Washington, D.C. (not ranked): Private Pathway
Contrary to public image, Washington, D.C., is not strictly a government town; only one out of every six workers is on the public payroll, according to A1Source. Still, many companies depend on government contracts; contractions in federal spending hurt, and last fall’s sequestration kneecapped economic activity. Headquarters to nearly a tenth of the nation’s Fortune 500 businesses, Washington—the nation’s first planned city—also hosts many association headquarters, national law firms and major banks. Other professional service providers are major employers. In recent years there has been growth in Information Technology and Telecommunications. Metro D.C. continues to spread out into the northern Virginia suburbs. M&A dealmaker David Braun moved his office to Tysons Corner in McLean County, Virginia after 15 years across the street from the White House. In three years, “I’ve seen enormous growth in terms of corporate headquarters moving in,” he says. New neighbors include Hilton Hotel Corporation’s worldwide headquarters, and the Gannett Company building is within view. The Tax Foundation ranks the District of Columbia 20th lowest out of 50 states, and 44th in the Business Tax Climate Index.
Massachusetts (No. 47): Federally Focused
Massachusetts’ recovery from the Great Recession has been fitful; the Bay State has outpaced the national economy in job growth and real GDP in some quarters, lagged behind in others. The labor market has favored employers, who have steadily raised their hiring standards. Knowledge is the currency of the realm in Massachusetts, which continues to graduate a steady stream of some of the nation’s best-educated and top-earning professionals. Key economic sectors are biotechnology, finance, healthcare and tourism. Deeply reliant on federal dollars to support its health, defense and higher educational sectors, last year budget cuts, tax increases and spending prohibitions sucker-punched the state economy. Executives grimace at state taxation levels; the Tax Foundation ranked Massachusetts 8th highest in tax burden and 25th in State Business Tax Climate Index. The recently enacted computer and software services tax was slammed as “most burdensome in the nation” by the Massachusetts Taxpayers Foundation. Massachusetts spends at least $2.26 billion per year on incentive programs, according to The New York Times. Sales tax refunds and corporate income tax credits are the most popular subsidies. The top beneficiaries are manufacturers, followed by the energy industry.
New York (No. 49): Transition Time
New Yorkers bid farewell to popular billionaire mayor Mike Bloomberg last November; his successor Bill DiBlasio, a career politician, took office calling for new taxes on the wealthiest New Yorkers. While New York City residents have seen their per-capita income outpace the national rate over the past two decades, upstate residents have fared less well; the Empire State has lagged the nation’s post-recession recovery in recent quarters and the manufacturing sector has eroded enormously.
New York’s demographics are troubling. Its population is graying and prone to migration. While inbound migration has more than offset outbound, recent arrivals are generally poorer and non-English speaking; those exiting generally relocate in states with lower taxation, reduced regulation and brighter economic visages. In terms of business environment, the state’s high taxes, regulatory zeal and reputation for bureaucratic nitpicking hamper economic growth.
New Yorkers pay the highest property tax rate in the nation, according to the Tax Foundation, shelling out 12.8 percent of their income to the government. The state ranks dead last in the Tax Foundation’s 2014 State Business Tax Climate index. In January Gov. Andrew M. Cuomo announced a $2 billion slate of economic growth and tax reform proposals, calling for slashing both property and corporate tax rates. The plan would freeze property-tax rate increases, provide a tax credit for New York City renters, and raise the exemption for estate taxes from $1 million to $5.25 million. The governor also proposed cutting the top corporate income tax rate to 6.5 percent from 7.1 percent and to eliminate taxes altogether for manufacturers upstate. A series of business-incentive proposals would tap the brainpower of the state’s university system, spur technology-based industries, encourage companies to expand without relocating and encourage start-ups by cash grants.