'One-Size-Fits-All' Business Tax Rankings Don't Have PA's Best Interests in Mind

We often see in the news state rankings of business climate that vary widely depending on who is doing the ranking. As Billy Hamilton writes in Monday's State Tax Notes (subscription required), these rankings often have much more to do with the low and no tax preferences of the list writers, like the Tax Foundation, than taking a real look at what's happening in the states:

They (state business taxes) are just a lot less important than the index implies — even with all the caveats buried in the text that no one reads. Businesses don't need a general index to tell them what they don't like about a state's taxes or to help them figure out how to fix their problem. The index is there to convince states to change policy. And one other point: Those rankings aren't put together with the states' best interests in mind. They are put together in pursuit of a separate agenda, and they work. People can complain all they want about the pseudoscience of the exercise, but it doesn't matter. They are critiquing the wrong game. The proof of that is in the pudding — or the hash — whatever it is the rankings are trying to make of state tax policy

That said, a one-size-fits-all index based on one set of indicators is extremely limited as a measure of economic competitiveness — it's more of a rule of thumb with a political agenda.

Businesses do business where they can make money. State and local taxes are a small part of the equation, much lower than access to customers, suppliers, and an educated workforce, which are paid for in part by the business taxes the Tax Foundation and others are so quick to cut.

Pennsylvania would be better served if lawmakers focused on improving our transportation system and educating students so that they can compete in the 21st century job market rather than cutting certain corporate taxes to improve the state’s Tax Foundation ranking.


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