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"Business Climate" Rankings Bogus Says New Report

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Six influential state tax studies by anti-tax organizations including the American Legislative Exchange Council (ALEC), are "deeply flawed," include "highly inconsistent findings" & constitute "ideologically charged pseudo-social science published to fu

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JL A (281)
Thursday May 9, 2013, 12:42 pm
"Business Climate" Rankings Bogus Says New Report
by Nick Surgey May 2, 2013 - 8:46am

Six influential state tax studies by anti-tax organizations including the American Legislative Exchange Council (ALEC), are "deeply flawed," include "highly inconsistent findings" and constitute "ideologically charged pseudo-social science published to further the interests of corporations and rich people," according to a major new report released by Good Jobs First, titled "Grading Places: What Do the Business Climate Rankings Really Tell Us?"

The studies purport to rank states according to their business climate. According to Good Jobs First, a Washington, DC-based nonprofit which focuses on economic development policies and government subsidies, these studies are "corporate-sponsored" junk science and should be viewed for what they are: "attempts by corporate sponsors to justify their demands for lower taxes and to gain public-sector help suppressing wages."
Business Climate Indexes Not About Jobs and Income, but "Ideology"

The report examined four "Business Climate Indexes," released by ALEC, the Small Business and Entrepreneurship Council, the Beacon Hill Institute, the Tax Foundation, and two "Representative Firm Models" from the Tax Foundation and the Council on State Taxation. Each of the six indexes/models rank states according to various criteria, but there is significant overlap, particularly on the notion that lower taxation drives success.

The four Business Climate Indexes received particular criticism. These rank states according to factors such as how much the state taxes individuals and corporations (generally considered bad), what state health care regulations exist (again, considered bad), and if there is a state minimum wage (you guessed it, bad).

According to Good Jobs First, the studies "are not about jobs and income, but rather about ideology." The success criteria selected by the authors of the studies, match the organization's policy objectives. The ALEC report, called "Rich States, Poor States," embodies "the policy agenda that ALEC pushes to state legislators: reduction or abolition of progressive taxes, fewer investments in education and other public services, a smaller social safety net, and weaker or non-existent unions."

That is probably music to the Koch brother's ears, but the ALEC prescription doesn't work:

"Despite its aggressive claims, [it] fails to predict job creation, GDP growth, state and local revenue growth, or rising personal incomes. Empirical evidence does not support its claims that estate taxes or graduated personal income taxes cause rich people to move and thereby retard economic development... The only certain outcome of a tax cut is lower revenues. And the only clear impact of 'right to work' laws is lower wages," say the economists at Good Jobs First.
"Artifacts of Corporate Advocacy"

Given that the studies all have the same goals (taxes are bad) one would think they would generate similar results, yet results of the six studies are highly inconsistent. For example, the Tax Foundation index places Wyoming top, but COST ranks the same state 45th.

The studies are thinly veiled "artifacts of corporate advocacy" pushing for regressive taxation and wage suppression in the absence of empirical evidence that these policy prescriptions generate widely shared prosperity. From the Good Jobs First report:

"The one consistent theme that the indexes harp on is regressive taxation, especially lower corporate income taxes, lower or flat or nonexistent personal income taxes, and no estate or inheritance taxes. Even though state tax systems (including income, property, consumption and other taxes) are already quite regressive (and barely offset by the progressivity of the federal income tax), the business climate authors would have states enact even more inequality into their tax codes."

Other themes from the studies include: "Wage suppression via recommendations against minimum wages, free union bargaining, health care regulation, paid leave and unemployment insurance. The unspoken subtext seems to be: use public policies to keep your wages down and you will attract investment."
Getting Together in Oklahoma to Talk Tax

This pseudo-science is likely on the agenda of the ALEC meeting in Oklahoma this week. The Tax Foundation, The Council on State Taxation, and ALEC are expected to meet with ALEC legislators in Oklahoma City, during ALEC's Spring Task Force Summit, May 2-3. The Tax Foundation and the Council on State Taxation were listed as being members of the ALEC Tax and Fiscal Policy Task Force in 2011, the most recent year for which a list is available.

Legislators and lobbyists will be flying in from across the states, to meet on ALEC task forces and pass new ALEC "model" legislation. They are due to be addressed by Oklahoma Governor and former ALEC "Legislator of the Year," Mary Fallin, who is scheduled to talk with them about her efforts to "reduce taxes, limit the size and scope of government, and provide a reasonable regulatory environment for businesses to operate."

Keep an eye on PRWatch for updates from Oklahoma City.

Stephen Brian (23)
Thursday May 9, 2013, 2:41 pm
I would never trust rankings like these. If done well, such rankings might potentially give some useful information as to which environments are generally good and which are generally bad, but there are just too many unknown factors which go into making a business-environment, too many variations across industries, etc. for any reliable quantitative analysis.

The biggest problem is that there is no single "quality of a business environment". For example, cheap energy might be extremely useful for a manufacturer, but do little good for management-consultants. Likewise, high taxes which support a good education-system might be a net-benefit to an engineering firm, which a minimum wage and minimum-required benefits might not affect at all, while the same minimum requirements and tax could kill a restaurant. The quality can vary dramatically depending on the industry and business-model.

Then there are the important factors which are generally poorly measured. How likely is it to find not only the right people for the company, but to find a team without cultural or language-barriers? (I don't know if that is a serious issue in the U.S., but it is elsewhere.) What sorts of hours are local people willing to work (how much will that night-shift cost, and can you get the team to cram for a major deadline)? Then of course there is the big one: JLA and I have been over this before and we disagree, but I don't think anybody can predict the effects of many government-policies on economic performance (for the same reasons as why ALEC could not hope to accurately judge the business-environment), certainly not more than a couple of years into the future, so there is always the question of how the local market will fare several years down the road, and whether there will be customers.

Angelika R (143)
Thursday May 9, 2013, 4:52 pm
It's sickening just to read the word ALEC... anyone surprized?

JL A (281)
Thursday May 9, 2013, 5:12 pm
So many things are accurately measured but people prefer to disbelieve because they prefer not to beleive the results and answers. Not me Angelika.You cannot currently send a star to Angelika because you have done so within the last day.

Tim C (2420)
Thursday May 9, 2013, 5:18 pm

JL A (281)
Thursday May 9, 2013, 5:20 pm
You are welcome Tim.

. (0)
Friday May 10, 2013, 9:42 am
Firstly who paid for these studies? Anyone reading this article can see that they are flawed and benefit only the wealthy. It may be all about ideology but it is an ideology that isn't working.

Gene Jacobson (290)
Friday May 10, 2013, 10:26 am
There is NOTHING ALEC does that is not deeply flawed from the rubber stamp pro forma "statutory changes" they sent to republicans everywhere to their biased studies. Any study that does not concur with "conservative" principles is immediately attacked from every angle, I wish they'd turn that same sharp eye on what ALEC does because for my money they are the most uber right group in the country. And that is saying a lot given what is out there.

Mitchell D (87)
Friday May 10, 2013, 1:45 pm
So...who is surprised to read that ALEC is full of crap?
The strategy of misinformation has become a culture thereof, from right wing politics (G.W.Bush and friends) to the Koch brothers, and, of course, Faux News.
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