Index Shows Impact of State Policies on Small Businesses

Virtually all politicians say they support entrepreneurs and small businesses. But how does the political rhetoric match policy reality?

The Small Business & Entrepreneurship Council (SBEC) suggested the answer in its annual "Small Business Survival Index," the 10th edition of which was published in October. (The report was written by the author of this article.)

The Small Business Survival Index focuses on the costs inflicted by state and local governments on small businesses. It offers a comparative measure of the public policy climate for entrepreneurship among the 50 states and District of Columbia.

For the 2005 edition, the index was expanded to cover 26 different government-imposed or government-related costs, including personal income, capital gains, and corporate income tax rates; property and consumption-based taxes; death taxes; unemployment taxes and workers' compensation costs; various health care mandates and regulations; gas taxes; state minimum wages set above the federal wage mandate; and state legal liability costs, among others.

Population Shifts to Best States

Population trends show how important a healthy small business climate can be to the economic well-being of individuals. The bulk of new jobs are created by small businesses, and from 2000 to 2004, population growth was 56 percent faster in the best 25 states than in the worst 26 states (including the District of Columbia), according to the index.

Equally interesting is net domestic or internal migration--the movement of people among the states after factoring out births, deaths, and international immigration. From 2000 to 2004, the top 25 states on the Small Business Survival Index netted a 1.64 million increase in population at the expense of the bottom 25 states and District of Columbia.

Only eight states among the top 25 experienced negative net internal migration over this period, versus 16 states in the bottom 25 plus D.C.

Job Growth Also Higher

From January 1995 to August 2005, job growth (based on seasonally adjusted data) was 24 percent faster in the top 25 index states compared to the lower 26.

In the past two years, as the economic recovery stepped up its pace, the difference in the rate of job growth was substantial. From August 2003 to August 2005, the top 25 states on the index created jobs at a 38 percent faster pace than the lower 25 states plus D.C.

Raymond J. Keating (rkeat614@aol.com) is chief economist for the Washington, DC-based Small Business & Entrepreneurship Council and author of the "Small Business Survival Index."

For more information ...

The 10th edition of the 35-page "Small Business Survival Index" can be downloaded from the Small Business & Entrepreneurship Council's Web site at http://www.sbecouncil.org.