Tax Foundation economist Scott Drenkard reviews state level tax data with interns at the Tax Foundation offices in Washington, D.C.
Providing reliable data about the comparative tax climates of state governments demonstrates to lawmakers that their tax policies can make the difference between economic growth and stagnation. Atlas Network partner the Tax Foundation of Washington, D.C., has been named one of six finalists for this year’s prestigious $100,000 Templeton Freedom Award for its State Business Tax Climate Index, which ranks the 50 states by measuring the elements of each state’s tax system that are important to all types of business.
“Nonsensical or economically destructive tax policy doesn’t benefit anyone,” said Joseph Henchman, the Tax Foundation’s vice president of legal and state projects. “To be the best on the State Business Tax Climate Index, you need a tax system that is simple, neutral, transparent, and stable. These principles aren’t new or partisan: they were first derived from Adam Smith in Wealth of Nations, and appear in every public finance textbook today. The opposite side wants a tax system that can be used to punish and reward, to pick winners and losers, and to distort economic decisions for some larger goal of theirs.”
With the State Business Tax Climate Index, now in its 11th edition, the Tax Foundation aims to start a conversation with policymakers about how their states fare against the rest of the country, and then provide them with the expertise and analysis they need to enact positive change in their state by reforming their tax structures in a pro-growth fashion, consistent with the principles of sound tax policy. The results are tax reforms that lead to more state economic activity, thereby creating an environment for more prosperity and economic freedom.
Tax Foundation state policy and outreach team (L to R): Joe Henchman (VP State Projects); Jared Walczak (Policy Analyst); Liz Malm (Economist); and Scott Drenkard (Economist & Director of State Projects).
The 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. By collecting data on more than 100 tax provisions for each state and synthesizing them into an easy-to-use score, the index reduces complex considerations that affect a state’s business climate into a conversation-ready format.
“You can’t game the index; the only way to move up is to enact good tax policy,” Henchman said. “This can include various combinations of lower tax rates, less cronyism and picking winners and losers, simplification, greater transparency, and repealing economically destructive taxes or tax components. States that adopt reforms that improve their index rank are adopting reforms that put more money in taxpayers’ pockets, that make it easier to pay what taxes they do have, that rely less on taxes that do excessive damage to economic growth, and that apply to everyone without special benefits for some. Our vision is that the tax system doesn’t stand in the way of success. No state is there completely, but our index rankings are constantly pushing states to move in that direction.”
The Tax Foundation reports widespread attention in media and cross-partisan politics for the State Business Tax Climate Index. On the morning of the 2014 release, the Wall Street Journal boosted anticipation for this year’s report by running an exclusive editorial about the 2015 results, shared with more than 2.3 million print subscribers and achieving top featured status on the publication’s website. Governors and state policymakers use the Index rankings to compare and compete with neighboring states or to leverage their rankings as motivation for tax reform. In 2013, six governors — four Republicans and two Democrats — cited the index in their State of the State addresses. In 2014, four governors — three Republicans and one Democrat — cited the index in their State of the State addresses.
The online version of the Index report was read over 160,000 times and was cited in more than 3,700 media stories in 2014. The index is overwhelmingly cited as non-partisan, neutral, and independent, and its release each fall is highly anticipated, the Tax Foundation reports.
“Credibility is the coin of the realm,” Henchman said. “Every report or analysis we put out is factual and based on economic principles and the data. That reputation precedes us, and means when we show up to testify, when we exhibit at a legislative conference, or when a legislator receives one of our reports by e-mail or mail, they give it attention. We’re not the anti-tax people and we’re not the pro-tax people — we’re pro-tax policy that’s pro-growth, simple, and neutral — so we get high e-mail open rates and people coming into the meeting to hear what we have to say. The worst thing people say about us is that they disagree with our analysis but trust our facts and rely on our data.”
The non-partisan, neutral reputation that the State Business Tax Climate Index has with legislators and the media means the Tax Foundation has a wide audience that reads and trusts its work. The rankings are seriously considered by all political parties, providing the Tax Foundation with the unique opportunity to refocus the reform debate on economic growth and competition and away from redistribution. The results have been comprehensive state tax reforms, and both governors and policymakers approaching the Tax Foundation, asking how to improve their rankings and competitiveness.
New York in 2014 approved a major business tax reform with key provisions arising out of discussions between the governor’s office and the Tax Foundation. After Gov. Andrew Cuomo learned that New York ranked last in the 2013 State Business Tax Climate Index, he and his staff derided the index in the media as biased and inconsequential. But behind closed doors, Gov. Cuomo contacted the Tax Foundation asking for help to improve his state’s ranking. After several meetings in Albany, the Tax Foundation helped Gov. Cuomo craft a balanced budget that broadens New York’s tax bases, increases the estate tax threshold, reduces the corporate 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, and improving net operating loss rules. The improvements will push the state’s overall ranking from 50th to 48th and its corporate tax system ranking from 25th to an impressive fourth best in the nation.
“The Tax Foundation has set a remarkable standard with its non-partisan research, which has become broadly used to inform and shape state policy reforms," said Atlas Network CEO Brad Lips. “We are very pleased to recognize the Tax Foundation as a finalist within our Templeton Freedom Awards."
Awarded since 2004, the Templeton Freedom Award is named for the late investor and philanthropist Sir John Templeton. The award annually honors his legacy by identifying and recognizing the most exceptional and innovative contributions to the understanding of free enterprise, and the public policies that encourage prosperity, innovation, and human fulfillment via free competition. The award is generously supported by Templeton Religion Trust and will be presented during Atlas Network’s Liberty Forum and Freedom Dinner. The winning organization will receive a $100,000 prize and the runners-up will receive $5,000.
The 2015 Templeton Freedom Award finalists are:
- Acton Institute (Grand Rapids, Mich., United States) — Poverty, Inc.
- Center for Dissemination of Economic Knowledge for Freedom (CEDICE Freedom) (Caracas, Venezuela) — Watchdog for Freedom and Democracy Project
- Free Market Foundation (FMF) (Johannesburg, South Africa) — Khaya Lam Land Reform Project
- Institute for Justice (IJ) (Arlington, Va., United States) — Strategic Research Unit and Program
- Institute of Public Affairs (Melbourne, Australia) — Repeal the Carbon Tax Campaign
- Tax Foundation (Washington, D.C., United States) — State Business Tax Climate Index
What: The Tax Foundation’s State Business Tax Climate Index named one of six finalists for Atlas Network’s prestigious $100,000 Templeton Freedom Award
When: Nov. 12, 2015, 7:30 p.m.
Where: Liberty Forum and Freedom Dinner closing ceremony — Capitale, 130 Bowery, NYC (Bowery and Grand St.)
Press Contact: Daniel.Anthony@AtlasNetwork.org or (202) 449-8441
About the Tax Foundation
The Tax Foundation is a non-profit, non-partisan tax research organization based in Washington, D.C. It improves lives through tax policy research and education that leads to greater economic growth and opportunity. It sees a world where the tax code doesn’t stand in the way of the success of individuals, businesses, and society.
About Atlas Network
Washington-based, Atlas Network is a nonprofit organization which strengthens the worldwide freedom movement by connecting 470 independent partners in 96 countries that share the vision of a free, prosperous, and peaceful world where limited governments defend the rule of law, private property, and free markets.