Watch C-SPAN for more than 30 minutes, and you’ll likely see more than one policymaker sing the praises of one of America’s most celebrated groups: small business owners. And with good reason—entrepreneurship is a key foundation of American economic life, and dynamic, growing companies account for 70 percent of new job creation.
Yet the realities of running a small business are often quite removed from the noble ideals of our political discourse. Small businesses—especially sole proprietorships and businesses with few employees like wedding photographers, roofers, house cleaners, and movers—are frequently overwhelmed and disadvantaged by the consequences of poor public policy choices that affect their livelihoods.
Thumbtack is in business to help these entrepreneurs connect with customers and thrive in their local communities. That’s why—for the third year in a row—we’ve partnered with the Kauffman Foundation to ask small business owners nationwide what they thought made for a friendly state and local government.
We asked business users of Thumbtack’s website to fill out a short survey asking them how difficult or easy it was to do business in their city or state, and we used those responses to grade 82 cities and nearly every state along 11 different metrics. (Idaho, Texas, Utah, and Virginia, for example, earned an overall friendliness grade of A+, while California, Illinois, and Rhode Island scored an F.) We received nearly 13,000 responses. and the insights we learned were frequently surprising—and potentially quite useful to policymakers.
Here are the three things that small businesses told us made for a “friendly” state and local government:
1. Small businesses worry less about the amount of taxes they pay than about how hard it is to pay them.
Two thirds of the small service businesses in our survey reported that they paid the “right share of taxes,” meaning they didn’t feel overwhelmed by their tax burden. Few enjoy paying taxes but, at least for the small service businesses who use Thumbtack, the tax burden wasn’t a critical factor when thinking about the friendliness of their government. Although there is considerable debate and concern in policy circles about the effects of tax rates on small businesses, the vast majority of the small businesses we talked to weren’t overly concerned—their perceived tax burden was not a statistically significant predictor of their overall friendliness scores.
What was a significant factor in our study was the complexity of state and local tax codes. States and cities that were seen as having easily understandable tax codes that were simple to comply with tended to do better than those that didn’t. Sixty-eight percent of businesses who said their taxes were “somewhat” or “extremely” easy to comply with said their state government was friendly, while only 42 percent of businesses who said taxes were “somewhat” or “extremely” difficult to comply with held this view.
This suggests that state and local governments should spend less time focusing on the tax burden and more time on making compliance with existing taxes easier for small businesses. If they do, they’ll likely hear from constituents like this videographer in Hurst, Texas, who said, “the local and state governments make it easy to register and keep up with taxes…sales tax can be paid online each quarter with minimal to no paperwork.”
2. Licensing a business should be easier.
Another significant factor in our study was the complexity and time-cost associated with licensing requirements. A photographer in Winter Springs, Florida said, “It is not clear if you are meeting all requirements as you have federal, state, county and some city requirements…none of them talk to each other, so sometimes you can be misled to think you met requirements; only to learn later that another government agency has some [other] requirement.”
It’s no surprise that small businesses are confused. In fact, half of the service professionals who responded to our survey reported that they are required to be licensed at one level of government, and a full quarter of that group said they were licensed at four levels of government—city, county, state, and federal—all for the same work.
Of the licensed professionals we surveyed, nearly 60 percent said that licensing rules for their profession were “somewhat” or “very” easy to comply with. These professionals were also the most likely to say their governments were “very” or “somewhat” supportive. Pros who said the licensing rules were “somewhat” or “very” difficult to comply with were, on the other hand, more likely to say their governments were “very” or “somewhat” unsupportive.
Most small businesses understand the importance of licensing, but many are frustrated that they might be required to obtain one license to do business in a city or county, and a different license to do the same work only a few miles away. To help small business professionals, policymakers certainly don’t need to slash all licensing requirements, but they do need to put more effort into harmonizing licensing rules and requirements that are already on the books.
3. Small business-friendly governments do more than get out of the way.
Freeing small business owners from regulatory burdens so they have more time to build their business and concentrate on their customers can certainly make owners happier. But this doesn’t mean that small businesses want their governments to disappear. According to our survey, small businesses value training and support offered by their local governments, and they want and need their local governments to get the word out about those programs. Professionals who were aware of support programs ranked their governments 10 percent higher in friendliness than those who were not. Indeed, government efforts to publicize support programs was the most significant factor directly under a government’s control in determining our overall friendliness grade.
This makes sense if you consider the fact that 57 percent of survey respondents said they had never before run their own business. Starting your own business can be daunting, but a graphic designer in Loveland, Colorado said it best: “with the help of a small business development center in town I have learned to start my business and see it grow.”
It’s important for policymakers to remind Americans—on C-SPAN and elsewhere—of the virtues of our nation’s small business owners. But it’s even more vital for policymakers to listen so that they can craft small business-friendly policies that actually help these businesses grow and thrive.
Lukas McGowan is the Head of Public Policy at Thumbtack. He previously worked in the White House Office of Legislative Affairs for President Obama and as a writer for Vice President Biden.
Jon Lieber is the Chief Economist at Thumbtack. He previously worked as an economic policy advisor in the United States Congress and for President Bush’s National Economic Council, and as a researcher at the American Enterprise Institute.