PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business Policy Index 2018: Nineteen States Making the Right Tax Policy Moves for Entrepreneurs

By at 21 February, 2018, 12:24 pm

by Raymond J. Keating-

The federal government’s policy decisions during and after the recession that began in late 2007 and ran to mid-2009 turned out to be a model of what not to do. Policymaking under the Obama administration and Congress featured massive increases in government regulation, spending and intrusiveness, along with two major tax increases.

Why was anyone surprised that the Great Recession was followed by one of the worst periods of economic recovery and expansion on record? It’s only over the past year, that we’ve seen policies generally shift in a positive direction, namely, via regulatory restraint and some relief, and a tax measure providing some real relief for businesses.

At the state and local level, however, there have been some states that have made positive moves on the policy front, enhancing their state’s competitiveness and boosting the environment for entrepreneurship and investment.

The just-published “Small Business Policy Index 2018: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth ranks the 50 states according to 55 different policy measures – 27 are taxes or tax related, 20 relate to rules and regulations, 5 focus on government spending and debt issues, and the 3 remaining gauge the effectiveness of important government undertakings. The best states on this year’s Index are: 1) Nevada, 2) Texas, 3) South Dakota, 4) Wyoming, 5) Florida, 6) Arizona, 7) Washington, 8) Indiana, 9) Ohio, and 10) Utah.

Kudos to policymakers in those states for creating a favorable policy environment for small business relative to the other states. (View the interactive results and summary of Index findings here.)

States Making the Right Tax Policy Moves for Entrepreneurs and Small Business

But let’s also take a look at the states that have moved in a positive direction on a few key policy measures – the top state personal income, individual capital gains, corporate income and corporate capital gains tax rates – since the end of the recession (comparing data from the 2009 edition of the Index with the current 2018 edition). Each state’s overall ranking on the Index is provided in parentheses.

Arizona (#6) reduced its individual capital gains tax from 4.54 percent to 3.405 percent. In addition, the state’s corporate income and capital gains tax rates was cut from 6.968 percent to 4.9 percent.

Arkansas (#37) implemented some small reductions in its personal income tax (from 7 percent to 6.9 percent) and individual capital gains tax (from 4.9 percent to 4.14 percent).

Delaware (#34) implemented a small reduction in its personal income and individual capital gains tax rates, from 6.95 percent to 6.6 percent.

Idaho (#26) implemented tiny reductions in its personal income and individual capital gains tax rates (from 7.8 percent to 7.4 percent), and in its corporate income and capital gains tax rates (from 7.6 percent to 7.4 percent).

Indiana (#8) reduced its personal income and individual capital gains tax rates form 3.4 percent to 3.23 percent, and its corporate income and capital gains tax rates from 8.5 percent to 6 percent.

Kansas (#24) reduced its personal income and individual capital gains tax rates from 6.45 percent to 5.2 percent, and its corporate income and capital gains rates slightly from 7.05 percent to 7 percent. (However, Kansas recently raised its individual income and capital gains taxes – repealing part of the previous tax cuts.)

Louisiana’s (#27) personal income tax rate was reduced slightly (from 3.9 percent to 3.78 percent), as was its individual capital gains tax (from 5.1 percent to 4.8 percent).

Maine (#41) reduced its individual income and capital gains tax rates from 8.5 percent to 7.15 percent.

Maryland (#39) cut its individual income and capital gains tax rates from 6.25 percent to 5.75 percent.

Massachusetts (#38) reduced its individual income and capital gains tax rates slightly from 5.3 percent to 5.1 percent, and its corporate income and capital gains tax rates was reduced from 9.5 percent to 8 percent.

New Hampshire (#30) reduced its corporate income and capital gains rates slightly from 8.5 percent to 8.2 percent.

New Mexico (#23) cut its corporate income and capital gains tax rates from 7.6 percent to 5.9 percent.

New York (#47) implemented a tiny reduction in its individual income and capital gains tax rates (from 8.97 percent to 8.82 percent).

North Carolina (#17) stands out, as it reduced its individual income and capital gains tax rates from 7.983 percent to 5.499 percent, and its corporate income and capital gains tax rates from 7.107 percent to 3 percent.

North Dakota (#22) also ranks as a stand out, as it reduced its personal income tax rate from 4.86 percent to 2.9 percent; its individual capital gains tax rate from 4.86 percent to 1.74 percent; and its corporate income and capital gains tax rates from 6.5 percent to 4.3 percent.

Ohio (#9) also is worth noting, as it reduced its personal income and individual capital gains tax rates from 5.925 percent to 4.997 percent, while eliminating its corporate income and capital taxes (the 1.9 rate in 2009 had fallen from previous years during a phase out).

Oklahoma (#21) reduced its individual income and capital gains tax rates from 6.5 percent to 6 percent.

Rhode Island (#40) reduced its individual income and capital gains tax rates from 6.5 percent to 5.99 percent; and its corporate income and capital gains tax rates from 9 percent to 7 percent.

Vermont (#45) slightly cut its personal income tax rate from 9.4 percent to 8.95 percent, and its individual capital gains tax rate from 9.4 percent to 5.37 percent.

As we look ahead, hopefully we’ll see increased tax and regulatory relief in these states and at the federal level, as well as such positive measures spreading to the other 31 states.

As is made clear by SBE Council’s “Small Business Policy Index 2018: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” tax and regulatory relief make real differences in terms of boosting entrepreneurship, small business, investment, and economic performance.

View the Interactive Map and summary of Index results here.

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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.

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