One way states with high unemployment can create jobs is to make their economies more conducive to business. And one way to make firms happy is to require them to pay less money in taxes. After all, if a firm would face a lower tax rate in one state versus another, then they will have higher profits if income is declared in the state with lower taxes. Yet, a few states that with the most favorable business tax climates also have some of the worst job markets. How can that be?
This month, the Tax Foundation released (.pdf) its latest list of state rankings of business tax climate. Here's its map that sums things up:
White is good, and dark blue is bad. Its top-5 includes South Dakota, Alaska, Wyoming, Nevada, and Florida, in that order. New York was the worst, followed by California, New Jersey, Connecticut, and Ohio.
While there wouldn't necessarily be a direct correlation to business taxes and unemployment, you might think that a states' labor market would recover relatively quickly if its tax system is very conducive to business. Yet, two states, in particular, slaughter that logic: Nevada and Florida. Here's a chart that breaks things down:
First, several states make a lot of sense here. Other than New York, all of the five-worst states are also in the top-20 for highest unemployment rates, with California the third-worst. New York may have been an exception here because a huge portion of its labor market, New York City, was essentially bailed out with the banks.