Politicians pontificate about how they support small business and studies have shown how important small business is to the economy, but is our government really supporting small business by providing taxes and regulations conducive to starting and running a new venture? The Small Business Survival Committee (SBSC) looks at just that annually. Each year they measure and rank the 50 states and the District of Columbia on the governmental costs imposed on investment, entrepreneurship and business.
The SBSC has identified the following factors as being important to the economic survival of entrepreneurial ventures:
- Personal Income Tax
- Capital Gains Tax
- Corporate Income Tax
- Property Taxes
- Sales Taxes
- Death Taxes
- Unemployment Tax Rates
- Health Insurance Tax Rates
- Electric Utilities Tax Rates
- Workers' Compensation Costs
- Total Crime Rate
- Right to Work
- Number of Bureaucrats
- Tax Limitation States
From these factors they calculate a Business Survival Index for each state. The index is calculated by adding together the state's top personal income tax rate, the state's top capital gains tax rate on individuals, the state's top corporate income tax rate, the state and local property tax ratio (property taxes per $100 of personal income), state and local sales tax ratio (sales taxes per $100 of personal income), state death taxes (states levying death taxes beyond the federal pick-up tax receive a score of 1 and states that do not receive a score of 0), average state employer unemployment tax rate, state's health insurance tax rate (usually levied on total premiums or gross receipts), state's electric utilities tax rate (usually levied on gross receipts), state workers' compensation costs (benefit costs as a share of state personal income), state's crime rate per 100 residents, right-to-work status (non-right-to-work states receive a score of 1, while right-to-work states receive a score of 0), state bureaucrats (per 100 residents), and tax limitation status (states without some form of supermajority tax limitation receive a score of 1 and states with some supermajority tax limitation receive a score of 0). The lower the index number, the lighter the governmental burdens and the better the environment is for entrepreneurship.
So which state is the best for an entrepreneur? The state with the lowest index is South Dakota.
And where is the worst place to be an entrepreneur? The District of Columbia achieved the highest score on the index.
Regionally, the South is considered to have the most hospitable environment for entrepreneurship when the District of Columbia is not included. The Midwest is second, followed by the West. The Northeast seems to be the worst place to be an entrepreneur.
There are initiatives in a number of states that are hopeful signs that action is being taken to encourage entrepreneurism. Some good policy initiatives enacted that have clear effects on entrepreneurs are:
- Arizona cut personal income tax rates across the board, and lowered its corporate rate from 9% to 8%.
- Connecticut continued with its phased-in cut in corporate income and death taxes.
- Delaware cut its personal income taxes at all levels, and reduced death taxes.
- Hawaii cut its personal income tax rates.
- Iowa adopted a capital gains exclusion for business sales.
- Kansas cut property and death taxes.
- Louisiana began a phase out of inheritance taxes.
- Maryland continued with a phased-in personal income tax cut.
- Massachusetts slashed its tax rate on income and dividends from 12% to 5.95%.
- New Mexico cuts its highest personal income tax rate from 8.5% to 8.2%.
- New York began a phase-in cut in its corporate income tax rate.
- North Carolina cut death taxes.
- Ohio cuts its top corporate tax rate from 8.9% to 8.5%.
- Oklahoma began a phased-in cut in death taxes. The top personal income tax rate in Oklahoma fell from 7% to 6.75%.
- Rhode Island continued with a phased-in cut in personal income tax rates.
- Virginia cut its personal property tax on motor vehicles as well as certain sales taxes.
- Wisconsin cut personal income taxes across the board.
Even if you do not choose where you start your entrepreneurial venture based on these factors, it is important to be aware of what the government in your state is or is not doing to support entrepreneurship. Actively working towards legitimate governmental regulations that support entrepreneurism in your state is a positive step towards not only your fiscal survival, but of entrepreneurism and the economy of your region. Learn what your state is doing so that you can knowledgeably lobby for a better climate for your venture. Entrepreneurs are a critical component of the economy. It is time for the government to recognize that in its policies and regulations.