The Tax Foundation released its annual analysis of state tax systems this week. The conservative think tank ranks the states in an index that weighs five taxes (individual, sales, corporate, property and unemployment insurance). The lower the taxes and the simpler the rules, the higher the ranking of a given state.
The ranking is designed to shed light on the “business tax climate” around the country, which the Tax Foundation says plays a critical role in the economic health of each state, especially as the states compete with each other for capital and labor. The top states have something in common, according to the report: “The absence of a major tax” — meaning corporate, individual or sales taxes — “is a common factor among many of the top 10 states.”
The top 10 states in the 2018 ranking are Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Utah, Indiana and Oregon. The lowest-ranked states are Rhode Island, Louisiana, Maryland, Connecticut, Ohio, Minnesota, Vermont, California, New York and New Jersey, which has ranked last since 2015.
But the analysis is not without its critics. Carl Davis, research director at the liberal Institute on Taxation and Economic Policy, says the ranking is a “problematic wishlist” that does little to predict economic performance and simply reflects “the Tax Foundation’s policy recommendations.” Peter Fisher, an economist at the University of Iowa and a long-standing critic of the report, says “the Tax Foundation provides no evidence that its index actually predicts growth and research has generally found that it does not.”