State business climates

In October the Tax Foundation published a report comparing states' tax systems in attracting new businesses and generating economic growth. The report says state lawmakers "are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform." If a state resorts to the former, "it is most likely covering for a woeful business tax climate. This can be a dangerous proposition." Instead, the authors advocate improving a state's business tax climate for the long term and propose that lawmakers remember two rules:

1. Taxes matter to business. Most importantly, taxes diminish profits. That cost is passed along to consumers, workers, or shareholders. Thus a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.

2. States do not enact tax changes in a vacuum. Every tax law will in some way change a state's competitive position. Ultimately it will affect the state's national standing as a place to live and to do business.

The report's index is based on five component indexes: corporate tax, individual income tax, sales tax, unemployment tax, and property tax. Hawaii ranks 22nd overall.

The mission of the Tax Foundation, a nonpartisan educational organization founded in 1937, is "to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government."

2008 State Business Tax Climate Index (pdf, 64pp/2MB)