Posted by: Richie Bernardo

Starting a business is never easy. According to U.S. Bureau of Labor Statistics data, about a fifth of all startups typically don’t survive past year one of operation, and nearly half never make it to their fifth anniversary.

But startups fail for different reasons, a “bad location” among the most common. Choosing the right state for a business is therefore crucial to its success. A state that provides the ideal conditions for business creation — access to cash, skilled workers and affordable office space, for instance — can help new ventures not only take off but also thrive.

In this study, WalletHub compared the 50 states and the District of Columbia across 25 key indicators of startup success to determine the most fertile grounds in which to launch and grow an enterprise. Read on for our findings, business insight from a panel of experts and a full description of our methodology.

1. Main Findings
2. Ask the Experts
3. Methodology

Main Findings

Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/36934/geochart-business-state.html" width="556" height="347" frameBorder="0" scrolling="no"></iframe> <div style="width:556px;font-size:12px;color:#888;">Source: <a href="https://ift.tt/2IHVq3Z>  

Best States to Start a Business

Overall Rank (1=Best)	State	Total Score	‘Business Environment’ Rank	‘Access to Resources’ Rank	‘Business Costs’ Rank
1	Texas	64.05	1	12	16
2	Utah	63.84	3	1	33
3	Georgia	60.01	7	15	17
4	Montana	58.77	8	14	8
5	Oklahoma	58.42	11	24	1
6	North Dakota	57.89	4	19	31
7	Florida	57.67	5	23	25
8	California	57.55	2	6	47
9	Colorado	55.43	6	21	32
10	Arizona	55.03	10	20	23
11	Nevada	52.96	9	32	29
12	North Carolina	52.94	20	17	14
13	Washington	52.61	15	2	41
14	Idaho	51.89	14	46	7
15	South Dakota	51.59	32	27	6
16	Michigan	51.45	28	38	3
17	Wyoming	51.18	17	26	26
18	Massachusetts	51.02	16	5	44
19	Nebraska	50.70	26	31	10
20	Louisiana	50.67	27	25	15
21	Mississippi	50.34	44	28	2
22	Minnesota	49.49	21	9	39
23	Kentucky	49.44	38	42	5
24	Missouri	49.36	24	34	20
25	Arkansas	49.36	37	37	11
26	Oregon	49.31	13	29	36
27	Illinois	49.21	34	7	38
28	South Carolina	49.09	31	41	13
29	New Mexico	48.48	43	18	19
30	Maine	48.47	30	35	22
31	Tennessee	48.11	35	44	12
32	New York	48.10	18	3	49
33	Indiana	47.61	25	47	18
34	Kansas	47.52	41	36	21
35	Virginia	47.47	19	30	34
36	Delaware	47.06	22	13	42
37	Alaska	46.79	12	16	48
38	Iowa	46.48	33	33	30
39	Ohio	46.33	39	45	24
40	Wisconsin	45.98	36	43	28
41	Alabama	45.77	48	40	9
42	Maryland	45.72	29	8	45
43	Connecticut	45.07	42	4	46
44	New Jersey	43.78	23	10	50
45	West Virginia	43.40	50	39	4
46	Pennsylvania	42.65	47	22	37
47	Vermont	42.17	46	49	27
48	Rhode Island	41.70	49	11	35
49	New Hampshire	37.94	45	48	40
50	Hawaii	36.92	40	50	43

 

Ask the Experts

National and state economic policies can greatly affect business creation and the direction they take after launching. For insight into the ways in which different measures impact business, we asked a panel of experts to address the following key questions:

1. Do you believe that the economic policies being enacted thus far by the Trump administration will promote new-business development?
2. To what extent do state policies, such as corporate tax rates, influence decisions about whether and where to start a new business?
3. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states?
4. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state?

