The Entrepreneurial View #480                                                               

Listen to Elvis on Taxes During Small Business Week

by Raymond J. Keating

Small Business Week runs from April 21-25. This, no doubt, presents opportunities for politicians to say complimentary things about America's entrepreneurs.

Such nice talk is ... well ... nice. But as Elvis Presley said: "A little less conversation, a little more action please."

For example, more action is needed by elected officials in many states to make their state tax systems friendlier towards entrepreneurs and small businesses.

The Small Business & Entrepreneurship Council's "Business Tax Index 2008," which I authored, was just released. The Index pulls together various tax costs into one score that allows the 50 states and District of Columbia to be compared.

The 16 tax measures are: 1) state's top personal income tax rate, 2) state's top individual capital gains tax rate, 3) state's top corporate income tax rate, 4) state's top corporate capital gains tax rate, 5) any added income tax on S-Corporations, 6) whether or not the state imposes an alternative minimum tax on individuals, 7) whether or not the state imposes an alternative minimum tax on corporations, 8) whether or not the state's personal income tax brackets are indexed for inflation, 9) property taxes, 10) consumption-based taxes (i.e., sales, gross receipts and excise taxes), 11) whether or not the state imposes a death tax, 12) unemployment tax, 13) whether or not the state has a tax limitation mechanism, 14) whether or not the state imposes an Internet access tax, 15) gas tax, and 16) diesel tax.

These factors affect costs for and decisions made by businesses, including whether or not to start up, expand or invest in a business; where to locate a venture; whether or not to hire new workers; compensation questions for current employees; and so on.

So, how do the states break down? In the following table, the states and Washington, D.C., are ranked according to their "Business Tax Index" scores. (From best to worst -- or, least to most burdensome.)

State Business Tax Index Scores 2008

Obviously, those states ranking in the bottom half particularly have a lot of work to do. Just briefly consider what needs fixing in the 10 worst states.

42) Vermont is hampered by the second highest personal income tax rate, the third heaviest property tax burden, a death tax and very high corporate income and capital gains taxes.

43) Massachusetts is plagued by burdensome corporate income and capital gains levies, a heavy property tax burden, a high unemployment tax, and a death tax.

44) New York entrepreneurs face high income and capital gains tax rates across the board; weighty property taxes; the imposition of a death tax, an individual alternative minimum tax (AMT) and a corporate AMT; and very high fuel taxes.

45) Rhode Island imposes high income, capital gains, property, fuel and unemployment taxes; along with a death tax and an individual AMT.

46) Maine inflicts very high income, capital gains and property taxes; high fuel taxes; a death tax; and individual and corporate AMTs.

47) Iowa raises costs for small businesses through the third highest corporate income and capital gains tax rates; high individual capital gains and unemployment taxes; a death tax; and individual and corporate AMTs.

48) California's tax woes are many, including the highest personal income and individual capital gains tax rates; high corporate income and capital gains tax rates; the most burdensome fuel taxes in the nation; and individual and corporate AMTs.

49) Minnesota's very costly tax system includes very high income and capital gains taxes across the board; high unemployment taxes; a death tax; and individual and corporate AMTs.

50) New Jersey's tax system ranked worst among the 50 states. Troubles that need fixing are very high income and capital gains taxes across the board; one of the heaviest property tax burdens in the nation; high unemployment taxes; a death tax; and a corporate AMT.

51) District of Columbia came in dead last, dragged down by the second highest corporate income and capital gains tax rates; very high personal income and individual capital gains taxes; a heavy property tax burden; high consumption-based taxes; and a death tax.

Unfortunately, political talk is cheap, especially during Small Business Week, when the reality is that too many elected officials are perfectly fine with imposing heavy tax burdens on entrepreneurs and small businesses. 

The entrepreneurial sector of our economy drives economic and income growth, innovation and job creation forward. So, let's tune in to Elvis during Small Business Week with less conversation and more action in providing small businesses with much-needed tax relief.

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