Kentucky's business tax climate: Not as bad -- or good -- as it could be

First, it's not as bad as it could be in Kentucky.

The commonwealth improved from No. 34 to No. 20 in the Tax Foundation’s 2010 State Business Tax Climate Index.

Considering the tax increases approved during the 2009 session of the Kentucky General Assembly, how could Kentucky experience such a dramatic increase in just one year?

In an e-mail response, Natasha Altamirano, manager of media relations for the Tax Foundation, explained:

“While Kentucky did enact some tax increases that negatively affected the state’s Index score, its improvement in ranking is due to the fact that states immediately ahead of it in the 2009 Index fell so much as a result of poor tax policies -- especially in the personal income tax. In other words, by not doing anything (or by doing less damage than other states), Kentucky’s ranking improved.”

Second, while surrounding states like Ohio, which has been ranked either No. 47 or No. 48 for the past five years, continued to shrink their tax base, Kentucky missed the chance to improve its business climate.



In this podcast about the Tax Foundation’s rankings, the Mercatus Center at George Mason University describes the rankings as "the competitiveness of the 50 states’ tax systems and ranks them accordingly based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance
taxes."

If the only news here is “it could have been worse,” then past admonitions produced as a result of such rankings still hold:

By keeping tax rates low and eliminating regulatory policies creating an oppressive business atmosphere, the Bluegrass State could join Florida, Nevada, Alaska, Wyoming and South Dakota.

Treading water is simply not good enough.