Why Excessive Regulation and Taxation Matter

Are regulation and taxation just philosophical issues, fascinating to the politically animated but of little practical consequence?  No, regulation and tax policy have practical consequences, and our current trend is not pretty.

I recall a presentation given in CA early in 2005 by a consultant, Bill Fruth, for cities and states wishing to cultivate a healthy business environment.  The presenter warned his audience that what he was about to say might incense some people, and he was right.  I thought I would have to sedate one of my colleagues.  The crux of his talk was that CA had become hostile to business and would at some point pay the price.

At that time, things were booming.  Yet CA was the only state to have experienced a net loss of businesses in the previous year.  As seen in the map above, that trend continues.  Fruth quipped that it would take time to bring an economy the size of California’s down to the level of a third world country.  At that point, I had to restrain my colleague.  I wonder what she thinks now as CA races to become the first state to go completely broke.  (Fellow Illinoisians, this is one race in which it is good to be second, or even third.)

The same principle applies to countries.  Just as CA businesses flocked to NV, where they were greeted with open arms and no state taxes, businesses have the option of locating overseas.  Some call this treason.  I call it sanity.  No business is obligated to locate in an environment where the government confiscates more of its profits.

We now face a serious question.  Will we continue to drift in the direction of the CA business-haters or recognize that when businesses run out of states to move to they will simply go to another country?









About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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