States that Rank Poorly on the “Small Business Policy Index 2017”
By SBE Council at 22 February, 2017, 8:41 am
by Raymond J. Keating-
The 21st annual Small Business Policy Index, which ranks the 50 states based on their policy climates for small business and entrepreneurship, was just published by SBE Council. The Inex arguably is the most comprehensive assessment of state policymaking toward small business, and is based on 55 different policy measures.
We’ve already taken a quick look at the top states on the Index, noted some states making positive decisions to improve their competitiveness, as well as pointing out how the top 25 states outperform the bottom 25 in key areas, such as economic growth, population growth and movement of people between the states.
And then there is the bad news brought by the Index.
NOTE: Economist Dr. Richard Rahn just penned a Washington Times column explaining the importance of SBE Council’s “Small Business Policy Index.”
The Worst States
The five worst states for entrepreneurs and small businesses in terms of government taxes, regulatory burdens, government spending and debt, and other performance measures, are 46) Vermont, 47) Minnesota, 48) New York, 49) New Jersey, and 50) California.
California. Make no mistake, to rank in the bottom five states, there’s a great deal wrong on the policy front in each of these states. As noted in an analysis of California, we noted that lawmakers in the Golden State, in effect, are “waging a policy war against entrepreneurs and small businesses,” and that includes imposing the highest personal income and individual capital gains tax rates, high corporate income, corporate capital gains, gas and diesel taxes, the second heaviest energy regulation burden, the highest workers’ compensation costs, high levels of state and local government spending and debt, and very poor protections against eminent domain abuses.
New Jersey. The Garden State inflicts much of the same policy pain as California. New Jersey has the highest property tax burden, very high personal income, individual capital gains, corporate income and corporate capital gains taxes, a high gas tax, a high energy regulatory burden, second highest workers’ compensation costs, high levels of state and local government spending and debt, and a death tax.
New York. The Empire State gets it wrong in so many policy areas as well. The state imposes high personal income, individual capital gains, corporate income, corporate capital gains, property, consumption-based, gas, diesel and wireless taxes, along with a death tax, the most burdensome energy regulations, high workers’ compensation costs, a high level of state and local government employment, the second highest level of state and local government spending, and the highest level and state and local government debt.
Minnesota and Vermont. Likewise, Minnesota has very high personal income, individual capital gains, corporate income and corporate capital gains taxes, the second highest unemployment tax, and a death tax; while Vermont founds out the bottom 5 on the Index with high personal income, corporate income, corporate capital gains and property taxes, a death tax, a high level of state and local government workers, and a high level of state and local government spending.
Unfortunately, the above only lists a few of the negatives for each of the worst states. So, each has a long way to go to make its policy climate truly competitive.
More Bad Policy Decisions
Even with these states showing what not to do, there are states still making bad decisions that will hurt their respective competitive positions. Predictably, it’s often the same states.
In November 2016, California voters approved a measure to extend its highest state individual income and capital gains tax rate in the nation – 13.3 percent – through 2030.
Maine voters narrowly approved an increase in their state personal income and individual capital gains tax rate from 7.15 percent to 10.15 percent – making it the second highest rate among the states.
Meanwhile, New York’s Governor Andrew Cuomo has proposed an assortment of tax increases in his 2017-18 budget proposal, including an extension of a personal income and individual capital gains tax surcharge. For good measure, despite recent corporate tax reform, the actual corporate income tax rate on businesses in the lower part of the state has risen for two straight years.
The Small Business Policy Index is not about the weather, geography, the amount of green space and parks, or access to skilled employees and the like. The Index is all about policy. Too many elected officials simply ignore or dismiss how costly it is in their respective states to start up, build, operate and invest in a business. These states lose out to more friendly environments, entrepreneurial opportunity is lost, and economies and workers suffer accordingly.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.