Let’s Not Confuse ‘Business Tax Climate’ with ‘Business Climate’

Yesterday, as it does every year, the Tax Foundation released its report on the “Business Tax Climate” in every state. And as it does every year, New Jersey ranked near the bottom – dead last, actually, as was the case last year.

And as they do every year, groups and lobbyists who want to cut New Jersey’s taxes and reduce public services used the report to support a flawed conclusion: That New Jersey’s last-place rank actually means something for the state’s economic growth, and that the answer, therefore, is to further cut taxes – particularly for corporations and the wealthy – and let the prosperity trickle down to the rest of us.

But the reality is not so simple. In fact, a state’s “business tax climate” as defined by the Tax Foundation has nothing to do with that state’s “business climate.” The two shouldn’t be interchangeable, but for anti-tax radicals they often are.

biztaxclimate-01Some food for thought:

• Just 19 Fortune 500 companies, 4 percent of the whole list, call the five states deemed the “best” by the Tax Foundation home – 15 in Florida and 4 in Nevada. That’s the same number of Fortune 500 companies that are headquartered in New Jersey alone. When counting all five “worst” Tax Foundation states, the number rises to 144 Fortune 500 companies – about one in three.

• New York ranks 49th, just above New Jersey, in this year’s survey. Yet it has recovered from the recession with gusto, while New Jersey has not even come close to restoring all the jobs it lost during the downturn. Surely “business tax climate” alone does not explain that.

My colleague Gordon MacInnes summed it up well in his statement to reporters yesterday; I’ve pasted it below. It’s high time we stop pretending that the word “tax” belongs in any serious discussion of “business climate.” “Assets” would surely make a lot more sense.

This study makes one thing perfectly clear: a state’s “business tax climate” has practically no connection to the measurement that actually matters, a state’s “business climate.” In other words, taxes are merely a small piece of a larger puzzle and aren’t close to being the main, let alone the whole, story.

New Jersey may rank last on this year’s survey, but that means very little in terms of the state’s ability to grow good jobs.

New Jersey, it is true, should be concerned about its slow recovery from the Great Recession and take note of where good jobs have gone. Given the Tax Foundation’s emphasis on “tax climate,” one might expect the states with the highest rankings to be the ones that have been taking most of New Jersey’s good jobs.

But that’s simply not the case.

Our high-paying jobs in technology and pharmaceuticals have not fled to low-tax Wyoming, South Dakota, Nevada and Alaska. Instead, they have gone to California, New York and Massachusetts. Companies like Roche and Sanofi-Aventis have knowingly moved from one high-cost, high-tax state to another.

New Jersey became an economic powerhouse because it has the assets to attract well-paying jobs and the people who come with them. It is in the middle of the world’s biggest market, with a transportation system that provides convenient access to New York and Philadelphia. It has a diversity of vibrant residential communities with high-performing public schools. Its workforce is among the best educated and most skilled in the nation. New Jersey is also home to two globally recognized research universities and is a gateway state attracting striving immigrants from all over the world.

These are the magnets that have made New Jersey successful in the past. But like all assets, they require continuous investment to retain their value. New Jersey’s policymakers need to focus on shoring up and building upon these competitive advantages to restore prosperity to the Garden State. Cutting tax rates and public services surely won’t do the trick.