State Rankings as a Tool for Tax Policy in New Mexico Manuel del - - PowerPoint PPT Presentation

State Rankings as a Tool for Tax Policy in New Mexico

Manuel del Valle Director of Research

The World is Flat Again?

• Thomas Friedman has just published a book

called “The World is Flat.”

• “The 20th Century gave us a platform in which

intellectual work can be delivered from

• anywhere. It can be disaggregated, distributed,

and apportioned in many places.”

• In this sense the playing is leveled and flat.

US Tax Returns Processed in India

• Somebody in India offered Thomas Friedman

to do his tax returns. “I already have an accountant in Chicago” he replied.

• The Indian accountant was too polite to

suggest that Friedman’s tax return might be already being processed in a foreign country, through an outsourcing operation of his accountant in Chicago.

Number of US Tax Returns Processed in India 100 200 300 400 500 2003 2004 2005

Thousands

The World Has Also Flattened for States Trying to Attract Investment

Fortune Magazine 1955 advertising Indiana

• Low cost of coal
• Presence of Petroleum,

Water, Corn, Soybeans

• Easy access to natural

resources

• Access to transportation

routes

• Enviable strike and lockout

record Fortune Magazine 2002 advertising Tennessee

• Commitment to secondary

and higher education

• Expansion of technology

infrastructure

• Factors that would retain

knowledge workers, amenities

• Factors that would help

entrepreneurial companies grow

Why Rankings are Useful in a Flat World

• Allow the comparison with other states that

also compete to attract investment

• Provide a diagnosis of a state, and a

benchmark

• Allow the opportunity to identify best practices
• Provide a view of the state from the “outside”
• Provide a relief from making policy reforms

looking only at domestic issues.

First Ranking: Tax Procedures

Published by the Council of State Taxation (COST) looks at issues of fairness and administrative procedures such as the presence and independence of a tax tribunal Texas Delaware Connecticut South Carolina Rhode Island Missouri North Carolina Kansas Nevada

28

Arizona Lowest Ranking States New Mexico Highest Ranking States

Second Ranking: Business Climate

Published by the Tax Foundation looks at issues of the level—and to a certain extent the “variance”--of personal, corporate and sales taxes. It also looks at unemployment insurance and fiscal balance. Hawaii New Hampshire New York Texas Minnesota Alaska West Virginia Florida Rhode Island

40

South Dakota Lowest Ranking States New Mexico Highest Ranking States

Third: Government Performance

Published by the Maxwell School of Citizenship and Public Affairs at Syracuse University. It is the result of a six year project to examine the performance of governments in issues of financial management, capital management, information systems and human resources. California Delaware Alabama Kentucky Wyoming Michigan New Hampshire Virginia Hawaii

39

Utah Lowest Ranking States New Mexico Highest Ranking States

Fourth: Competitiveness

Published by the Beacon Hill Institute. Evaluates the “microeconomic foundations of prosperity” based on a methodology by the World Economic Forum. It looks at issues of fiscal policy, security, infrastructure, human resources, technology, business incubation and openness. Mississippi Colorado Louisiana Minnesota West Virginia Washington Alabama Utah Hawaii

33

Massachusetts Lowest Ranking States New Mexico Highest Ranking States

Fifth: The New Economy

Published by the Progressive Policy Institute. Economic success of states depend on technological innovation and entrepreneurship. It looks at variables such as knowledge jobs, presence of IT jobs, educational attainment of the workforce, export orientation, % of population on line, technology in schools and e-government West Virginia Maryland Mississippi Colorado Arkansas California Alabama Washington Wyoming

27

Massachusetts Lowest Ranking States New Mexico Highest Ranking States

Are These Rankings Correlated?

0.83 1.00 0.87 0.12 0.30

TOTAL

0.51 0.24 0.09

• 0.02

New Economy

0.51 0.29 0.13 0.07

Competitiveness

0.24 0.29 0.00 0.34

Government Performance

0.09 0.13 0.00

• 0.10

Business Climate

• 0.02

0.07 0.34

• 0.10

Procedures

New Economy Competitive- ness Government Performance Business Climate Procedures

Absolute Strengths in NM

8 Scientists and Engineers as a % of labor force 7 Number of S&E students as % of population 3 Academic R&D 6 Students enrolled in degree granting institutions 10 Average travel time to work 9 Budget surplus as a % of GSP Competitive- ness 6 IT professionals 5 Industry R&D Investment 1 Presence of Scientists and Engineers New Economy Ranking Subindex Index

Absolute Weaknesses in NM

43 Amenities 46 Competitiveness of existing business 47 Resource efficiency 50 Earnings and job quality Economic Development Report Card for the States 41 Fiscal balance 48 Gross Receipts Tax Business Climate 40 Exports per capita 49 Percentage of students proficient in Math/Fourth grade 49 Percentage of population without health insurance 47 High speed lines as % of population 44 Households with installed phones 43 Crime Index Competitiveness 42 Population on line 48 E-Government 47 Export Focus of Manufacturing 48 Foreign Direct Investment 46 Workforce education New Economy Ranking Subindex Index

Caveats When Looking at Rankings

• Theoretical underpinning. Do they measure

what they say they measure?

• Weighting method
• Correlation between sub indexes
• Lack of sequencing
• Absence of correlation undermines credibility
• Diagnosis needs validation