October 7, 2016 Print

It’s easy to look at a burdensome state tax system and point out that the rates are too high and the compliance process is too bewildering. It’s much more difficult to navigate the complexities of each state’s tax structure and explain the problems with each form of taxation and regulatory burden, and provide a practical roadmap for reform. For years, the Tax Foundation heard from policymakers asking for guidance on how to do a better job, and the organization’s president, Scott Hodge, conceived of the State Business Tax Climate Index. Now in its 13th annual edition, the index uses 118 variables to quantify state tax structures, provide a framework for comparison, and suggest steps for improvement.

The Tax Foundation’s State Business Tax Climate Index has become a model of how to foster effective policy change, so it has been highlighted as one of Atlas Network’s new Think Tank Impact case studies. This publication series takes a detailed look at successful partner projects in order to show other think tanks throughout the world how they were conceived and developed. Each project may be unique to the specifics of its own time and place, but the themes, strategies, and research methods involved can apply to any number of other cultures and policy environments.

The Tax Foundation’s State Business Tax Climate Index gauges how well a state’s tax code is structured, how much time businesses spend complying with onerous tax regulations, and whether states are double-taxing things that they shouldn’t. Although some who don’t appreciate their place in the rankings may dismiss the findings or attack the Tax Foundation, the impartial and quantitative analysis found within the index fostered trust and respect across partisan lines. Both governors and policymakers have approached the Tax Foundation, asking how to improve their rankings and competitiveness.

“For example, in 2013, Gov. Andrew Cuomo of New York learned his state was dead last, 50 out of 50,” the case study explains. “Cuomo had earlier referenced the index during his campaign for governor promising to improve New York’s ranking. When the new rankings were released, Cuomo’s chief of staff spoke negatively about the index and the Tax Foundation on the radio attempting to dismiss the index as biased and inconsequential, but both the New York Times and the New York Post reacted by defending Tax Foundation’s credibility. Gov. Cuomo then invited the Tax Foundation to team to Albany, New York’s capital city.”

Despite the initial tension, that conversation led to a reform package that “broadens the tax bases, increases the estate tax threshold, reduces the corporate tax rate from 7.1 percent to 6.5 percent, and reduces the complexity of New York’s flawed corporate tax code by eliminating the duplicative individual minimum tax and business bank tax, among other simplifying improvements.”

Download the full case study for free: The Tax Foundation’s State Business Tax Climate Index

Although significant changes that reduce or eliminate bad taxes are ideal, the Tax Foundation also encourages incremental reform that is politically possible to achieve, allowing states to improve their rankings in relation to their neighbors. This allows for an immediate improvement in the lives of taxpayers, even without substantial changes to a state’s tax structure. It also sets a model for other states that ongoing beneficial reform is possible even while working toward longer-term tax policy goals.

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Atlas Network maintains that some of the best lessons for achieving impact are taught by sharing success stories of similar organizations. Over the next several years, we will be producing a series of case studies based on exceptional think tanks within the Atlas Network. The case study above features the work of the Institute for Justice. This and subsequent case studies in the series will provide insight, context, and advice on running effective think tanks. If you would like more in-depth analysis, guidance, and discussion, be sure to participate in Atlas Leadership Academy's Think Tank Impact online course. This course, run quarterly throughout the year, will allow you to learn, share, and address your organization's challenges along with others from the worldwide freedom movement.