Ask almost any small business owner what's most difficult about running his or her own company, and you'll likely hear a list of complaints that have little to do with the actual substance of their chosen field. For the home painter, it's not the cost of brushes and supplies; for the house cleaner, it's not a dearth of dirty homes in the area; for the independent moving company, it's not a lack of available labor to haul furniture.
Instead, when you speak with these entrepreneurs, they're liable to tell you either that it's too difficult to find and connect with customers, or that their interactions with government - at all levels - too often leave them feeling frustrated and confused.
Policymakers often sing the praises of these same 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. But too often, political prescriptions are driven by ideology or rhetoric, not practicality. 'Solutions' are far removed from the everyday aggravations voiced by business owners, and these individuals feel overwhelmed and disadvantaged by the consequences of poor public policy choices.
Thumbtack--a consumer service that links individuals to business professionals who can help them accomplish personal projects--is working to bridge this disconnect. We're interested in understanding what makes for an environment where entrepreneurs feel empowered and have the support to thrive. 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 Thumbtack's business users to complete a survey asking 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.
When we sorted through the data, three unexpected themes emerged. Let's talk taxes first.
1. Taxes: It's Not the Amount, It's the Complexity
Two out of every three small service businesses in our survey actually reported that they felt 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 total tax rate wasn't the critical factor when considering the friendliness of their government. Perceived tax burden wasn't a statistically significant predictor of their overall friendliness scores.
But the amount of taxes paid doesn't tell the whole story. While tax burden wasn't a significant predictor of overall friendliness, the complexity of state and local tax codes was.
States and cities that have easily understandable tax codes and simple compliance did 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.
There's an instructive takeaway for policy makers--state and local governments can spend less time discussing the financial 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 the 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."
Stay tuned for parts two and three, where we'll see what small businesses had to say about licensing requirements and what role they want government to play in supporting small business.