Taxes matter to businesses. They impact business decisions, job creation, plant location, and competitiveness. Each year, the Tax Foundation issues its State Business Tax Climate to give officials and residents the ability to gauge how their state’s tax system stacks up to other states nationwide.
The report notes that state lawmakers are mindful of their states’ business tax climates. However, they are sometimes tempted to make quick fixes, such as trying to lure business with lucrative tax incentives and subsidies instead of enacting broad-based tax reform.
When assessing which changes to make, the Tax Foundation says lawmakers need to remember two important facts:
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Taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value), or some combination of the above. |
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States do not enact tax changes in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its region, and even globally. Ultimately, it will affect the state’s national standing as a place to live and to do business. |
The report says while it's true that taxes are just one factor in business decision-making. Other concerns also matter—such as access to raw materials or infrastructure or a skilled labor pool—but a simple, sensible tax system can positively impact business operations with regard to these resources.
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