Charlie Quimby Responds to “Start-Up Minnesota”

Last week, I wrote a blog post ("Start-Up Minnesota"), proposing 10-year tax breaks to encourage new company formation.  Author Charlie Quimby responded with the post below.  He actually wrote it last week, but I am only now getting to posting his response.  Quimby wrote,

Bill, I'm sorry, but this proposal is nonsense.  It is so far off, I would almost support it just to show how little impact it would have.  As someone who has started barely profitable as well as successful businesses, I can assure you taxes were not a factor in either case.

Without reading how the [Joel Kotkin] study came up with its [business formation] rankings, I'd say these are all reasons more important than tax policy:

1)   lower than average unemployment rate (a lot of business starts come from people who   haven't found work; these are also likely to evaporate when better opportunity comes along);

2)   higher than average net income (people who're comfortable are less likely to take entrepreneurial risks);
3)   presence of significant angel investment capital (this could perhaps be impacted by tax policy, but the coasts will still have biggest bucks);
4)   general decline of university-funded research here;
5)   large employer base (those Fortune 500s) that is more likely to source nationally than just locally;
6)   competing metro areas that have better positioned themselves in high-tech growth markets.

Management and technical skills, access to customers, available workforce with right skills, access to capital and even family ties are all more important than tax policy when an entrepreneur thinks about where to start a business.  Most start-ups won't have a tax problem in the early years.  It's not to say there aren't reasons why businesses start elsewhere—I expect North Dakota has a high rate right now—it's just that they aren't going there because of the tax system.

A better measure (and I say this without the number at my fingertips) is business survival rates.  Start-ups don't necessarily produce good jobs over time.  You could look at Nevada a few years back. I think it probably led the nation in job creation and start-ups, but a lot of that was illusory, based on investing in a building cheap housing that is now vacant or produced big losses for people.

I always appreciate Charlie’s responses to my proposals.