< >

• Stephen Martin Professor of Economics in the Krannert School of Management at Purdue University
• Ron Duska Adjunct Professor at St. Joseph's University and Villanova University, Senior Fellow of the Olson Center at University of Virginia, and Wicklander Senior Fellow at DePaul University
• Nirvikar Singh Distinguished Professor of Economics, Director of the Center for Analytical Finance, and Sarbjit Singh Aurora Chair in Sikh and Punjabi Studies in the Social Sciences Division at University of California Santa Cruz
• Michael Johnston Charles A. Dana Professor of Political Science Emeritus at Colgate University
• Donald A. Hicks Professor of Political Economy & Public Policy at The University of Texas at Dallas
• Debi Kleiman Executive Director of The Arthur M. Blank Center for Entrepreneurship at Babson College
• David Bauman Professor of Business Ethics, Leadership and Entrepreneurship at Regis University
• Melissa L. Bradley Professor of Practice at the McDonough School of Business at Georgetown University
• Scott Shane A. Malachi Mixon III Professor of Entrepreneurial Studies in the Weatherhead School of Management at Case Western Reserve University
• Per L. Bylund Assistant Professor School of Entrepreneurship and Records-Johnston Professor of Free Enterprise in the Spears School of Business at Oklahoma State University

Stephen Martin Professor of Economics in the Krannert School of Management at Purdue University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? The Trump Administration has no economic policies, in the sense of policies that are motivated by identifiable economic problems, and seek to implement coherent economic approaches to addressing those problems. The Trump Administration has proposed a number of policies that are put forward, usually, because of campaign pledges, and which will have very negative effects on the economy, including new business development. The Trump Administration has various proposals to renegotiate existing free trade agreements. If these proposals are implemented, they will not bring back jobs in declining industrial areas, and it will invite retaliation that will harm U.S. export sectors (such as agriculture). It is impossible, at present, to say what the Republican replacement for the Affordable Care Act will be. Anything along the lines of the most recent Senate bill will disrupt both the health insurance sector, and the health care sector; the latter, especially, is a major part of the economy. Trump Administration measures that aim to block the flow of refugees from Muslim countries will create (have already created) a backlash that will stem the flow of international students to U.S. universities, thus disrupting that part of the U.S. economy -- a major export sector. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? State tax policies influence decisions of existing businesses that aim to expand, as they decide where to expand. As far as new businesses, it does not seem likely that an entrepreneur in California will start a new business in (say) Indiana rather than California because of the difference in corporate tax rates. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? They are a bad investment for states. First, states typically justify these measures on the ground that they create jobs, but the numbers that are offered do not add up. Take the example of a 10-year tax abatement measure to encourage construction of a new hotel in (take the city of your choice) Indianapolis. The new hotel will not increase the number of visitors to Indianapolis very much, if at all. It follows that most of the jobs created at the new hotel will be balanced out by jobs lost at pre-existing hotels. “Job shifting” is not “job creation.” Second, from the point of view of the economy as a whole, state incentives of this kind are beggar-my-neighbor policies, that allow businesses contemplating interstate expansion to play one potential location off against another, reducing state tax revenues without inducing any incremental investment, just shifting it from one state to another. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? States can invest in measures that will create a highly-qualified workforce. This would include not only support for traditional types of higher education, but also lifelong education measures that enable workers to maintain and enhance their qualifications. Ron Duska Adjunct Professor at St. Joseph's University and Villanova University, Senior Fellow of the Olson Center at University of Virginia, and Wicklander Senior Fellow at DePaul University To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? This seems a no-brainer for anyone who is free and inclined to travel to start a business. One needs to factor in corporate tax rates as a cost of doing business, so state policies are important factors. If I am not mistaken, one would be better off going to Indiana to start a business than to Illinois, because of the tax burden factor. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? Given what I said above, tax breaks and other incentives are not only a good investment, but seem to be called for. As the old adage goes, you catch more flies with honey than with vinegar. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? I am a big fan of minimal regulation. I think Cicero was correct when he quoted someone who held, “More laws, less justice.” The regulatory burden is becoming too complicated and too onerous. Minimize regulations. Dr. Ronald Duska is the Former Executive Director and President of the Society for Business Ethics. Currently he activates as Senior Fellow of the Arrupe Center for Business Ethics and Adjunct Professor at St. Joseph's University. In addition, he holds Adjunct Professorship at Villanova University, Senior Fellowship of the Olson Center at the Darden School at University of Virginia, and Wicklander Senior Fellowship at DePaul University. Nirvikar Singh Distinguished Professor of Economics, Director of the Center for Analytical Finance, and Sarbjit Singh Aurora Chair in Sikh and Punjabi Studies in the Social Sciences Division at University of California Santa Cruz Do you believe that the economic policies being pursued by the Trump administration will promote new business development? Policies such as corporate tax cuts and deregulation may help new businesses start, survive and grow, especially in the short run. Renewing public infrastructure may also help. However, cuts in support for research and for higher education will hurt businesses of all kinds in the longer run. In addition, pulling out of trade agreements, triggering trade wars, pulling out of the Paris Climate Agreement and lack of support for innovation and competition will also hurt. On balance, I am pessimistic about the overall impact of current or proposed economic policies. