According to the Small Business Administration, 99.7 percent of U.S. employers, 64 percent of net new private sector jobs, 49.2 percent of private-sector employment and 98 percent of firms exporting goods are small businesses.
Small businesses are crucial to the U.S. economy. Correspondingly, you might think that small businesses would attract unified political support: that their better future might be a bipartisan priority.
Think again. Democrats talk a good game when it comes to small business owners, but when it matters — in legislation and regulation — they do not walk the walk. Of the Tax Foundation’s top 10 states for low business taxes, only two have Democratic Party governors. And while the Tax Foundation is a right-leaning organization, its assessment speaks to national reality.
Consider a few states:
California. In an irony of nomenclature, the Golden State is one of the nation’s foremost high-tax capitals. Californians earning between $51,531 and $263,222 must pay a marginal income tax rate of 9.3 percent. Those who own businesses must pay a rate of 8.84 percent.
Because many small business owners earn business income under income tax codes, the choice is high taxes or higher taxes. The impact is clear. As I’ve noted, California’s punitive tax rates are persuading more and more residents to relocate to Texas.
The same is true in Illinois. Businesses are fleeing the Prairie State and heading for low-tax pastures, such as those of Indiana. According to the Illinois Policy Institute, between January and September 2015, Indiana created 18 times as many jobs as Illinois. In response, Illinois Governor Bruce Rauner, a Republican, is pushing for reforms to make his state more attractive (or at least temper the state’s unattractiveness) to business. But Democrats are having none of it. Instead, they’re demanding tax increases without reforms. Business leaders are noticing. And they’re leaving. For the first time in its history, Illinois’s net out-migration rate exceeded 100,000 people last year. That’s the beginning of a fiscal death spiral.
Illinois’s Republican governor Bruce Rauner, above, has pushed for fiscally responsible reforms in his state, much to the ire of the Democrat-dominated legislature. | Photo: AP
Maryland offers a lovely counterargument to Illinois and California. Governor Larry Hogan is taking overdue action to balance the state budget. But he has a hard task. After all, Hogan’s predecessor, Martin O’Malley, introduced tax increases that led to an exodus of high income individuals. As The Daily Caller noted in a study of O’Malley’s tax policy, “those departing for Florida were the wealthiest Marylanders, with average incomes of $118,900.’’
It’s basic economic theory. The richest individuals or businesses are those most able to relocate their capital. And if pushed they will do so. Tellingly, President Obama’s Small Business Administration does not compare state tax systems. To do so would be to highlight the discrepancy between red states and blue states. Instead, the SBA offers web links to each state’s individual tax offices.
Go ahead and click on those links. Some are easy to navigate — and others not so much. In Connecticut, for example, a would-be entrepreneur must navigate extensive lists of regulations and mandates to obtain the privilege of doing business. Pennsylvania’s new tax code is a minefield of special interests and stealth taxes. Reading the document, it has a clear message to businesses: beware of investing.
Antipathy towards small businesses is one reason Democrats have suffered staggering electoral losses in the states. Unfortunately, they don’t seem to see their error in judgment.
On the contrary, Treasury Secretary Jacob Lew recently called on low corporate tax locales to increase taxation. The problem, he said, is that low taxes encourage companies to relocate. Lew, like many Democrats, thinks the solution is to ensure higher taxes everywhere.
Conservatives shouldn’t be complacent, however. Whether it’s small businesses, big businesses, the self-employed, or the formally employed, we must make tax codes simpler and rates lower. We must also recognize that businesses must make decisions with a view to the long term. Businesses must consider what the fiscal situation will be five, 10 or 15 years down the line. This bears particular relevance in light of Donald Trump’s recent rhetoric.
Ultimately, the real issue here is the definition of social justice. While conservatives believe social justice requires improving community cohesion, we also believe that individual prosperity — and the pursuit thereof — is crucial to better human lives. And while liberals also care about making society better, too many are weaponizing the belief that profit deserves penalties. To be sure, that approach might appeal to a narrow base, but in electoral terms their sailing towards disaster.
Tom Rogan is a foreign policy columnist for National Review, a domestic policy columnist forOpportunity Lives, a panelist on The McLaughlin Group and a senior fellow at the Steamboat Institute. Follow him on Twitter @TomRtweets.