By Benjamin Artz
There is no doubt that entrepreneurs drive the economy. The free enterprise spirit of this nation helps to make it one of the most prosperous countries in the world.
Its income per capita is one of the largest and its low unemployment rate is nothing to be sneered at. It remains open and inviting to new startup businesses and economic activity, spurring long-run growth and innovation.
However, when entrepreneurs want to start businesses in the United States, where do they choose to set up shopω Evidently, not in Wisconsin.
According to a recent publication by the U.S. Small Business Administration, Wisconsin entrepreneurs comprised only 11.6 percent of all personal income tax filers in 2001, which is a ranking of 49th out of the 50 states. Only Delaware had fewer entrepreneurs as a share of all personal tax returns.
If we instead count the number of sole proprietors, another measure of entrepreneurial activity, Wisconsin jumps up to 48th place, now beating out South Carolina as well.
Wisconsin’s growth in entrepreneurs from 1989 to 2001 looks a bit better, building by 4.5 percent over the 12-year span. At the same time, however, Wisconsin’s share of the entire country’s entrepreneurial activity fell from 1.8 percent to 1.7 percent.
So what is to blame for this lack of creative thinking, enterprise and risk-taking in our stateω
The automatic response is taxes. Wisconsin has one of the highest tax regimes in the country, which may persuade us to believe that taxes are the main ingredient for entrepreneurial exodus. Wisconsinites face the third-largest property tax per $1,000 of real estate value. In addition, proprietors must pay the fifth-highest state income tax on the lowest income brackets, certainly impacting their decision to take risks.
However, the aforementioned study, authored by Bruce and Deskins, found that state taxes have little or nothing to do with entrepreneurial activity in any given state.
Wisconsin must be careful not to prevent its proprietors from growing and expanding.
The extremely low ranking of Wisconsin outlined above suggests that the existing companies in Wisconsin are simply growing larger and not being replaced by new and smaller companies. In other words, Wisconsin business is growing bigger and older without new and fresh ideas.
Many may wonder what the proper course of action might be to attract entrepreneurs to Wisconsin and keep them here. If taxes do not work, than what is there to doω It is truly difficult to accept the outcome of the study that taxes do nothing or very little to impact entrepreneurial activity. Through property tax relief, lower personal income taxes and higher sales tax burdens for businesses, it is possible entrepreneurial talent could come to Wisconsin.
However, the biggest problem Wisconsin faces is keeping its homegrown talent here. This is the most important task, since entrepreneurs generally invest and take risks where they live. Indeed, Wisconsin certainly has no shortage of creativity, ingenuity, perseverance and drive. In fact, we graduate many more high school students than the national average. However, we have fewer citizens with college degrees than the nation on average.
If entrepreneurship is positively correlated with advanced education, which is most likely the case, then this is Wisconsin’s problem. It should be our goal to graduate college students and give them incentives to stay in the state to start their careers. This would have nothing but a positive impact on our state economy. Wisconsin business would not just get bigger and older anymore, but better.
This commentary was originally written for the Wisconsin Policy Research Institute. Additional information is available at www.wpri.org.
