You may often wonder how Texas’ business tax climate ranks with other states. Well, the Tax Foundation has an answer in their recently released 2018 State Business Tax Climate Index report rankings all fifty states based on the burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax. We care about these sort of rankings because lower tax burdens increase economic freedom, which is associated with greater prosperity.

You’ll notice that Figure 1 presents the ranking of each state, whereby the top ranked states include either states without at least one major tax, such as the individual income tax, or states that have all major taxes with low rates and broad bases. Meanwhile, poor ranked states share similar shortcomings such as complex non-neutral taxes and comparatively high tax rates, such as in the three worst ranking states: California, New York, and New Jersey.

How has Texas fared? Texas ranked 13th best nationwide for the second year in a row. While Texas continues to excel in the individual income tax category—because it rightfully doesn’t have one, its tepid overall ranking can be attributed to lower scores in property tax, corporate income tax, and, particularly, unemployment insurance, where it fell thirteen spots since last year.

Although the 2015 Texas Legislature cut the business franchise (margins) tax rates by 25 percent, the relative ranking of the corporate income tax portion of the index remains unchanged at 49th, or second worst! This is because the business tax is a gross receipts-style tax that is costly to comply with and pay. If Texas eliminated this onerous tax, the Tax Foundation finds the state’s overall business tax climate could increase to 3rd best and the Texas Public Policy Foundation and the Legislative Budget Board (LBB) estimated large economic gains.

Texans have been hurt by burdensome local property taxes for too long, with that ranking in the report being 14th worst in the last two years. We know all too well about complexity, high rates, and lack of voter oversight. To overcome this burden, the Texas Public Policy Foundation recommends structural reforms in the short run while replacing them soon with a reformed sales tax (higher rate and broader base) to achieve more economic growth and job creation.

Moving forward, our elected officials should consider these rankings by the Tax Foundation and other reports when looking for ways to improve the state’s business tax climate so Texans have the best chance to start a new business or gain employment. The Texas model of limited government has contributed to human flourishing, where 25 percent of new jobs created nationwide have been since December 2007, but there’s always room for improvement.