A report by the Tax Foundation on the State Business Tax Climate within states for FY 2010 shows Louisiana is losing ground. The state dropped two spots to 35th overall for FY 2010.

The Tax foundation used 112 variables, grouped into five component indexes to measure the overall business tax climate within a state. These are: Corporate Tax Index, Individual Income Tax Index, Sales Tax Index, Unemployment Tax Index and Property Tax Index.

The report explains, “The modern market is characterized by mobile capital and labor. Therefore, companies will locate where they have the greatest competitive advantage. States with the best tax systems will have an advantage in attracting new businesses and generating economic and employment growth.” Additionally, they highlight a Department of Labor report that argues the majority of mass job relocations are state to state, and not to an oversea location.

Following up with this information, the report emphasizes two main points.
1) Taxes matter to business.
2) States do not enact tax changes (increases or cuts) within a vacuum.

Another, often overlooked, issue that the report comments on are the tax incentive packages that states put together to attract business. The report argues that while these deals offer a good political photo op, in reality, the fact that a state must offer a package to begin with is a cover for a poor business climate.

While there are some bright spots in the Tax Foundation report, Louisiana must seek to improve its business climate. A good first step could be reevaluating the state’s tax policies.