Benjamin Franklin once said, "...in this world nothing can be said to be certain, except death and taxes."

Entrepreneurship is wonderful, but, increasingly, where you practice it may have a lot to do with your success.

What city, state, and even country in which you choose to ply your trade may be an increasing determinant of your chances for prospering..  Despite the general return of animal spirits to the booming small business sector of our economy, prosperity is not coming to all states equally.  In fact, with the passage of the new tax reform bill, the cost of doing business is surging in some states (New York, California, Illinois, New Jersey, Connecticut, among others), while declining in most others.

Entrepreneurs need to pay attention to where they are locating.

For example, on May 4, 2018 the Wall Street Journal had an op-ed by James Freeman that screamed, "My Clients Are Fleeing New Jersey Like It's On Fire:  After Tax Reform, A Stampede From High-Tax States."  The WSJ is quoted as reporting the following:

"One of the oldest names on Wall Street is moving to one of the fastest-growing cities in the South, reinforcing a recent shift in finance jobs to cheaper parts of the U.S.

AllianceBernstein Holding LP plans to relocate its headquarters, chief executive and most of its New York staff to Nashville, Tenn., in an attempt to cut costs, according to people familiar with the matter.  That largely ends a 51-year presence in the nation's traditional finance capital....

In a memo to employees, AllianceBernstein cited lower state, city and property taxes compared with the New York metropolitan area among the reasons for the relocation." 

Similarly, the North Bay Business Journal in the Sonoma Valley reports that Price Pump, a large manufacturer of high-tech pumps, will move its whole operation to Boise, Idaho this year.  Price Pump President Bob Piazza says, "It has simply become too difficult to run a manufacturing business in Sonoma Valley."  Piazza lists a long litany of complaints about the California business climate around hiring, cost of living, taxation, labor laws, and general over-regulation.

Business unfriendly states, with excessive welfare entitlements, high taxes, and uncontrolled government unions are continuing to raise taxes at an alarming rate to maintain unrealistic benefits.  These states are becoming cesspools of bureaucratic inefficiency and red tape, union mandates, and punitive taxation.

In another article in the WSJ (April 24th, 2018) Arthur Laffer and Stephen Moore report, "In the years to come, millions of people, thousands of businesses, and tens of billions of net income will flee high-tax blue states for low-tax red states."

The fact is, in certain states, politicians have spent decades creating over-regulation, high taxes, and wasteful public spending that has outrageously raised the cost of economic risk-taking and chased away business.  What we have in these states is really a vast anti-enterprise zone.  

I feel there is real  danger for all businesses located in California, New Jersey, New York, Illinois, et. al.  Despite our current national prosperity, pensions, salaries, and debt are overwhelming these states.  I believe that at a certain point these states will become desperate for money.  And at that point the most obvious place for states to get money will be the small business community.  We are simply the easiest, largest, and most defenseless money pool to go after.

I do not wish to be a wailing Cassandra during this time of general economic prosperity, but businesses and new entrepreneurs should think long and hard about where they locate themselves.  Where will their state be fiscally in five years or ten years?

Entrepreneurs are by nature optimistic and sunny and positive people.  However, successful entrepreneurs are also clear-eyed realists and not all states in the wonderful US of A offer equally business-friendly environments for spawning small business success.

As John Marshall, the first Chief Justice of the United States said, "The power to tax is the power to destroy."

Published on: May 7, 2018