The announcement by General Electric that it would move its headquarters to Boston sends two important messages: First, that being a high tax state is challenging when it comes to retaining business. And second, that it is particularly difficult to be a high tax state when you don’t offer the attractiveness of an urban environment that young people, in particular, currently want.
Perhaps not surprisingly, the 10 worst states for business are clustered in the northeast and midwest, along with California. This is not based just on corporate or even personal income tax rates but on a mix of factors, including mandates like a high minimum wage. By this measure, New York is 49th, ahead of just New Jersey (a much debated subject during the Republican presidential race.) Connecticut is 44th while Massachusetts (which was once known as “Taxachusetts” is a comparatively well off 25th.
Not surprisingly, the most favorable states are in the West, plus Texas and Florida.
On the corporate tax front, Connecticut and New Jersey have the highest tax rates, at 9%. Massachusetts is slightly lower at 8%. And New York is still further down at 7.1%. At the other end, Texas has no corporate income tax.
On the personal side, New York and New Jersey are the highest at about 9% (New York City has an additional tax of about 3%.) Connecticut is at 6.7% but it’s important to understand that Connecticut didn’t have a personal income tax at all until 1991 — its New York suburbs became an attractive place for people working in the city to live because they could escape a state or local income tax.
At the other end, Florida and Texas have no personal income tax and increasingly, wealthy residents of the tri-state area are moving their tax homes to Florida to save taxes, particularly as they become empty nesters and the ability to work remotely improves.
With high taxes and lacking an urban core to attract young people, Connecticut’s economy has been flagging. While it still has a high GDP per capita, its unemployment rate is slightly above the national average and its growth rate is considerably below the national average. Massachusetts has done better on both fronts, largely because of the vibrancy of Boston.