The overall business-tax climate in New York is the worst among the 50 states, and that's bad news for the state's economic performance, a new report by the nonpartisan Tax Foundation concludes.
"Although the market is now global, the Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to an overseas location," the report says. "States with the best tax systems will be most competitive in attracting new businesses and be the most effective at generating economic and employment growth."
The Washington-based think tank rated each state's business-tax climate based on corporate income taxes; personal income taxes; sales taxes; unemployment insurance taxes; and "wealth" taxes on property and estates.
New York ranked 50th overall. Other states near the bottom of the rankings were New Jersey, Rhode Island, Ohio and Vermont. The states with the best business-tax climates are Wyoming, South Dakota, Alaska, Florida and Nevada, the Tax Foundation concluded.
The report said states' efforts to attract businesses with tax incentives and subsidies may not pay off in the long run.
"Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business climate plagued by bad tax policy," it said.
The study rated business-tax climates on a scale of 1 to 10, with 1 worst and 5 representing the national average. New York's overall 2006 rating was 3.91. That was slightly better than the state's 2004 rating, 3.68, which was also the worst in the nation. Tax Foundation analysts compared state tax systems in place as of July 2005. Since then, New York's top personal-income tax rate has dropped from 7.7 to 6.85 percent, as temporary tax increases the Legislature enacted in 2003 were allowed to expire.
"Taxes matter a great deal to business," the report said, adding: "The taxes paid by businesses should be a concern to everyone because they are ultimately borne by individuals through lower wages, increased prices, and decreased shareholder value."
Governor Pataki; Senate Majority Leader Joseph Bruno; and Assemblyman Robin Schimminger, along with several of his colleagues, have proposed major business-tax reductions as part of this year's state budget discussions. The Business Council is strongly urging the Legislature to include such reforms in the 2006-07 budget.
The Tax Foundation report is available here.