The Good News from the Small Business Policy Index 2017

By at 8 February, 2017, 4:42 pm

By Raymond Keating-

For the 21st year, SBE Council has published its Small Business Policy Index, which ranks the 50 states based on their policy climates for small business and entrepreneurship. The Small Business Policy Index: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth is based on 55 different policy measures.

Which States Top the List

For now, let’s take in the good news. For example, the five best states for entrepreneurs and small businesses in terms of government taxes, regulatory burdens, government spending and debt, and other performance measures, are:

#1  Nevada

#2  Texas

#3  South Dakota

#4  Wyoming

#5  Florida

Make no mistake, these states have some big favorables in common that allow them to rank so high. For example, the top four states impose absolutely no income taxes, that is, no personal income, individual capital gains, corporate income and corporate capital gains taxes. Florida also imposes no personal income and individual capital gains taxes. In addition, none of these five states impose a death tax. This is all good news for reducing costs and boosting incentives for starting up, building, operating and investing in businesses.

It should not be surprising that four of the top five also rank very well in terms of keeping state and local government spending under control.

States Moving in the Right Direction

There good news in other states as well, of course, including states that are moving in the right direction on various policy measures. For example, Tennessee is in the midst of phasing out its income tax on interest earnings and dividends. Kansas is in the midst of reducing its personal income, capital gains and dividend/interest tax rates. And Indiana and New Mexico are cutting their corporate income and capital gains taxes.

The Index Measurements Matter

Finally, the Small Business Policy Index 2017 presents an assortment of analyses and studies showing why the measures by which the states are gauged matter. Also, consider the following points from the study comparing key economic performance differences between the top 25 states in the Index and the bottom 25:

State Economic Growth. Real average annual economic growth from 2010 to 2015 among the top 25 states ranked on the 2017 “Small Business Policy Index” averaged 1.87 percent, which was 37 percent faster than the 1.37 percent average rate for the bottom 25 states. So, on average, economic growth performed markedly better during this poor recovery among the top 25 states on the Index compared to the 50-state average (1.62 percent) and compared to the bottom 25 states.

Population Growth. The top 25 states ranked on the 2017 “Small Business Policy Index” averaged state population growth of 5.29 percent from 2010 to 2016 versus only 2.68 percent for the bottom 25 states. That is, the average growth rate was 97 percent higher among the top 25 states versus the bottom 25 states. In terms of total population numbers, the top 25 states saw an increase in population of 9.62 million from 2010 to 2016 versus a gain of 4.08 million in the bottom 25 states. The growth among the top 25 states in terms of total population was 5.9 percent, which was more than double the 2.8 percent for the bottom 25 states.

Population Movements – Net Domestic Migration. Perhaps most telling is net domestic or internal migration, or the movement of people between the states, that is, excluding births, deaths and international migration.  It clearly captures people voting with their feet – in part following economic opportunity.  From 2010 to 2016, the top 25 states on the “Small Business Policy Index” netted a 2.57 million increase in population at the expense of the bottom 25 states, which lost 2.6 million (with the District of Columbia’s gain explaining the difference). For good measure, among the bottom 25 states, 21 lost population to other states, and 11 out of the bottom 12 states suffered negative domestic migration.

Policies matter at the federal, state and local levels of government. And rather than dreaming up new ways to spend other people’s money, as is done by shortsighted lawmakers seeking special-interest favor, the wise lawmaker is working to reduce government costs imposed on entrepreneurs, small businesses and investors so that competitiveness and economic growth can flourish.

Raymond J. Keating, Chief Economist

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