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Startups find it unnecessarily hard to succeed

Entrepreneurs face daunting odds in Illinois

Published: Wednesday, Dec. 18, 2013 1:15 a.m. CDT

SPRINGFIELD – Starting a small business is tough; starting one in Illinois is even more difficult.

Over the years, Illinois lawmakers have created a system that could make even the most intrepid entrepreneur shudder.

The Land of Lincoln is a tough place to do business, to be sure.

For example, Office Depot has been capturing plenty of headlines.

The company recently merged with OfficeMax, and its executives were pondering whether to use OfficeMax’s Naperville, Ill., headquarters or Office Depot’s Boca Raton, Fla., site.

The Sunshine State won out.

It’s not hard to figure out why.

Just consider:

n Illinois has a corporate tax rate of 9.5 percent (7 percent income, 2.5 percent personal property replacement tax), while Florida has a 5.5 percent corporate tax rate.

n Illinois has a personal tax rate of 5 percent, while Florida has none.

n For every $100 worth of payroll, Illinois employers pay an average of $2.81 for workers’ compensation insurance, compared to $1.84 in Florida.

n Illinois’ minimum wage is $8.25 per hour, compared to $7.79 in Florida.

But a company as big as Office Depot has the political clout to go to the Illinois General Assembly and push for special tax breaks. In fact, the Senate endorsed such a proposal, though it never came up for a vote in the House.

For a small entrepreneur, the story is quite different.

They lack clout to cut sweetheart deals with politicians. And yet, they have to compete against large corporations that do get such deals. More significantly, Illinois small businesses are saddled with the state’s burdensome taxes and regulations.

You see, it’s not just Florida that Illinois has trouble competing against.

It’s just about every state that has a leg up on the Land of Lincoln.

Just consider:

n A study conducted by the state of Oregon found that Illinois has the fourth-highest workers’ compensation rates in the nation.

n Illinois also has the fourth-highest minimum wage in the nation.

n Illinois’ corporate tax rates ranks, you guessed it, the fourth highest in the nation.

n Given those numbers, it’s little wonder that Illinois has the 11th-lowest rate of entrepreneurship in the U.S., according to the Kauffman Entrepreneurial Index.

And small businesses are the major job generators in the economy.

According to the U.S. Small Business Administration, small firms employ just more than half of the private sector workforce and created nearly two-thirds of the nation’s net new jobs over the past 15 years.

Please keep in mind, every big company started out small.

Not all that long ago, Apple was an idea of Steve Jobs, who was running the business out of his home’s garage. The same could be said of Amazon, which not that long ago was just a fledgling startup in Seattle.

Small firms are the ones most hurt by the Prairie State’s backward approach to taxes and regulation.

There seems to be a mindset among Illinois lawmakers that business is a bottomless pit from which they can continue to extract money.

According to a 2013 Bradley University/University of Tennessee study, 25 percent of small businesses fail in their first year, and 73 percent go under within a decade.

Those are pretty daunting odds.

Not surprisingly, entrepreneurs look for places to start a business where they are most likely to succeed.

And increasingly, they are concluding that Illinois is not one of those places.

But the secret to turning things around is pretty straightforward: lower taxes and fewer regulations for all businesses and individuals – not just the politically favored.

With that, more people will be willing to take a chance on Illinois.

Note to readers: Scott Reeder’s column is underwritten by the Illinois Policy Institute.

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