The Hidden Costs of Doing Business

If you talk with business leaders, you hear stories about the hidden costs of doing business in Massachusetts – huge building projects idled by recalcitrant local building inspectors; regulators who blithely ignore legitimate concerns raised by companies; and a general lack of understanding of how businesses work. I’ve always wanted to quantify these “soft costs” to see if they amounted to much, and to figure out why there are so many complaints. As I compiled information on business rankings, one pattern in the data caught my eye: If you look at Massachusetts strictly by its taxation and business cost numbers, we come out in the mid-30s. This year, we were ranked 32nd for tax climate by the Tax Foundation and 39th on business costs by CNBC.

But measures of softer tax and cost issues look worse. A recent Chief Executive magazine survey ranks us as the 45th “best” state to do business. What’s more, CFO magazine’s survey says Massachusetts has the fourth worst tax environment. (Dig deeper into their sub-measures if you want to get a feel from the broad-based nature of CFO‘s dislike of the tax environment here.)

So, why the difference between our mid-30s and mid-40s rankings of CEOs and CFOs? I welcome your suggestions, but my best guess is that we are seeing the impact of the hard-to-quantify (but-you-know-its-there) regulatory and legal environment of Massachusetts.

Crossposted at Pioneer Institute’s blog.