Useful Stats: Taxes & Entrepreneurship

What impact do state taxes have on entrepreneurship? 

The Small Business Survival Committee (SBSC) has released its sixth annual rankings of the states according to their respective policy climates for small business and entrepreneurship. In the Small Business Survival Index 2001, the D.C.-based organization combines the following 17 factors to develop the overall rankings: personal income taxes, capital gains taxes, corporate income taxes, property taxes, sales taxes, estate taxes, unemployment taxes, health insurance taxes, electricity costs, workers' compensation costs, crime rates, right-to-work status, number of government employees, tax limitation status, Internet taxes, gas taxes, and state minimum wages. The rankings received a fair amount of attention in the media. 



Raymond Keating, the report’s author, states, "The best policy environment for entrepreneurship consists of low taxes, limited government, restrained regulation, and government protecting life, limb and property. States following such a governing philosophy will reap great rewards from America's entrepreneurs, including faster economic growth and increased job creation." 



Is Keating correct? Do statistics measuring entrepreneurial activity support Keating’s assertion? 



To assist interested parties in testing the hypothesis, SSTI has prepared the accompanying table presenting the SBSC’s overall state rankings compared to the Entrepreneurial Energy category of the Development Report Card for the States 2000. Prepared by the Corporation for Enterprise Development, Entrepreneurial Energy is defined by five indicators measuring new company formations, change in new companies, new business job growth, technology companies and initial public offerings. 



Since the indicators in both the CED and SBSC rankings are standardized to allow comparisons among states, one might expect states’ rankings in both studies to be similar if Keating’s assessment on the best policy environment for entrepreneurship holds true. Alternatively, one may come to the conclusion that CFED's measures are not capturing entrepreneurial energy. SSTI leaves each reader to draw his or her own conclusions from the table. 



The 14-page report from the Small Business Survival Committee can be downloaded from http://www.sbsc.org

The Development Report Card of the States can be viewed at http://209.183.252.135/