundation's State Business Tax Climate Index. New Jersey, in case you didn't already know it, is just about the worst possible place to locate a business when considering tax issues.

I was curious what the overall impact of this tax climate was on the state's economy, so I went and dug up the latest Gross State Product (GSP) report from the federal Bureau of Economic Analysis. The numbers are pretty staggering, especially when you look at the top and bottom 10 states identified by the Tax Foundation:

The ten best states in the Tax Foundation’s 2006 State Business Tax Climate Index are as follows:

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

The ten worst states in the SBTCI are as follows:

41. Arkansas
42. Iowa
43. Nebraska
44. Kentucky
45. Maine
46. Vermont
47. Ohio
48. Rhode Island
49. New Jersey
50. New York
In the latest year for which state-level data were available (2003-2004), the overall US growth rate was 4.3 percent. The top 10 states in the rankings above hit an average for 4.67 5.2 percent, while the bottom 10 states averaged 3.44 percent[1] . This supports the point made by the Tax Foundation, and also highlighted by Enlighten - Taxes Matter. States with favorable tax climates outperformed the overall US economy, while those with unfavorable taxes underperformed. The 10 best states accounted for 16.6% of the total US economy, and delivered 19.9% of the growth. Meanwhile the bottom 10 states made up 19.8% of the economy but only created 18.5% of the growth. New Jersey's GSP is 3.6% of GDP, but our growth was only 2.8% of the national total.
It doesn't get much simpler than this. Make your tax system fair, and your state will prosper. Complicate your tax system, failing to treat taxpayers equally and you will lag behind.

Tags: New Jersey, Taxes

[1] As I put together this rebuttal to Xpatriated Texan's post on this subject, I realized that I had made a calculation error. The top 10 states did not average 4.67% growth as I had noted. As you can see from the table in the rebuttal, the average growth was actually 5.2%. I can't account for the error (didn't save my working Excel™ file), and I stand corrected on this point. This correction will also be appended to the original.