PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

STATE SPOTLIGHT: As a Reminder – State Policies Matter When It Comes to Economic Growth

By at 8 November, 2019, 10:31 am

by Raymond J. Keating-

Often times, elected officials and voters need to be reminded that public policies affect incentives and costs in the private sector – often to a substantial extent. And that is the case in the states, as well as at the national level.

Let’s take the example of the latest report from the U.S. Bureau of Economic Analysis on state real GDP growth for the second quarter 2019, and compare key findings to SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” which ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures, as well as to the “Small Business Tax Index 2019,” a subset of the larger Policy Index whereby the states are ranked only on tax measures.

As noted in Table 1, it turned out that all of the top 10 fastest growing states in the second quarter 2019 ranked in top half of the states ranked on both the “Small Business Policy Index” (SBPI) and the “Small Business Tax Index” (SBTI) And seven of these top 10 growing states came in among the top dozen on each Index.

Table 1: Top 10 Fastest Growing States in the Second Quarter 2019 and Each State’s Ranking on the Small Business Policy Index 2019 and the Small Business Tax Index 2019

GDP Rank  Q2 2019   State   Rank on SBPI 2019     Rank on SBTI 2019
1   Texas      1       1
2   Wyoming      5       4
3   Alaska     23       9
4   New Mexico     24       23
5   Washington     10       6
6   Utah     7      16
7   Colorado     12       8
8   Arizona     9      11
9   Oklahoma     21       21
10   Nevada     2       3

 

Meanwhile, as noted in Table 2, it turned out that eight of the 10 slowest growing states in the second quarter 2019 ranked in bottom half of states ranked on both the “Small Business Policy Index” and the “Small Business Tax Index.”

Table 2: Top 10 Slowest Growing States in the Second Quarter 2019 and Each State’s Ranking on the Small Business Policy Index 2019 and the Small Business Tax Index 2019

GDP Rank Q2 2019 State  Rank on SBPI 2019     Rank on SBTI 2019
41   Illinois      35      37
42   Iowa      42      46
43   Wisconsin      28      35
44   Georgia      22      24
45   Indiana      6      14
46   Kentucky      30      26
47   Connecticut      44      41
48   New Jersey      50      50
49   Maine      41      42
50   Hawaii      48      48

 

All of this lines up with the broader trends regarding economic growth and where states ranks on the Index. As noted in the 2019 Index, for example:

Real average annual economic growth from 2010 to 2017 among the top 25 states ranked on the 2019 ‘Small Business Policy Index’ averaged 1.76 percent, which was 38 percent faster than the 1.28 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 bottom 25 states.”

Yes, policy matters a great deal, and elected officials and voters would be wise to keep these economic facts of life at the forefront of their minds when choosing policies and candidates.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

News and Media Releases