Taxes no barrier to enterprise?; Entrepreneurship little affected by policies, SBA study shows
BYLINE: RICK ROMELL, Staff, Milwaukee Journal Sentinel
State taxes, often the subject in Wisconsin of strong criticism from business, have at most little effect on entrepreneurship, a recent study commissioned by the U.S. Small Business Administration concludes.
"That's the main point," said co-author John Deskins, an economics professor at Creighton University in Omaha, Neb. " . . . Most every way we look at it, we find either zero or a very small relationship between state tax policies and entrepreneurship. That's the main conclusion."
The study also provides additional evidence of Wisconsin's low rate of entrepreneurial activity, an observation that has emerged in past research. On the most recent study's two measures of entrepreneurship, Wisconsin ranked 48th and 49th among the 50 states.
Deskins and co-author Donald Bruce, an economics professor at the University of Tennessee, considered several variables among the states, including the top corporate tax rate, the top personal tax rate, the sales tax rate and how progressive a state's taxes are. ("Progressive," in this sense, means that higher incomes are taxed at higher rates.)
To measure entrepreneurship, they calculated two figures - the percentage of a state's individual tax filers reporting income from a small business or profession; and the percentage of all non-farm workers in a state who are sole proprietors.
Neither the top corporate tax rate nor the top personal tax rate had a statistically significant effect on a state's level of entrepreneurship, Deskins and Bruce found.
Higher sales tax rates, they found, were associated with higher levels of entrepreneurship. So were the allowance of limited liability companies, the presence of tax incentive programs and more-progressive tax structures.
But in each case, the effects were small.
For example, the addition of another tax incentive program in Wisconsin might increase the number of entrepreneurs by fewer than 100.
The modest impact the researchers found for state tax policies didn't surprise David J. Ward, president of Madison consulting firm NorthStar Economics Inc.
"I've seen other studies that have reached about the same conclusion, that it has some effect but not a large effect," Ward said.
Bob Collison, head of the Independent Business Association of Wisconsin, a small-business advocacy group, said high taxes could hurt economic development at levels beyond entrepreneurship.
"It seems obvious to me that the more taxes you impose upon a business, the more likely they are to move if they have the ability," said Collison, of Kendall-Collison Inc., a distributor of cutting tools for manufacturing.
Businesses get started wherever their founders happen to live, he said, but once they get established, "it's more likely that they are going to relocate to some place that is more viable for them."
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The SBA study can be found at www.sba.gov/advo/research/rs284tot.pdf
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