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Regulations have a way of growing like weeds: unless they are rooted out, they spread. Regulatory compliance has always been a headache for small business owners who do not enjoy the cozy relationships with big government that large corporations often develop. In fact, they are frequently ignored by legislators both in Washington and in the states.
John Lieber, chief economist of Thumbtack, recently joined our Steve Stanek on the Heartland Daily Podcast for a talk on the business climate in America today. Thumbtack is an online marketplace that brings together service providers and consumers who can negotiate and organize jobs.
Every year, Thumbtack conducts a survey of its customers to develop a “small business friendliness” index detailing the friendliness of each state government toward entrepreneurs and small businesspeople. This year, the survey included nearly 13,000 small business operators who were asked questions on 11 different metrics. The findings are very interesting.
The top three friendliest states were found to be Utah, Idaho, and Texas. The three least friendly states were California, Rhode Island, and Illinois. While not an overly surprising result in itself, the breakdown of the metrics revealed some interesting results about what factors make business climates unfriendly. It turned out that the main culprit was the complexity and difficulty of a state’s licensing regulation. In fact, those surveyed said this factor was twice as important as the level of taxation. Describing the previous surveys, Lieber said that this focus on regulatory compliance was persistently the most serious factor for small business owners in their assessment of their state’s business friendliness.
The big issues in the public consciousness tend to concern taxation. Yet it is not taxation that is really killing small businesses; it’s all the red tape. This is a very interesting finding, one that could have some real implications for policy-makers. For many people, regulation is not really something they think about. Politicians and voters have to be confronted with the true cost of compliance with overcomplicated and expansive regulatory regimes.
The interesting fact is that states looking to make themselves more attractive to businesses can do so without necessarily reducing taxes. What really attracts small businesses is “a tax code that is easy to understand and easy to comply with.” That is not too tall an order, and it should be something politicians across the political spectrum can get behind.
Listen to the podcast in the player above.