Wednesday, August 6, 2008

Anti-Business Climates and State Budget Deficits

States that have unfavorable business climates generally tend to have high taxes that attempt to redistribute income across the state. Not surprisingly, states that try to redistribute income overextend themselves and run large deficits. Steve Malanga, an editor of the excellent, found that the top five anti-business states are running combined deficits of $33 billion! That amounts to 2/3 of all projected state budget deficits (twenty-nine states are projected to run deficits).

Development Counsellors International surveyed business executives to find out what states they thought were too hard to do business in. Executives named New York, California, New Jersey, Michigan and Massachusetts as the most anti-business states. Executives complained that these states had high taxes and too many regulations. As Malanga writes:

But any look at the states with the biggest deficits reminds us that governors and legislatures are largely the authors of their own problems, and that the biggest trouble some of them seem to have is that their taxing and chronic overspending have made them toxic to the business community.
This survey is interesting in comparison to BHI's 2007 State competitiveness Report. BHI found that the five states mentioned above had terrible fiscal policies for business competitiveness. The best fiscal situation was Massachusetts at 34th, while Michigan was 37th, New Jersey 46th, California 49th and New York finished last. However, it terms of overall competitiveness, Massachusetts finished 2nd, California 24th, New York 38th, Michigan 41st, and New Jersey 43. While state fiscal policies might have an effect on business climates, human capital, technology and security play important roles in state competitiveness.

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