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? State policies such as corporate tax rates are just one factor, and I cannot say to what extent they matter, because there are many other variables. Specific or targeted tax breaks may provide stronger incentives (see my next answer). Factors such as the presence of a skilled workforce can matter as much as or more than taxes for new business formation and success. Even intangibles, such as diversity and an environment of tolerance can be important determinants of entrepreneurial decisions. So the picture is a mixed and complicated one. My own impression is that states are best off investing in public infrastructure and education. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? My impression is that targeted tax breaks or similar incentives are on net not a great investment for states, in terms of narrow rate of return calculations. Even local spillovers or multipliers can be cancelled out by the cost of the tax breaks and other investments forgone as a result. When one takes account of the negative impact on other states, the social rate of return at the national level is even lower. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? My recommendation would be for investing in infrastructure, including transportation, affordable housing and telecommunications, as well as civic amenities that will attract and retain a skilled workforce. In addition, support of institutions that provide local opportunities for skill upgrading or retraining, as well as institutions of traditional higher education, can be most helpful in providing an environment conducive to entrepreneurship. Michael Johnston Charles A. Dana Professor of Political Science Emeritus at Colgate University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? It's hard to say whether Trump's policies will promote new business development, because it's hard to know, in many sectors, what those policies are or will be. My general thought is that they will aid large, established businesses more than small ones, startups, and the like; notably, killing off ACA will tie many would-be entrepreneurs to their current jobs for fear of losing insurance coverage. Tax cuts may provide a temporary short-term stimulus, but Kansas's experience with (forgive me) Brownbackonomics suggests that tax cuts, and disinvestment in public goods and human capital will also have large middle- to long-term costs. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? My sense is that such policies, and contrasts among states, matter less than many people might think (research on the effects of raising minimum wages, compared across adjacent states or other jurisdictions, tend to support that view, too). A key contrast can likely be found in terms of effects upon business creation -- where state policies might have some short-term stimulus benefits, and possibly longer-term costs as outlined above -- and decisions by firms whether or not to move. The largest such decisions (e.g., Boeing relocating its HQ from Seattle, a few years ago) are probably affected by incentives states offer, but the vast majority of other such decisions likely are not. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? A great many variables are involved here, not least of which are the specific terms being offered by states and localities, and the guarantees those governments might or might not demand for themselves -- and thus it is hard to generalize. A real concern, however, would be in getting into a race-to-the-bottom or beggar-thy-neighbor competition, which might make good political headlines for governors in the short run, but possibly harm whole regions over the long term. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? Invest in human capital and in a high-quality educated workforce, and in amenities that help make states and communities pleasant places to live -- don't deny your citizens essential facilities and services just to keep taxes low, and don't enact hostile labor laws that back your state into a low-wage trap, even if they seem to pay off in the short term. Donald A. Hicks Professor of Political Economy & Public Policy at The University of Texas at Dallas Do you believe that the economic policies being pursued by the Trump administration will promote new business development? New business development is certainly welcome. However, the greater value comes from the continuing transformation of existing businesses, as they produce and adopt new technology with which to establish distinctive competitive advantages. That process creates the opportunities for new business development. Now, there are some significant outstanding concerns about President Trump's plans to promote economic growth and new business development (emerging & expanding). A "fortress America" model that reflects mercantilism is definitively unwise, as it creates a barrier to deriving maximum benefit from our national economic strengths. The choice last November, however, was binary. And it is all but certain that H. Clinton's "more of the same" is even less wise. With a priority on less regulation, fundamental tax reform (even without dramatically lowering rates), and a more market-oriented solution to health care would be solid steps in the right direction. Basically, last November's election was less Democrat vs. Republican. Hillary's "more free stuff" policy portfolio is a prescription for national demise. If there is any lesson that the 20th century taught us, is that government does some things well, but overall socialism has failed everywhere it has been tried. At least Trump appears to be asking the right questions. My hope is that we will get to more polished answers as his often unpolished political impulses encounter political give-and-take. