The Washington Research Council has published an analysis of two recent reports on business tax burdens. The two reports – one by the Tax Foundation, the other by the Council on State Taxation (COST) – are used in our Opportunity Washington Scorecard.
We previously wrote about the two reports here. The WRC, an Opportunity Washington partner, takes a more indepth look at the information; we suggest policymakers and others interested in economic vitality and taxation read the report. The conclusion considers how tax policy affects interstate competition for business location and investment:
Although businesses operate in the global economy and the competition to attract job creators is worldwide, the Tax Foundation authors point to a U.S. Department of Labor study (BLS 2013) to show that a state is more likely to lose a job to another state than to competing governments overseas. There are many factors that affect where a business might relocate—proximity to markets, infrastructure, workforce experience and education levels, regulatory climate, and “quality of life,” to name a few.
But tax climate is a major element of this competition, as evidenced by the regular deals featuring tax incentives that states strike with coveted employers. As the COST study shows, Washington has a high business tax burden relative to other states, businesses here don’t get as much value for their taxes as in most other states, and Washington’s tax collections are particularly dependent on business taxes. Those negative elements in Washington state’s business tax climate are mitigated to some degree by the lack of an income tax.
We wrote in our foundation report,
As much of the nation struggles with the lingering after-effects of the Great Recession, Washington is experiencing an accelerated return to prosperity. Seattle was the nation’s fastest-growing major city in 2013, and the state ranks among the top on many measures of economic vitality and quality of life.
But we cannot afford to let our state’s past and current successes lull us into a false sense of security. Many Washington counties continue to experience high unemployment and employers around the state report difficulty finding qualified job applicants.
Washington’s economy still ranks at or near the top on some indexes, driven to a great extent by the thriving tech economy in the metropolitan Puget Sound. That’s a good thing. Yet it should not mask the reality of still-struggling communities and small businesses.
Changes in tax policy have consequences. The WRC report helps identify them. As legislators mull the challenges facing the state budget and school funding, they will want to consider the effects on employment opportunities and economic vitality statewide.