Area Economy

Concentrate on per-capita income, not business climate

January 18, 2013
| By Lou Glazer |
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As we have written frequently, being highly ranked in business climate rankings seems increasingly to be the goal/measuring stick of economic policy makers and too many pundits. Wouldn’t you rather have a good economy?

The problem is that Michiganders can’t pay their bills or save for their kids’ education or their retirement with business climate rankings. What matters to them is, do they have a job and how much does it pay?

Crain’s Detroit Business, in an interview it conducted with Gov. Rick Snyder, reported: While statewide rankings tend to lag, Snyder said it is hard to see why Michigan should not be in the top 10 in the country for best business climate. “We have done a tremendous amount to create a much better environment,” Snyder said.

What is it that Michigan has done to create a better environment? Crain’s writes: On the “done” side of the ledger, Snyder points to the elimination of the Michigan Business Tax and creation of the Corporate Income Tax, his signage of right-to-work legislation, the pending Personal Property Tax repeal, worker’s compensation reform, regulatory reform, the elimination of more than 880 net business rules, and the Michigan Finance Authority’s bond deal to allow the state to repay its $3.2 billion unemployment trust fund balance.

No question those actions to reduce business cost can and should improve Michigan’s business climate rankings. Most of those rankings have as their underlying assumption that low-cost places have the best economies.

Let’s look at one of the most respected business climate rankings to see if doing well in the ranking translates into a better economy for a state’s residents.

Below are states ranked from 1 to 10 in the Tax Foundation’s 2013 State Business Tax Climate Index and their ranking in per-capita income in 2010. Per-capita income is the best measure of the standard of living of a state’s residents. (Gov. Snyder agrees the Tax Foundation’s rankings matter. They are featured in an op-ed he recently wrote for Forbes.)

1. Wyoming; 6th

2. South Dakota; 22nd

3. Nevada; 29th

4. Alaska; 8th

5. Florida; 25th

6. Washington; 12th

7. New Hampshire; 9th

8. Montana; 35th

9. Texas; 27th

10. Utah; 45th

Below are the states ranked 41-50 (those judged to have the worst business climate) in the Tax Foundation’s 2013 State Business Tax Climate Index, and their ranking in per-capita income in 2010.

41. Maryland, 4th

42. Iowa, 26th

43. Wisconsin, 24th

44. North Carolina, 36th

45. Minnesota, 11th

46. Rhode Island, 16th

47. Vermont, 19th

48. California, 13th

49. New Jersey, 3rd

50. New York, 5th

The average ranking in per-capita income for the 10 states with the best business climate ranking is 21.8; for the 10 worst, it’s 15.7. Given that the 10 worst business climate states on average are slightly more likely to have a higher standard of living than the best 10, it is real hard to make a case that being ranked a top 10 business climate state is a reliable path to a higher standard of living for Michiganders.

And, at the very least, it calls into question whether lowering the business cost agenda, which has been the almost exclusive priority of Lansing policy makers the past two years, is the right agenda for returning Michigan to a high prosperity state.

Lou Glazer is president of the think tank Michigan Future Inc.

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