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? State policies are very important, especially since states must make tough choices to balance their budgets. The poster child for state-level failure is Illinois; however, there are numerous other states -- and major cities -- that are crushing their economic prospects with shortsighted policy choices. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? Generally, no. Politically-inspired tax expenditures to "steer" growth and development have a miserable record, as the literature on stadiums and Olympic events attest. Such incentives are unwise, as they distort markets and make economic growth less likely. Are there some successes? Probably, but it is likely that in these instances, policy tools like tax concessions and related incentives are likely given credit for market outcomes that would have occurred regardless. Each instance has to be examined in more detail. Why is it that we permit our state and local governments to play political favorites with tax money? All that said, these political gestures are likely inevitable, as no state or locality can avoid politically to "not play the game.” What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? A couple of views come to mind. In many instances, entrepreneurship is motivated by necessity. Mobility from one region to another is a form of entrepreneurship not unlike starting a business; both involve individual-level risk-taking. So, in general, policies that mitigate risk -- less taxation, regulation, low interest rates -- are certainly positive steps forward. It is worth considering, however, that we tend to see new business startups come from a few special demographics -- college-age young people and immigrants responding to the freedom(s) this country offers. However, one broad swath of demographics -- young people not destined to go on to college -- are a major untapped reservoir of talent which has little moral, material and/or cultural support for starting a business. Apprenticeships -- not just unpaid internships -- could do much to unlock the innovation potential of this group. I am in Scotland as I write this, and I have been traveling around Europe exploring alternative policy responses that are being used here, that could well be piloted more energetically in the U.S. Debi Kleiman Executive Director of The Arthur M. Blank Center for Entrepreneurship at Babson College To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? I think corporate tax rates play a role, but more importantly, young companies need a complete entrepreneurial ecosystem in order to thrive. So without that, all the tax breaks in the world aren’t going to help. I think, instinctively, companies know that they need this kind of environment to succeed, and if they don’t know it, they certainly learn quickly that they need it. Where they start has to have other “riches,” like a highly skilled talent pool, access to growth capital, a great network of other firms/entrepreneurs (where do they have relationships that can help them?), a supportive regulatory environment, access to early customers, infrastructure and professional support. Several of Babson’s faculty (Prof. Daniel Isenberg, Prof. Candy Brush) have written extensively on this topic (the importance of entrepreneurial ecosystems), as well as data from the Global Entrepreneurship Monitor National Experts Survey U.S. Report -- that Babson produces annually -- also supports this concept. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? In terms of the role that state authorities should play to encourage new businesses to start in this state, I think they should strive to be facilitators of the process, to drive entrepreneurial activity, but not necessarily front and center (funding businesses). They can make smart investments in infrastructure, and support to help create a strong environment for entrepreneurial activity. Such as here in Massachusetts, the State helped to fund the Massachusetts Green High Performance Computing Center, along with a consortium of the top research universities in the State. In doing so, it facilitated the growth of big data companies and creation of more startups in the space, by giving them access to the kind of computing power they can’t get anywhere else, plus the research that can be done by these universities in this space is likely to be a great source of new tech ideas for years to come. Another way for them to facilitate is to make it easier to start businesses by having a supportive legislative and regulatory environment, and encouraging important partnerships. In Massachusetts, for example, the State government under former Governor Deval Patrick worked with Israel and El Al (their major airline), to get a direct flight route for El Al, from Boston to Tel Aviv (another major innovation hub). There was this really strong link between tech companies in Israel and Boston, with significant economic impact to the state, so making it easier for these companies to do business with each other, or open a division in Boston that was going to do really groundbreaking stuff was important. In this way, the government wasn’t picking winners or losers per se, but instead facilitating business that had a high probability of success. David Bauman Professor of Business Ethics, Leadership and Entrepreneurship at Regis University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? I believe that the efforts to remove federal regulations and return power to the states could promote new business development. This could include removing requirements for employers to offer insurance if an employee works over 30 hours, and also cutting taxes for those who file their business income through their personal taxes. Note that states have been working to support businesses and employees by increasing minimum wages and working to reduce health care costs. In Colorado, voters approved a move to a $12 minimum wage in the coming years. