States Getting Worse

The “Small Business Survival Index 2008” ranks the 50 states and District of Columbia according to their respective public policy climates for entrepreneurship and small business. The basic idea is to look at how heavy handed each state is in terms of taxes, regulations, government spending, etc.

The Index is worth keeping in mind while reading a Washington Times piece by Donald Lambro titled “States set to impose bevy of new taxes.”

Lambro walks through the issue of budget shortfalls, and the effects of higher taxes on the economy.

He highlights five states in which big tax increases are under consideration:

• New York's Mr. Paterson also is proposing to end property-tax rebates and to raise state fees on motor-vehicle registration, auto insurance and state parks. He's pushing for higher tuitions at state universities and proposes to extend the sales tax to clothing and shoes under $110. He wants to raise taxes on car rentals, beer and wine, and gasoline.

• In Oregon, Democratic Gov. Theodore R. Kulongoski's $15.8 billion budget is calling for higher taxes on hospitals, health insurers, cigarettes, gasoline, vehicle registrations and corporations. He wants to push the gas tax up by 2 cents to 26 cents a gallon and raise vehicle-registration fees from $27 a year to $81, which would raise more than $1 billion over the next two years.

Hospital officials said the tax would hit health care facilities across the state "at a time when Oregon's hospitals are facing a severe downturn in their net operating revenue."

• In California, Gov. Arnold Schwarzenegger, a Republican who won election by promising not to raise taxes, is proposing a 1.5 percent increase in the sales tax, which is now set at 7.25 percent. He also wants to raise the motor-vehicle registration fee by $12. His critics say both taxes are regressive because they hit low- and middle-income taxpayers the hardest.

• Gov. Butch Otter of Idaho, a Republican, is asking the Legislature to raise vehicle-registration fees, raise the 25-cents-per-gallon gas tax and broaden the sales tax to include rental cars.

• In Kansas, Gov. Kathleen Sebelius, a Democrat, and state legislative leaders are calling for a major cigarette-tax increase, between 50 cents and 75 cents a pack, to help finance health care programs. The proposals come in the wake of a report from budget analysts that said state tax revenues would fall by more than $211 million in fiscal 2009 and plunge even more in fiscal 2010.

By the way, on the “Small Business Survival Index 2008,” New York ranks 45th, Oregon 32nd, California 49th, Idaho 35th, and Kansas 31st. They all rank in the bottom half on the Index, with New York and California faring particularly bad. And yet, elected officials in these states seem intent on making matters even worse. Not smart economics.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council