The Bay State may no longer deserve the “Taxachusetts” label that was a drag on our reputation, if not economy, for so long. We place squarely in the middle (28th) in this year’s ranking of overall state and local tax burden by the nonpartisan Tax Foundation. But the Washington-based think tank says we still deserve the unflattering moniker when it comes to one particular area of taxation.
In an op-ed in yesterday’s Boston Herald, Curtis Dubay, an economist at the foundation, says the Massachusetts economy is held back by “the state’s egregious business taxes.” Massachusetts ranks 34th in the group’s 2008 State Business Climate Index, giving us a less business-friendly tax environment than Illinois, Michigan, and Lousiana (places that Dubay says are “thought of as tax hells”). Dubay cites the state’s 9.5 percent corporate income tax rate (4th highest in the country) and high unemployment insurance taxes as major culprits.
Dubay is dubious of Gov. Patrick’s plans to give the state’s economy a long-term boost through initiatives such as his proposed big investments in education, saying “a much quicker fix would be to attract companies and their jobs with a more competitive tax system.” There is considerable debate, however, over how big a role taxes play in business location decisions. Indeed, the Tax Foundation’s own 2007 report on state business taxes pointed out that research by Bob Tannenwald of the Boston Federal Reserve Bank suggests that public expenditures such as education spending are more important to businesses than tax burden.