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? Based on my observations of several states cutting taxes for large corporations (e.g., Boeing in South Carolina and Washington State), I do see state tax rates and subsidies influencing where to build a plant or factory. A problem with these policies, however, is that states need revenue to operate, and these subsidies reduce state income. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? I have not seen empirical data to suggest if the net is good or bad. It depends on the industry and the state. The one case that seems to be working is Mississippi's effort to bring in large manufacturing businesses. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? From what I see in the booming craft beer industry in Colorado, supporting a community of like-minded business people makes a difference. Our governor is a former craft-beer owner. The community tends to support sharing ideas and taking pride in the state's growth. Also, housing must be affordable, which is something that Denver, Seattle, and Silicon Valley are struggling to manage. Finally, universities are important for graduating competent and skilled employees. Denver, for example, has several universities that support the aerospace, energy, health care, and financial services industries. This can be a direct support by preparing engineers and nurses, or indirect support by graduating accountants, offering MBA degrees, and partnering with companies. Melissa L. Bradley Professor of Practice at the McDonough School of Business at Georgetown University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? Entrepreneurship is a complex sport. For entrepreneurs to be successful there are so many diverse factors that must align at the right time. Trump policies vary in terms of promoting new business development. First, we must recognize that immigrants have been leaders in entrepreneurship and innovation in the U.S. They contribute significantly to income and tax revenue in the U.S. The eradication of the startup visa is a challenge -- as well as the travel ban -- as it does not send a welcoming message for those who have skills and expertise that can generate wealth and jobs in America. On the other hand, the continuance of Commerce grant programs that focus on regional innovation are helpful in funding emerging and established ecosystems, that can democratize entrepreneurship beyond the coasts. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? As an entrepreneur and investor, I find corporate tax rates less relevant at the onset of a business versus during the early stage fundraising process. As a startup, most entrepreneurs are focused on revenue and not tax rates. Having to pay taxes would mean they are making money. However, I have seen corporate tax rates and other tax policies have an impact when investors enter the picture, as they are seeking favorable tax liabilities. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? Tax breaks and incentives that correlate to business growth and job creation are ideal, as they allow for a multiplier effect for the business and the community. Breaks and incentives that only support an individual have value, but often come at a cost later in the game. The goal is that there is a mutually beneficial quid pro quo for the breaks and incentives. What measures can state authorities undertake to encourage entrepreneurs to start new businesses in their state? States can look at tax incentives tied to job creation, and look at tax breaks for companies that employ the hard to hire, or provide skills training. States can streamline the incorporation and certification processes to reduce the burden of time and money. States can re-examine zoning laws to allow for equitable dispersion of business development in a community, and allow for local hubs and networks to evolve organically. States can also identify a staff person to help coordinate and support business -- almost like an entrepreneur in residence for states. Scott Shane A. Malachi Mixon III Professor of Entrepreneurial Studies in the Weatherhead School of Management at Case Western Reserve University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? It is very unlikely that the economic policies being pursued by the Trump administration will promote new business development, for two reasons. First, it is extremely rare that economic policies being pursued by any administration promote new business development. Governments have a hard time promoting business development because the primary drivers of new business development -- the entrepreneurial talents of people and the quality of their ideas -- aren’t under government control or even influence. Nothing the President does can make more Americans have entrepreneurial skills or great business ideas. Second, the economic policies pursued by the Trump administration are conflicting. For every policy that might favor new business development at the margin, there is one that would discourage it. So the net effect is zero. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? They really don’t. People tend to start businesses where they are, and don’t pick low tax places to start. Very few people who are thinking of starting new businesses say that they are not going to start a company after considering it because tax rates are too high, according to the research academics have done on the topic. Finally, taxes have countervailing effects on business formation. Low tax rates encourage business formation because they allow people to keep more of their profits. High tax rates encourage business formation because having a business is a better way to minimize taxes than working for a wage. There are more things you can deduct, and it is easier to cheat on taxes as a business owner than a wage employee. