“We know that people who start a business in this state have a better chance than any other state in the country to make sure those businesses will be up and running in five years. But we need more people to start these companies and take that risk, ”said DEED Commissioner Steve Grove. To accomplish this, DEED reports that $ 2.8 million in grants have been awarded.
Actions to improve the Minnesota environment for startups and small businesses are urgently needed. As we write in our new report, “The State of Minnesota’s Economy: 2020,” new and emerging businesses represented 31.3% of all businesses in Minnesota in 2020. For the United States, the number was generally 37.7%, and our state’s number was ranked 38th among the 50 states and District of Columbia.
Fortunately, the state government has policy tools at its disposal to encourage entrepreneurship and tossing taxpayers’ money around. Unfortunately, the state government does not seem willing to make use of them.
By and large, the state government has regulatory and tax instruments (taxes and expenses) at its disposal. Regarding the latter, research on the impact of high corporate tax rates on entrepreneurship is fairly consistent.
In an article on the impact of corporate taxes on investment and entrepreneurship, economists Simeon Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer noted: “… the effective corporate tax rate [has] large negative impact on total investment, FDI and entrepreneurial activity. “In an article on tax structure and entrepreneurship, the economists Mina Baliamoune-Lutz and Pierre Garello stated:” … that tax progressiveness with above-average incomes has a strong negative influence on emerging entrepreneurship. “In a paper that examined how the The economists MarcoDa Rin, MarinaDi Giacomo and AlessandroSembenelli found that corporate taxation has an impact on the founding decisions of the company: “… a significant negative effect of corporate tax on the entry rates.”
Given this research, Minnesota’s poor start-up performance is not too surprising. Our state has a flat corporate tax rate of 9.80%: It applies to the first and last dollar of taxable income. While New Jersey has a higher top tax rate than Minnesota at 11.25%, this only applies to income over $ 1 million: The first dollar of corporate taxable income in Garden State is taxed at a lower tax rate of 6.5%. In fact, Minnesota’s starting corporate income tax rate ranks second in the United States.
Unfortunately, current proposals will only exacerbate this self-inflicted handicap. Governor Walz suggests raising corporate income tax even further to 10.8%, which would give us the highest starting rate in the United States. Commissioner Grove’s boss is trying to make his job even more difficult.
Over the past year we’ve been asked many times to follow the dates. Very good. It shows that Minnesota is not becoming more of an outlier when it comes to high taxes and is expecting better economic outcomes, such as an improved small business start-up rate. Not only should we not increase the tax burden on our small businesses, but we should also try to reduce it.
John Phelan is an economist at the Center of the American Experiment.
This column does not necessarily reflect the opinion of the forum’s editors or the forum owners.