Capital Flows and Competitiveness Reports


A must read is today’s Wall Street Journal opinion piece America’s Troubling Investment Gap by David Malpass and Stephen Moore.  The jist of the message from Malpass and Moore?  Foreign and domestic investors are choosing to bypass the U.S. when deciding where to place their investment dollars.  This decline in investor capital, they suggest, is a major reason businesses are not expanding and unemployment is high.  Tax rates have much to do with the flow of capital, or as the authors state: Capital flows to where it is most highly rewarded, and low marginal tax rates on the returns to capital and business income create a gravitational pull on global funds.   The data Malpass and Moore use to verify their claims is found at the Bureau of Economic Analysis site.

So what about the United States?  Where in the U.S. are the taxes and business environment friendly and most likely to produce job growth and economic expansion?  Several rankings provide the answer to this question and are worth tracking annually by business researchers, entrepreneurs, government officials, and others interested in regional competitiveness within the United States.  Here are some I suggest:

America’s Top States for Business 2011: Special CNBC Report
Ranks states on 10 categories: cost of business, workforce, quality of life, economy, infrastructure & transportation, technology & innovation, education, business friendliness, access to capital, and cost of living.    CNBC ranks Virginia the #1 state for business and Texas #2; the worst states include Alaska at #49 and Rhode Island at #50.

Forbes Best Places for Business & Careers 2011
A listing of metro areas where the cost of doing business, job growth, education rank and population all contribute to a favorable business climate.  Topping the list is Raleigh, N.C. at #1, followed by Des Moines, IA at #2.  (3 states in the top 10 on this list are from Texas: Austin #7, San Antonio #8, Dallas #10).

The Tax Foundation’s State Business Tax Climate Index, Fiscal Year 2011
Echoing Malpass and Moore’s point in the WSJ opinion piece, Kail M. Padgett, author and compiler of this year’s Tax Foundation report, states that:
Taxes matter to business.  Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy.  Most importantly, taxes diminish profits…Thus, a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth. (pps. 2-3)
The 10 best states in the Tax Foundation report include South Dakota (#1) followed by Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah, and Indiana.  The 10 worst states in their report include North Carolina (#41), followed by Rhode Island (#42), Minnesota, Maryland, Iowa, Ohio, Connecticut, New Jersey, California, and New York at #50.

Business Tax Index 2011: Best to Worst State Tax Systems for Entrepreneurship and Small Business
produced by the Small Business & Entrepreneurship Council.
Raymond J. Keating, Chief Economist and author of the report, adds to the Malpass, Moore, & Padgett chorus when he states: In the end, though, all taxes matter, whether imposed at the federal, state or local level of government.  They matter to consumers, entrepreneurs, investors and businesses.  They matter in terms of a state’s competitiveness.  And they matter when it comes to  economic growth and job creation.  (pps. 2-3).
The SBEC ranking considers 18 measures listed on p.3 of the report.  The top 5 best tax systems include South Dakota (#1), Texas, Nevada, Wyoming, and Washington (#5); the 6 worst tax systems include California (#45), Maine, Iowa, New York, New Jersey, Minnesota, and the District of Columbia (#51).

To find out more about where to locate business rankings and how to interpret the data, ask a reference librarian!