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? Any policy needs to be compared to alternatives. Policies to encourage new business formation are generally a bad investment on a few dimensions. First, they tend to have less benefit for society than other uses of the money. Society gains more from $1 put into early childhood education or eradicating opioid addiction than $1 put into business formation. Since everything the government spends money on has an opportunity cost, the $1 spent on encouraging new business investment is not generally a good investment. Second, the marginal new business created by government incentives is generally not desirable. The market rarely fails to create enough companies. Consider this example. A person can work for someone else painting houses, or that person can start his or her own painting company. Doing this yourself is pretty inefficient. Instead of painting houses 8 hours a day, you have to sell clients, collect unpaid bills etc. So the person starting a company is probably painting 5 hours a day instead of 8. The state government provides an incentive for a house painter to start a company, and a bunch of people do this on their own instead of for someone else. We now have a less efficient way of getting people’s houses painted. If this happens enough at scale, we will see lower productivity numbers than we otherwise would have. What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? I will not suggest them for fear that the one thing I have written that some staffer reads is the list of measures. Then they miss the point of my message, which is “just say no.” Per L. Bylund Assistant Professor School of Entrepreneurship and Records-Johnston Professor of Free Enterprise in the Spears School of Business at Oklahoma State University Do you believe that the economic policies being pursued by the Trump administration will promote new business development? The answer is yes and no, since the policies seem to subsidize some businesses and industries (primarily domestic) while harming others. Will new businesses result from Trump’s policies? Undoubtedly. If the President manages to lower corporate taxes and if he stifles international trade, that will likely lead to new businesses in the U.S. At the same time, the President’s anti-trade agenda is bound to cause numerous businesses to fail. After all, the world is globalized and so is production, which means what is “Made in the USA” is likely made with numerous components manufactured abroad, and what is made abroad is likely made, at least in part, using U.S.-made machinery, knowledge, and innovations. Consider for instance Japanese and Korean automobile manufacturers -- they often manufacture their cars in the U.S., but the parts are from all over the world. Stopping or adding taxes (tariffs, quotas, etc.) on products that cross the border will only, eventually, harm American consumers as well as American producers. To what extent do state policies-- such as corporate tax rates-- influence decisions about whether and where to start a new business? It depends on what business. A classic example of institutional competition is in Kansas City, where the governments of Missouri and Kansas have competed for businesses. Each time one of them lowers their tax rate, many companies move to the other side of town. Taxes are, after all, a burden on any business, so it must be part of their strategic and operative decision-making. Avoiding cost is one important way that businesses serve consumers, because it allows them to offer cheaper products, as well as reinvest in the business to develop the products of tomorrow. So it matters. To what extent? That is difficult to say, and it likely varies from one case to another. A dry cleaning business is unlikely to pick a state depending on corporate tax rate, but a large manufacturing plant will consider tax rates, as well as right to work laws and other policies that affect the business. Are tax breaks and other incentives to encourage new businesses on net a good or bad investment for states? New businesses generally mean more (or at least new) jobs and better products at lower prices for consumers. But the market overall is an organism that allocates scarce productive resources -- be it land, labor, or capital -- toward satisfying consumers in the best way possible. Taxes put a wet blanket on this process by making everything more costly, which means we get less of everything from private businesses. This means that if there are general tax breaks, the burden on business overall is lower and we should thus expect increased output -- and we’re better off for it. But if the tax breaks are targeted so that they affect businesses in different industries in different ways, then this means that some businesses are less burdened than others -- and then we’ll get comparatively more output in those industries. More output is good, but the problem is that it may not be what consumers want the most. Production is politically steered toward certain types of production, and that makes it very difficult to say whether the outcome is good or bad -- for the simple reason that invested capital isn’t easily transferred to other industries (so there’s inertia if not path dependence). What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state? There are many things that state authorities can do to encourage entrepreneurship. The ground rule is that they should get out of the way. For instance, licensing laws only mean that there is limited competition, which in turn means lower output at higher cost, and with less quality. Similarly, zoning laws mean incumbent businesses that already have property or rental contracts within manufacturing or service zones have an advantage over new business. States put a lot of obstacles in the way of entrepreneurs, often “for good reason” (at least rhetorically), but with disastrous outcomes (for consumers and startups). In terms of positively encouraging entrepreneurship, what the authorities should do is provide education for, or in other ways support wannabe entrepreneurs. Most entrepreneurs fail most of the time, but many of the reasons they fail are simple mistakes, that could be avoided with proper information and education. If those who want to start businesses are offered support by learning basic skills of market analysis, customer identification, accounting, marketing, and so on, a lot is gained. I am not convinced that the government is able to do this in an effective (and definitely not cost-effective) manner, but at least authorities can get the ball rolling.

