Commentary

Entrepreneurship: America’s Modern-Day Frontier

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If you work hard enough and create sufficient value for your fellow man, you can succeed in the United States. That has long been the sentiment underlying the concept of the American Dream. Dreams, however, aren’t enough, and must be translated into reality. Hardly anything reflects the manifestation of a dream into a reality more than pure, unbridled, American entrepreneurship.

In an America with no remaining physical frontiers, entrepreneurs are the new pioneers. Through being clever, innovative, adaptive and customer-focused, an individual can make his or her own fortune, creating something from nothing.

Just like the pioneers heading out west whose chosen path could range from navigable to unsurpassable, not every entrepreneur faces the same business climate. Some states choose to levy burdensome tax schemes, or impose onerous regulatory yolks. Some states choose to select a handful of favored industries to subsidize with taxpayer money, taken from individuals who have largely managed to create income without a government handout. This begs the question: which states have fostered entrepreneurship, and which have erected barriers?

The Kauffman Foundation recently released the newest edition of its Index of Entrepreneurship. Using U.S. Census Bureau data, the Index weighs three indicators to determine a state’s rate of entrepreneurship: the monthly rate at which adults became entrepreneurs, the percentage of those entrepreneurs who were not employed prior to starting their firm and the ratio of startups to non-startups in a region. States are further broken down into two subcategories, “larger” and “smaller,” based on population, although since all of the findings are shown as rates rather than raw totals, comparisons between the two subcategories are possible.

joe-graph-5

Source: http://www.kauffman.org/microsites/kauffman-index/rankings/state?Report=StartupActivity&Indicator=SRank

The Index’s findings are clear: in a period when the nation’s entrepreneurial activity is on the upswing overall, New England lags behind. All six New England states are in the bottom half of their subcategories, but even that doesn’t sufficiently describe the situation. In 2016, 0.33 percent of the United States’ adult population became an entrepreneur in a given month and approximately 8 percent of firms were startups nationally.

Only one New England state matched the national average for new entrepreneurship and none met the national average for startup density. In fact, when normalized and indexed by Kauffman researchers, every New England state was at least one full standard deviation below average for startup activity, save Vermont at 0.8 standard deviations below average.

Something about New England is inhibiting the growth of new firms, and a strong case could be made that poor policies are the culprit. Many variables weighed by the ninth edition of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index reflect New England’s anti-business environment. Four out of six New England states’ top marginal personal income tax rates are among the nation’s 25 worst. All six are among the nation’s worst half for top marginal corporate income tax rate. Five levy an inheritance tax. Not a single New England state’s property tax climate ranks above 39 in the country. Their burdensome taxes give entrepreneurs pause: why take a risk if your state won’t allow it to pay off?

The region’s web of rules and regulations also hinder startup activity by making it more difficult to actually keep businesses open and operating. Not a single New England state is right-to-work, reducing worker freedom and distorting the labor market. They also impose restrictive occupational licensing requirements on far too many potential entrepreneurs.

According to License to Work, a report put out by the Institute for Justice (IJ), even though they are not as restrictive as many others, New England states have plenty of room for reform. For example, of the 102 low-income occupations examined by IJ, Rhode Island requires licensing and fees for 49. Connecticut requires licensing for 54. Maine imposes less of a burden, but not by much, requiring licenses for 39.

Maine is one of only seven states to require licenses for tree trimmers, at a rate of $90 per renewal. Only five states require shampooers to be licensed, and New Hampshire is one of them. Connecticut, not to be outdone, is “the only state that licenses conveyor operators. The state mandates that candidates for licensure acquire two years experience, as well as demonstrate completion of an unspecified amount of related coursework, pass an exam and pay a $142 fee.”

In the name of consumer protection, New England states are putting up walls between potential entrepreneurs and steady income, while in the process hardly protecting consumers at all. Rather, they protect established businesses from the rigors of competition, ultimately providing a disservice to the state’s consumers.

Maine’s sitting governor, Paul LePage, has a professional background well-suited to helping craft policies tailored to the needs of small business owners. Having been one, Governor LePage has taken his first-hand experience and turned it toward efforts to lower tax burdens, incentivizing business startup and investment.

If New England states wish to no longer trail the nation for entrepreneurship, they need to allow for policies that get government out of the way. Unparalleled levels of taxation and overregulation contribute to an economy that looks, and often is, unfriendly to startups.

The best solution is to loosen the grip and instead simply embrace economic pioneers.

About Joe Horvath

Joe Horvath is a policy fellow at The Maine Heritage Policy Center. A resident of Connecticut, he serves as the assistant director of policy for the Yankee Institute for Public Policy. Previously, he worked as a research analyst for the American Legislative Exchange Council Center for State Fiscal Reform. His work has appeared in Bloomberg BNA, Tax Analysts and the Hartford Business Journal.

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