| This particular blogger is Smadanek and the inacurate info is the direct connection between "tax climate" and Gross State Product growth rates.
To be absolutely fair, I used exactly the same sources of data that Smada did.
States with a "climate" most favorable to businesses are:
1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. New Hampshire
7. Texas
8. Delaware
9. Montana
10. Oregon
States with a "climate" least favorable are:
41. Arkansas
42. Iowa
43. Nebraska
44. Kentucky
45. Maine
46. Vermont
47. Ohio
48. Rhode Island
49. New Jersey
50. New York
Smada then tells us: In the latest year for which state-level data were available (2003-2004), the overall US growth rate was 4.3 percent. The top 10 states in the rankings above hit an average for 4.67 percent, while the bottom 10 states averaged 3.44 percent. This supports the point made by the Tax Foundation, and also highlighted by Enlighten - Taxes Matter. States with favorable tax climates outperformed the overall US economy, while those with unfavorable taxes underperformed.
Well, wait a minute. Let's look at the actual data. Here are the growth rates for these states. I'll even throw in the rankings of their growth rates so we get a better understanding of what is being shown.
| State | Tax Climate Rank | Growth Rate | Growth Rank |
| Wyoming | 1 | 3.3 | 40 |
| S. Dakota | 2 | 4.5 | 20 |
| Alaska | 3 | 3.4 | 38 |
| Florida | 4 | 5.9 | 5 |
| Nevada | 5 | 9.3 | 1 |
| New Hampshire | 6 | 5.4 | 9 |
| Texas | 7 | 4.6 | 17 |
| Delaware | 8 | 5.0 | 12 |
| Montana | 9 | 4.3 | 25 |
| Oregon | 10 | 4.5 | 19 |
See anything amiss? Yeah. Wyoming and Alaska badly underperform. In fact, only six of the top ten are either at the average growth rate for the country (4.3) or above. So much for the case that a "favorable tax climate" automatically translates into more growth.
Furthermore, only two states in the top ten in tax climates broke into the top ten as far as growth rates are concerned. The average place of these ten states would be 18.6 - or 6.4 from 25th (average) place.
Of course, you have to deal with Nevada's outlier.Something is obviously going on there that isn't happening anywhere else. If you separate Nevada from the rest, the average drops to 4.5 - barely two-tenths of a point above average.
But let's look at the bottom ten as well:
| State | Tax Climate Rank | Growth Rate | Growth Rank |
| Arkansas | 41 | 5.3 | 10 |
| Iowa | 42 | 5.5 | 8 |
| Nebraska | 43 | 1.5 | 49 |
| Kentucky | 44 | 3.7 | 34 |
| Maine | 45 | 3.9 | 32 |
| Vermont | 46 | 4.6 | 18 |
| Ohio | 47 | 2.6 | 44 |
| Rhode Island | 48 | 3.5 | 36 |
| New Jersey | 49 | 3.4 | 37 |
| New York | 50 | 4.7 | 15 |
Well, whadaya know. Four states in the bottom also "overperformed" and beat the US average growth rate. Guess it must be something besides tax rates.
Furthermore, two of the bottom tax states were in the top ten for growth rates, and two more in the top twenty. The average rank of these ten states would be 28.3 - or 3.3 from 25th place. So it seems that the least desirable group acts much more like average than does the most desirable group.
Smada then throws in this misleading fact (in bold type no less):
The 10 best states accounted for 16.6% of the total US economy, and delivered 19.9% of the growth. Meanwhile the bottom 10 states made up 19.8% of the economy but only created 18.5% of the growth.
Ok, here comes the math. 16.6% of the US economy is $1,936,488.77 (in millions). If you notice, Florida ($599,068) and Texas($884,136) are on the top ten. Between the two of them, they account for $1,483,204 - or 12.7% of the total. The remaining eight top-ten states contributed only a combined 3.89%. Nevada, the miracle growth-rate state, contributed only $100,317 - barely .009%.
Smada concludes:
It doesn't get much simpler than this. Make your tax system fair, and your state will prosper. Complicate your tax system, failing to treat taxpayers equally and you will lag behind.
Nice rhetoric. I'd just like to find out what numbers he used to discover this maxim, because the ones he's using don't prove that at all. In fact, they prove that tax climate, apparently, matters only slightly. |
