SBE Council's "Business Tax Index" Ranks State Tax Systems

Today, the Small Business & Entrepreneurship Council (SBE Council) published the "Business Tax Index 2012: Best to Worst State Tax Systems for Entrepreneurship and Small Business." The index ranks the 50 states and District of Columbia according to the costs of their tax systems for entrepreneurship and small business.

(To view the interactive U.S. map with each state ranking, please click here.)

Raymond J. Keating, chief economist for SBE Council and author of the report, said: "While 'Tax Day' 2012 is officially April 17, it is critical to understand that federal, state and local taxes are a burden on entrepreneurs, investors and the economy throughout the year."

Keating added: "All taxes matter, whether imposed at the federal, state or local level of government. They matter to consumers, entrepreneurs, investors and businesses. State and local levies matter in terms of a state's competitiveness. And they matter when it comes to economic growth and job creation."

SBE Council's "Business Tax Index 2012" pulls together 18 different tax measures, and combines those into one tax score that allows the 50 states and District of Columbia to be compared. Among the taxes included are income, capital gains, property, death/inheritance, unemployment, and various consumption-based taxes, including state gas and diesel levies.

According to the "Business Tax Index 2012," the 15 best tax systems are: 1) South Dakota, 2) Texas, 3) Nevada, 4) Wyoming, 5) Washington, 6) Florida, 7) Alaska, 8)Alabama, 9) Ohio, 10) Colorado, 11) Mississippi, 12) Michigan, 13) South Carolina, 14) Tennessee, and 15) Missouri.

The 15 worst state tax systems are: 37) Nebraska, 38) North Carolina, 39) Illinois, 40) Oregon, 41) Rhode Island, 42) Connecticut, 43) Hawaii, 44) Vermont, 45) California, 46) Maine, 47) Iowa, 48) New York, 49) New Jersey, 50) Minnesota, and 51) District of Columbia.

In terms of recent policy changes, it's worth noting that some states have made steps forward on providing some tax relief, such as Indiana, Arizona, Maine, Michigan, North Dakota, Delaware, Oklahoma, along with Ohio. In contrast, other policymakers worked against entrepreneurship by making state taxes less competitive, such as Oregon, Connecticut, Illinois and New York.

"Modest to Moderate" Growth Not Good Enough

After four-plus years of a deep recession and poor recovery, some can get excited when the economy merely muddles along at a below-average rate of growth.

That seems to be the case with some in their reaction to the release of the Federal Reserve’s Beige Book on April 11. The information gathered from the Fed’s 12 regional banks pointed to the economy from mid-February through late March continuing to grow “at a modest to moderate pace.”

During periods of recovery, real GDP growth should be expanding robustly. Based on post-World War II history, real GDP should be growing in the 4.5% range. Overall, including recessions, the economy should be growing at better than 3%. Unfortunately, since the recovery began in mid-2009, real GDP growth has averaged a mere 2.5%.

From 2008 to 2011, real annual GDP grew by only 1.2%.

The same pretty much goes for job creation. It was reported in the Fed Beige Book: “Hiring was steady or showed a modest increase across many Districts.”

Again, the job creation numbers have been inconsistent and underwhelming during this recovery. As of March, according to the household survey, employment was still 4.6 million below its peak in November 2007. That just over four years and four months!

The problem with our economy has been and continues to be policy.

On the fiscal side, it’s about federal spending careening out of control, and tax increases, scheduled tax increases and the threat of even more taxes. It’s about hyper-regulation, including on the finance, health care and energy fronts.

But it does not stop there. It’s also about misguided monetary policy in place since the late summer 2008. The Fed has been focused on trying to use monetary policy to gin up the economy, which never works. Instead, it creates uncertainty and concerns over higher inflation. The value of the dollar suffers accordingly, and energy prices, particularly the price of oil and therefore gasoline costs, rise as well.

For good measure, with interest rates purposefully pushed so low by the Fed, banks actually have real concerns about lending money since rates inevitably are going to rise, especially when inflation accelerates. Banks would then be in the position of having long term loans at extremely low rates, and having to pay higher interest rates to pull in capital. That doesn’t work.

Modest to moderate economic growth simply does not cut it. The American people need far better. Indeed, they cannot afford to settle for less than what we should be experiencing, that is, robust growth with solid job creation. But that will require a shift in policy to lower taxes, smaller government, deregulation, and monetary policy exclusively focused on price stability. Indeed, if we do not get a dramatic policy change, it’s doubtful that “modest to moderate” will even be sustained.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

SBE Council Economist on Latest Inflation Numbers

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), offered the following statement in reaction to the CPI inflation numbers released this morning by the U.S. Bureau of Labor Statistics:

"Inflation heated up again over the past three months. No one should be surprised.

"CPI increased at 0.2% in January, 0.4% in February, and 0.3% in March. At an annualized rate then, inflation over the past three months registered 3.6%. Keep in mind that, but for a three-month break, CPI inflation has been running hot since December 2010.

"That's not surprising because the Federal Reserve opened the monetary floodgates in late summer 2008, only taking very minor breathers along the way, and in the end, inflation always is a monetary phenomenon.

"Looking ahead, any further improvement in the economy could work to further unleash the inflation rooted in looseFed policy. None of this, though, is necessary. Instead, it's merely bad policymaking. If the Federal Reserve would simply get refocused on price stability, then we would experience benefits in terms of certainty, growth and inflation."