Iowa Policy Points

Tax Foundation’s Waste of Time Index

Biz-tax rankings unworthy of attention

The Tax Foundation today released its 2018 State Business Tax Climate Index (SBTCI). All the same problems with this unreliable measure remain:

  1. The State Business Tax Climate Index purports to measure a state’s “tax competitiveness” but the index turns out to bear very little relationship to what businesses actually pay in taxes in one state vs. another. Read more.
  2. Scoring well on the SBTCI does not mean a state will experience more growth; the Tax Foundation provides no evidence that its index actually predicts growth and research has generally found that it does not. Read more.
  3. The index is a combination of over 100 components of state tax systems, giving substantial emphasis to some components that cannot plausibly affect tax competitiveness, while ignoring features that have a large impact on business taxes (single-factor apportionment and deduction of federal corporate income taxes). Read more.

The methodology is unchanged from the 2017 edition, with only slight changes in the weights applied to the five sub-indexes and a couple of tweaks to specific taxes that affect a handful of states.

Peter Fisher, research director of the Iowa Policy Project.

pfisher@iowapolicyproject.org

See IPP’s Grading the States website for more insightful analysis of business tax rankings — www.gradingstates.org