Economists continually analyze and frequently disagree on the comparative benefits of large and small firms in driving economic growth. Yet, small businesses play a uniquely flexible and necessary role in the economy, accounting for roughly forty percent of the national GDP. As the post-2008 economic recovery continues to lag, moreover, it is crucial to consider all possible options to improve the business climate for entrepreneurs and small companies. Last week, Thumbtack, a website service to connect customers with professionals, provided insight into the concerns of small business owners.
The 2016 Small Business Friendliness Survey (SBFS) evaluates the business-friendliness of thirty-five states and seventy-eight metropolitan areas in the United States, identifies the policy priorities and concerns of small business owners, and briefly speculates on state and local policy changes that could catalyze small businesses growth.
Responses from over twelve thousand small business owners identify tax regulations and licensing requirements as the two most concerning state and local government policies. After analyzing all the information from survey participants, SBFS ranks Texas, Utah, Tennessee, Georgia, and Colorado as the top five friendliest states toward small businesses while Alabama, New York, California, Illinois, and Connecticut are the lowest scoring states.
A strong positive relationship, moreover, is demonstrably proven between SBFS scores and real state GDP growth rates over at least three years (see Figure 1). A high friendliness score was awarded to states with, according the survey response data, little, unintrusive, or easily compliable corporate regulation. Low friendliness scores, conversely, signaled a strict and overbearing regulatory environment. The scatter plot below graphs friendliness scores against economic growth for all thirty-five states in the survey, and a clear, positive correlation between high scores and economic growth appears.
Figure 1: Relationship Between Friendliness Scores & State Growth Rates
Small businesses, of course, still need to comply with federal regulations on top of those from state and local governments. NTUF’s tax complexity research exposes the colossal waste of $234 billion and at least 6.1 billion hours required to comply with the multi-million word federal Tax Code and its volumes of regulations. Policymakers at the federal, state, and local level would be advised to consider the results of the SBFS especially the correlation it finds between economic growth and the amount of regulation imposed on businesses.
Zack Voell is an Associate Policy Analyst for the National Taxpayers Union Foundation.