What does it mean to have a really good business climate? Is it simply having low taxes and nothing else? Is it doing business in a place where taxes are well spent, providing benefits for companies and residents alike? What is more important for a good business climate, the total amount of taxes paid or the share of taxes paid relative to one’s overall economic prosperity?
Such questions came into sharp focus recently with the release of new state-by-state rankings that wrestle with the ill-defined issue of “business climate”.
The Tax Foundation released its 2011 State Business Tax Climate Index in October, and Minnesota ranked low at 43rd in the nation.
But understanding these tax rankings can be as dizzying as a State Fair Tilt-O-Whirl. Also in October, Forbes issued its own ranking, and said Minnesota was the 15th Best State for Business and Careers. And last March, a business-funded Council on State Taxation (COST) study ranked Minnesota 15th lowest in the country in state and local business taxes as a share of the state’s private sector economic activity. (North Carolina had an even more extreme swing than Minnesota. The Tax Foundation ranked North Carolina 41st and COST ranked it tied for tops in the nation.)
The problem is, enough business climate studies exist that anybody just needs to rifle through the file drawer and find the study with the right number for the right state.
How can studies come to such different conclusions? It’s because they don’t agree on what “business climate” is. (And none of them seems to actually measure whether business activity is robust in the state.) But to understand the seemingly random numbers from the different studies, look more closely at what they measure.
- The Tax Foundation study measures business climate based on taxes alone – corporate, individual income, sales, property, and unemployment insurance taxes – and gives the greatest weight to the individual income tax. Oddly, the Tax Foundation ranking doesn’t seem to reflect where businesses are actually choosing to do business. The Foundation’s top four states for doing business are, in order, South Dakota, Alaska, Wyoming, and Nevada. These are large, less populous states that have few major economic centers.
- Forbes’ Best States for Business and Careers analysis used a more expansive definition. It used six criteria: business costs, labor supply, regulatory environment, economic climate, growth prospects, and quality of life. Minnesota ranked 30th on business costs but 4th for quality of life, and received the overall ranking of 15th.
- The COST study added up all state and local business taxes and divided it by the private sector Gross State Product, measuring the relative cost of tax-funded services compared to economic activity those services help promote. Minnesota again ranked 15th best.
While state rankings might vary widely, this much seems clear. Minnesota has historically had a strong middle class and economy because it has invested in things such as pubic education, community colleges, and the infrastructure that allows for productivity. To ensure prosperity for the next generation, we need to maintain these investments, not shrink from them for fear of getting a low ranking in the latest survey.
-Scott Russell
Here is a novel thought: I always thought the founders of our nation wanted the people to be in power and check both government and business that we allow to exist. When person status, free speech, and business climate priority were given to business/corporations vs. an individuals, the table turned on the people. People (the individual citizens)were able to exercise their power to keep business and government in check when they alone retained these rights. If a business did not provide jobs, invest in the community, and be in general good corporate citizens; people had the power to put them out of business. Repeal the rights given to corporations/business and give the power back to the real individual who does not currently have the power or money that a corporation can amass and you will see real change occur. Just a thought of how far we have gone wrong with concern over business climate.