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California among least business-friendly states, report says

California placed 48th in a study by the Tax Foundation, a conservative think tank, which based its rankings on business, sales, income and other taxes. Other studies contradict the findings.

January 26, 2012|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — California's combination of business, sales, income and other taxes ranks it close to the bottom of the 50 states for being business-friendly, according to a conservative Washington think tank.

California placed 48th, ahead of New York at 49th place and New Jersey at 50th, said a report released Wednesday by the Tax Foundation.

The findings, which are contradicted by other studies and disputed by some economists, are likely to become an issue in this fall's elections. California Gov. Jerry Brown is trying to put an initiative on the November ballot to temporarily raise the state sales tax and the individual income tax for people who make more than $250,000 a year. Brown wants the money to pay down state debt, boost school spending and balance the budget.

Gil Duran, a Brown spokesman, dismissed the Tax Foundation findings as politically motivated.

"This is a partisan group funded by conservative foundations and its assertions must be taken with a grain of salt," Duran said. "California added 230,000 jobs in 2011, and personal income grew by $100 billion, far outpacing the nation. Our state is attracting business and investment from around the world."

According to the foundation, the top 10 states with business-friendly taxes were Wyoming at No. 1, followed by South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah. Many of them made it to the top tier because they don't collect a major tax, such as on corporate income.

"Even in our global economy, a state's stiffest and most direct competition often comes from other states," Tax Foundation economist Mark Robyn said. "State lawmakers need to be aware of how their states' business climates match up to their immediate neighbors and to other states in their region."

The survey of state business taxes did not attempt to measure non-tax factors, such as the quality of universities, access to talented workers and availability of venture capital, in determining a state's business-friendliness, Robyn noted.

Some economists are skeptical. The foundation's criteria are too limited, said Stephen Levy, chief economist and director of the Center for Continuing Study of the California Economy in Palo Alto. "It portrays 'business-friendly' as only about taxes," he said, "and not about quality of education and quality of life in the state.

"It's not true that most businesses in California, all they care about is the tax rates."

The Tax Foundation, which is backed by major corporations such as Wells Fargo & Co. and Exxon Mobil Corp., is one of a number of research organizations that use different methods to try to rank state tax policies and burdens.

For example, a 2011 study by the business-backed Council on State Taxation found that California was close to the national average of 5% in the amount of business taxes paid as a percentage of state private-sector product.

"The reality is that California is somewhere between the middle and the high end" in terms of total taxes, said Mark Baldassare, the president of the Public Policy Institute of California.

An institute poll out this week said that 68% of likely voters supported the governor's proposed tax initiative. In follow-up questioning, 68% said they supported raising the income tax for wealthy voters, but 64% said they opposed paying higher sales taxes.

marc.lifsher@latimes.com

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