Ranking State's Business Climates
Last week the non-partisan Tax Foundation released its 2014 State Business Tax Climate index. This is an annual must-read report that allows elected officials to see how their states stack up in terms of creating a competitive tax system that can attract businesses and entrepreneurs.
According to the report the 10 highest-ranked states this year were: Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, Montana, New Hampshire, Utah, and Indiana. The report notes, “The absence of a major tax is a dominant factor in vaulting many of these ten states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax.”
North Carolina soon will move from 44th in this year’s rankings to as high as 14th next year as a result of the significant tax reforms the state passed earlier this year. Many other states considered tax reform proposals to cut their individual or corporate income taxes, including Louisiana, Nebraska, and Wisconsin. Unfortunately some states, including California, Illinois, and Minnesota, continue to move in the opposite direction by raising taxes instead of curbing spending increases. The five lowest-ranked or worst business climate states this year were: New York, New Jersey, California, Minnesota, and Rhode Island.
If you are wondering what your state can do to improve its business climate, check out The Heartland Institute’s “10 Principles for Improved Business Climate” booklet. Heartland has some of the country’s leading experts on these issues.
This week’s edition of The Leaflet features research and commentary addressing state-run banks, Wyoming beer taxes, temporary state waivers, tech startups regulatory relief, schools demand more than Common Core, and renewable mandates in Ohio.
Director of Government Relations
Research & Commentary: State-Owned Banks
Finance, Insurance, and Real Estate
According to the National Conference of State Legislatures, since 2010, 22 states have introduced bills to create a state-owned bank or investment trust or study the possibility of doing so. Twelve such bills were introduced in 2013 alone. The model many states are seeking to follow is that of the Bank of North Dakota (BND), the only state-owned bank currently operating. The Bank of North Dakota, established by the North Dakota legislature in 1919, is a full depository bank with a lending focus on agriculture, commerce, and industry.
Unlike private banks, BND is not insured by the Federal Deposit Insurance Corporation; the deposits it holds are guaranteed only by “the full faith and credit of the state of North Dakota.” If any loans default, a state-run bank has no FDIC backing, and taxpayers could face substantial liabilities and tax hikes.
Supporters of the BND model claim a state-run bank would provide additional loans to small businesses and other consumers that private banks are not currently making. Many proponents also contend state-run banks would support the banking industry as a whole by lending to other local banks and creating competition for the large national banks that dominate the market. Finally, they say a state-run bank would provide new revenue for the state through its dividends.
Hester Peirce, a senior research fellow at the Mercatus Center at George Mason University, argues in the New York Times that the creation of a state-run bank might only distort the banking market. Peirce argues this risk is amplified by the fact that state-run banks could face considerable pressure to make loans that private banks have good reason to reject, thus increasing the risk of default. Peirce recommends eliminating the existing laws that favor big banks and ending regulatory barriers in capital and lending requirements that hurt small banks.
Also writing in the New York Times, Mark Calabria of the Cato Institute notes many of the problems that plague the political system in general are likely to affect a state-run bank: “When the government owns the banks, lending decisions become increasingly driven by politics, rather than economics. Resources flow to those with influence. Government-owned banks also tend to under-price risk in order to buy votes.”
Sound tax policy and financial laws that allow banks to base decisions on real-world risk are far better at fostering economic growth than government regulations or state-run banks. Just like any business, privately run banks can and do fail, but this is much better than burdening taxpayers with millions of dollars of new liabilities through a state-run bank.
Research & Commentary: Wyoming Beer Taxes
Budget & Taxes
At 2 cents per gallon, Wyoming’s beer tax is well below the national average of 28 cents per gallon and considerably less than all its neighboring states’. The policy makes Wyoming’s beer prices very competitive with those of neighboring states. Wyoming legislators recently have begun considering proposals to increase the beer tax radically, to about 18 cents per gallon, and use the revenue to improve substance abuse programs.
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines the beer tax hike proposal and other sin taxes. Glans argues Wyoming should not adopt tax policies that would destroy any competitive tax advantages it has, whether on incomes, sales, or specific products. Instead, it should defend those advantages and aim to lower the tax burden on taxpayers.
Study: Adopting Medicaid Expansion for Temporary Waivers 'Ill-Advised' for States
A new study challenges the claim of some lawmakers that by adopting the Obamacare Medicaid expansion states can gain greater flexibility in reforming the controversial program.
The report is a joint project of Michigan’s Mackinac Center for Public Policy and Ohio’s Buckeye Institute for Public Policy Solutions. It was coauthored by Buckeye President Robert Alt and visiting fellow Nathaniel Stewart.
“It is unrealistic to assume that the Obama administration will weaken the Medicaid requirements that they fought so hard to get,” Alt said. “No state should expand Medicaid based upon the illusory hopes of waivers, which are inadequate to genuinely reform Medicaid’s ills.”
Twitter, Investors Gain from JOBS Act Regulatory Relief
In this article from the Heartlander digital magazine, John Berlau of the Competitive Enterprise Institute covers the success of the Jumpstart Our Business Startups (JOBS) Act, signed by President Barack Obama in April 2012. Berlau examines how many tech startup companies are using the JOBS Act provisions to simplify their IPOs, to the benefit of the companies and investors.
Under the JOBS Act, companies launching an IPO are exempt from several burdensome mandates under Sarbanes-Oxley and Dodd-Frank until either their fifth anniversary of going public or until they reach a certain point in revenue or market valuation.
Berlau contends both investors and new small- and medium-sized companies have benefitted from earlier public offerings. “In the 18 months since the JOBS Act went into effect, there has been a notable increase in small and midsize companies going public and designating themselves as ‘emerging growth companies’ to take advantage of the exemptions under the law.”
Top Public Schools Demand More than Common Core
The United States’ best public schools have higher standards than Common Core, and school leaders attribute their success partly to these high expectations. Common Core backers call the standards “rigorous” and “internationally benchmarked,” but investigation into actually rigorous and internationally competitive standards in the United States casts doubt on these claims. Heartland Research Fellow Joy Pullmann finds by implementing truly rigorous standards top schools don’t need to “teach to the test” to achieve top scores.
Florian Hild, principal of Ridgeview Classical Charter School in Fort Collins, Colorado, which ranks as the second-best high school in the state, says, “We don’t worry about the state tests and the Colorado state standards or the Common Core standards. We worry about the integrity of our curriculum and the implementation of a serious classical education.”
Tip Sheet: Ohio Alternative Energy Portfolio Standard
Ohio is ranked 23rd highest in electricity prices. Although this is due to many reasons, a big reason is the state’s Alternative Energy Portfolio Standard (AEPS), signed into law in May 2008. The AEPS requires 25 percent of all electricity sold in the state to come from alternative energy sources by 2025, with half of the amount required to come from sources identified as “renewable,” including 0.5% specifically from solar. Other renewables include wind, biomass, and certain hydropower facilities. Non-renewable alternatives include nuclear and clean coal.
A joint report by the American Tradition Institute and Beacon Hill Institute estimates the AEPS mandate will raise the cost of electricity by an average of 9.3 percent by 2025. This increased price for energy will decrease net investment by $79 million and lower employment by an average of 9,753 jobs.
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