CNS Commentary
January 02, 2001

Well, we caught a glimpse of the economics and politics of the twentieth century's final decade December 28 with the release of population data from the 2000 Census. The story generally is a happy one for the South and West, and a bit grim for parts of the Midwest and Northeast.

Between 1990 and 2000, the overall US population increased by 13.2%. However, the percentages ranged widely across the nation, from Nevada's 66.3% increase down to Washington, DC's loss of 5.7%.

Interestingly, the population changes show an unmistakable relationship to the rankings in the Small Business Survival Committee's Survival Index 2000, which attempts to measure and compare the public policy environment for entrepreneurship across the nation.

Of the top 15 states in terms of percentage increases in population from 1990 to 2000, 10 ranked in the top half of states on the Small Business Survival Index, while five ranked in the bottom half. In contrast, among the bottom 15 in population growth, only four ranked in the top half of the Index, while 11 ranked in the bottom half.

What does this tell us? Namely, that public policy matters. After all, the Small Business Survival Index ties together 16 different government-imposed or government-related costs for each state and the District of Columbia: top personal income tax rate, top capital gains tax rate on individuals, top corporate income tax rate, state and local property taxes, state and local sales taxes, death taxes, average unemployment tax rate, health insurance tax rate, electric utilities tax rate, workers' compensation costs, crime rate, state's right-to-work status, number of state and local government bureaucrats, state tax limitation status, Internet access tax, and gas taxes.

Clearly, these are major costs that influence people's decisions as to where they will live, work, invest, and start up or expand businesses. Of course, an infinite number of other factors influence such decisions, from weather to family life. But from a public policy standpoint, the question remains: Is big government a help or a hindrance?

Some key comparisons drive home the issue. For example, Nevada was number one in population growth from 1990 to 2000, and it also ranked second best on the Small Business Survival Index 2000. Meanwhile, the District of Columbia was last in population growth and last on the Small Business Survival Index.

Compare New York and Texas. In the 1990s, Texas surpassed New York to become the second most populous state in the nation. New York is a state imposing a hefty state and local tax burden, and ranks poorly on the Small Business Survival Index.

Meanwhile, Texas is a relatively low-tax state that imposes no personal income tax and rates fifth best on the Small Business Survival Index. Therefore, it should not be a surprise that Texas prospers while New York languishes.

California was once a high-growth state. However, taxes and other governmental costs generally have crept ever higher since at least the mid-1980s, and California does not rank well on the Small Business Survival Index.

At the same time, California's population growth from 1990 to 2000 only matched the US average. Interestingly, neighboring Nevada and Arizona, which impose far fewer burdens on taxpayers, were the top two percentage gainers in population from 1990 to 2000.

Of course, this same data has serious implications at the federal level as well, i.e., in terms of the breakdown in the US House of Representatives. Free market advocates, conservatives and Republicans should be particularly pleased with the shift that will occur in House seats.

The generally more conservative South and West will net a 10-seat gain, with losses coming from the far more liberal Northeast and Midwest. Wisconsin, Illinois, Michigan, Indiana, Ohio and Connecticut, along with Mississippi and Oklahoma, will all lose one seat each in the 2002 elections. Pennsylvania and New York will lose two House seats each.

Meanwhile, California, Nevada, Colorado, and North Carolina will each pick up a seat, with Arizona, Texas, Florida, and Georgia each gaining two seats. This shift also tips the Electoral College map in the same direction - away from generally more liberal parts of the nation in favor of generally more conservative areas.

So, at the state and local level, a key lesson to be learned from the first release of 2000 Census data is to keep the costs of government as low as possible. The most productive course of action is to slash or even eliminate some of the most burdensome taxes, such as income and capital gains levies.

At the federal level, let's hope that the declining influence of the liberal Northeast, for example, in Congress will translate into policies that are far friendlier to economic growth and entrepreneurship.

Raymond J. Keating is chief economist for the Small Business Survival Committee.