by Dr. Lawrence J. McQuillan
Chief Economist
Last week I discussed
Illinois’ poor entrepreneurship rate compared to the nation as a whole.
Unfortunately, the results get worse when drilling down to Chicago. As the
graphic shows, Chicago has the worst entrepreneurship rate among the 15 largest
metropolitan areas in the country. Wait, I take that back: we’re tied at the
bottom with the post-apocalyptic wasteland known as Detroit. Chicago is tied
with Detroit. Let it sink in. It doesn’t get any worse than this.
The 2012 Kauffman Foundation entrepreneurship index
measures the percentage of adults ages 20 to 64 that start a new business each
month and work 15 or more hours per week. It’s essentially a measure of
entrepreneurs voting with their feet about where they want to pursue their
dreams. And they’re voting against Chicago.More people lived in Chicago in 1920 than today. There has
been a mass exodus from the city. Talented, creative and innovative people have
chosen to live elsewhere to start and grow businesses. That’s bad news. But worse
is that public policy is helping to drive entrepreneurs out.
In 2011, Illinois Gov. Pat Quinn signed the Main Street
Fairness Act that required out-of-state online retailers such as Amazon.com to
collect and remit sales taxes on purchases destined for Illinois if the online retailer had arrangements
with Illinois-based marketing affiliates. These are typically coupon or deal
websites, whose operators earn commissions for driving shopping traffic to an
online retailer.
To avoid triggering the sales tax, out-of-state online
retailers simply dropped their Illinois marketing affiliates, driving thousands
of Internet startup entrepreneurs, many in Chicagoland, either out of business
or out of state, some never to return again.
On the day the Illinois online sales tax was signed, Brad
Wilson, founder of BradsDeals.com, accurately predicted the tax would kill this
sector in Illinois: “Chicago doesn’t lead on the Internet in many things, but
this space is one of the things that we do, and the state should cherish that
and foster that. These are modern business models. They don’t require factories
or fixed investments. They require smart people. And you can find smart people
anywhere. They’re legislating (this industry) out of the state.”
Brad was right. Quinn’s online sales tax stopped this
emerging sector in its tracks. The small, up-and-coming Internet
entrepreneurs got hammered by their own Illinois government. Overnight, the
state became less competitive in e-commerce, the future of business,
communications and entertainment.
In 2011, Quinn also orchestrated a 67 percent increase in
the state’s personal income tax. And Chicago Mayor Rahm Emanuel is wrestling
with public employees and the state legislature over the city’s $20 billion pension
crisis. People correctly see this crisis as a ticking time bomb of future tax hikes,
which drives entrepreneurs away.
What does Quinn propose to Chicago’s entrepreneurs in the
face of these big macro problems of overtaxing and overpromising? Bold tax and
pension reform? Speaking to HuffPost, Quinn said he wants
to spend more state money on “ultra-high-speed” Internet throughout Illinois. This
is exactly the approach that has been proven to be unnecessary.
Today Texas is known for innovation and international trade.
It wasn’t long ago that Texas was known for cattle, dust and tumbleweeds. Chicago
might be known for these same things soon if city and state lawmakers don’t go
bold and repeal the online sales tax, repeal the income tax hike, adopt a sensible
401(k) system for public employees and cut government red tape to start new
businesses.
The “rendezvous with reality” is now. Time to go bold Messrs.
Quinn and Emanuel.
