The Corner

New York Rated Worst for Small Businesses

Dead last among the states. Nobody is worse. 

What am I talking about? Among the 50 states, New York ranks at the very bottom on the just-published 2011 “Small Business Survival Index.” (Only the District of Columbia ranks worse.) Indeed, it’s hard to survive, never mind thrive, as a small business in the once-Empire State, overwhelmingly due to constant heavy attacks by policymakers. 

And given the latest deal served up by Democratic governor Andrew Cuomo, the Democratic leadership in the state assembly, and Republican leaders in the state senate, New York appears ready to stay at the bottom for some time.

The “Small Business Survival Index,” which I author for the Small Business & Entrepreneurship Council, ranks the 50 states and the District of Columbia according to their public-policy climates for entrepreneurship, small business, and investment. This year’s index has been expanded to include 44 different measures covering the broad areas of taxes, regulation, energy costs, health-insurance mandates, government spending and employment, state liability systems, education reforms, and property rights and protections. It is the most comprehensive ranking of the states in terms of policies affecting entrepreneurs and investors, and therefore the economy and job creation.

So, what about New York? First, tiny positives can be detected even when ranking last. For example, the state’s crime rate is low, and interestingly, its unemployment tax is comparatively low. But the good news pretty much ends there.

The negatives, in contrast, are overwhelming. For example, New York imposes high taxes on personal income, individual capital gains, corporate income, and corporate capital gains. These send clear signals to businesses and investors to build, invest, and create jobs somewhere else. The state piles on with high property taxes just to make sure businesses and individuals cannot afford to stay and have no reason to come here.

It’s also pricier in New York to fill up the gas tank or use a cell phone, due to very high gas and diesel taxes and high wireless taxes. Indeed, consumption taxes are relatively high in general.

Unfortunately, there’s still more on the tax front. The state’s death tax helps to send family businesses, investors, and retirees packing for less costly climates.

And it’s not just the federal government that imposes alternative minimum taxes on individuals and businesses. New York does as well, raising tax compliance costs and diminishing the impact of any positive incentives that might be included in the tax code.

On the regulatory front, New York likes to impose mandates on health-insurance companies. While that might feel good to the politicians, it means increased health-insurance costs for businesses and individuals. At the same time, New York has poor private property protections, leaving small businesses and homeowners open to eminent-domain abuse by politicians and various special interests.

Naturally, high taxes in the end are about the size of government. Predictably, New York has a high level of per capita state and local government spending, a large number of state and local government employees, and the second-highest level of state and local government debt.

To sum up, the index makes clear that New York is a big government mess. So, what was the deal just agreed to in Albany? The highest income-tax rate on upper-income earners is set to expire at the end of this month, dropping the top individual income and capital-gains tax rate from 8.97 percent to 6.85 percent. But political leaders have agreed to setting the top tax rate for those topping $2 million in earnings at 8.82 percent, while offering tiny token cuts for low- and middle-income earners.

Quite simply, higher tax rates on upper incomes mean higher taxes on the entrepreneurs and investors needed to get New York’s economy moving. Will New York’s economy really be better off by trying to suck more resources out of the private sector so elected officials can dole out bigger bucks according to their political preferences? Of course not. After all, it hasn’t been working so well for the state so far.

But New York politicians seem to be immune to sound economics. Instead, it’s all about class warfare and big government. The rest of the nation can learn what not to do by watching New York’s elected officials operate.

— Raymond J. Keating, a New York resident, is chief economist of the Small Business & Entrepreneurship Council and author of a new book titled “Chuck” vs. the Business World: Business Tips on TV.

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