Methodology

In order to determine the best and worst states to start a business, WalletHub compared the 50 states and the District of Columbia across three key dimensions: 1) Business Environment, 2) Access to Resources and 3) Business Costs.

We evaluated those dimensions using 25 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the most favorable conditions for new-business creation.

Finally, we determined each state and the District’s weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order our sample.

Business Environment – Total Points: 50

• Average Length of Work Week (in Hours): Full Weight (~4.17 Points)
• Share of Engaged Workers: Full Weight (~4.17 Points)Note: This metric is based on Gallup’s “State of the American Workplace” report. Gallup defines engaged employees as those who are involved in, enthusiastic about and committed to their work and workplace.
• Average Growth in Number of Small Businesses: Full Weight (~4.17 Points)
• Startups per Capita: Full Weight (~4.17 Points)
• Average Growth of Business Revenues: Full Weight (~4.17 Points)
• Five-Year Business Survival Rate: Full Weight (~4.17 Points)
• Industry Variety: Full Weight (~4.17 Points)
• Industry-Cluster Strength: Full Weight (~4.17 Points)Note: This metric is based on data from the U.S. Cluster Mapping Project. “Industry-Cluster Strength” refers to the level of high employment specialization of a cluster, which is defined by the U.S. Cluster Mapping Project as a “regional concentration of related industries in a particular location.”
• Entrepreneurship Index: Full Weight (~4.17 Points)
• Share of Fast-Growing Firms: Full Weight (~4.17 Points)Note: This metric measures the number of firms in each state that are included on the “Technology Fast 500” list (Deloitte report) as a share of total firms in each state.
• “Digital States” Survey Grade: Full Weight (~4.17 Points)
• Job Growth (2016 vs. 2012): Full Weight (~4.17 Points)

Access to Resources – Total Points: 25

• Financing Accessibility: Full Weight (~4.17 Points)Note: This metric was calculated as follows: Total Annual Value of Small-Business Loans / Total Number of Small Businesses
• Venture Investment Amount per Capita: Full Weight (~4.17 Points)
• Human-Capital Availability: Full Weight (~4.17 Points)Note: This metric was calculated as follows: Number of Job Openings per Number of Civilians in Labor Force – Unemployment Rate
• Higher-Education Assets: Full Weight (~4.17 Points)Note: This is based on WalletHub’s “Best Universities Ranking” report.
• Share of College-Educated Population: Full Weight (~4.17 Points)Note: This metric measures the percentage of the population aged 25 and older with a bachelor’s degree or higher.
• Working-Age Population Growth: Full Weight (~4.17 Points)Note: “Working-Age Population” includes individuals aged 16 to 64.

Business Costs – Total Points: 25

• Office-Space Affordability: Full Weight (~3.13 Points)Note: This metric measures the per-square-foot cost of commercial office space.
• Labor Costs: Double Weight (~6.26 Points)Note: This metric measures the median annual income of the state.
• Average Annual Single Insurance Premium per Enrolled Employee: Full Weight (~3.13 Points)Note: This metric refers to employer-based health insurance.
• Corporate Taxes: Full Weight (~3.13 Points)
• Total Effective State & Local Tax Rates on Mature Corporate Headquarters: Full Weight (~3.13 Points)
• Total Spending on Incentives as Share of GDP: Full Weight (~3.13 Points)
• Cost of Living: Full Weight (~3.13 Points)

 

Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Ewing Marion Kauffman Foundation, Center for Digital Government, National Venture Capital Association, Indeed.com, Tax Foundation, U.S. Cluster Mapping Project, Deloitte, The New York Times, Gallup, U.S. Bureau of Economic Analysis, Council for Community and Economic Research, LoopNet, Federal Deposit Insurance Corporation, Kaiser Family Foundation and WalletHub research.

from Wallet HubWallet Hub


via Finance Xpress