Make New York A Small Biz Mecca
City taxes and regulations are putting a huge burden on growing enterprises
New York, like any city, needs entrepreneurship to survive. As old businesses become obsolete, startups must replace them, or employment will wither. If a particular industry brings vast wealth to a city, real estate costs can soar, allowing the local government to overtax and overregulate complacently — and driving out the scrappy entrepreneurs who will build the economy of the future.
That’s exactly what happened in Detroit. If the current crop of mayoral hopefuls don’t want it to happen in New York, too, they must understand that cumbersome regulations and high taxes are discouraging too many of the entrepreneurs the city needs.
Sure, there are some success stories in the tech sector and elsewhere. But in a recent Zogby poll of New Yorkers carried out for the Manhattan Institute, 65% of respondents thought that the city administration wasn’t doing enough to encourage entrepreneurs and small businesses to increase their presence and hiring, and 67% considered “the current environment for the growth and development of small business in New York City” poor or fair.
These barriers to starting a business are a major problem facing the next mayor.
New York’s economy today is dominated by relatively large firms. The average establishment in Manhattan is 25% larger than in the nation as a whole. The city’s most important industrial cluster is finance and insurance, which is responsible for 39% of the payroll in New York County. Finance is famously led by firms that the federal government considers too big to fail.
Given the enormous barriers that confront small businesses here, it’s amazing that the city has as many as it does. If you want, say, to open a goods-producing facility in the Big Apple, you’ll need at least 10 permits, including a certificate of occupancy and a Fire Department-issued Place of Assembly Permit.
Your drivers will need special commercial driver’s licenses from the city; your van will need a city parking card. Any modifications that you make to your building will need a barrage of permits, and expect a bigger barrage if your business is located in one of the city’s many historic districts.
Those are just the local rules, of course; you’ll also have to deal with state and federal regulations. Plan to file a 1099 form with the IRS for every vendor you pay more than $600, for example.
Another obstacle to business formation in New York City is city and state corporate taxes. The state’s 8.63% corporate tax is slightly lower than what’s charged by some of its neighbors, such as New Jersey and Pennsylvania, but substantially higher than in many other states.
And New York City, unlike most American cities, adds its own corporate income-tax rate of 8.85% to the state’s levy. The financial firms that thrive in Manhattan may find ways to credit their income to other locations, but a small business with its sole office in the city doesn’t have that luxury.
Real regulatory reform would do wonders to foster small-business growth in New York. The mayoral hopefuls should commit to a system in which just one business-permitting authority — or, at most, two — imposes the rules. Such a system would include a one-stop shop for opening a new business, one that makes speed a priority. And the rules must be reevaluated. Since 1993, federal regulations proposed by the executive branch have had to be subjected to cost-benefit analysis, a process overseen by the Office of Information and Regulatory Affairs. More recently, the office has been applying cost-benefit analysis to existing rules as well.
The next mayor should follow the feds’ example, forming a special office of regulatory affairs charged with vetting new rules and examining old ones.
Reducing the city’s onerous corporate taxes is harder than fixing the regulatory burden, because providing public services in an old, vast city will always be expensive.
But economists say that a locality shouldn’t focus its taxes on mobile targets, such as entrepreneurs, since taxation encourages them to move elsewhere. It makes more sense to focus on things that can’t move, such as land; New York should do more to shift taxes from small businesses to landowners.
The New York economy has done well during the Bloomberg era, but the city’s apparent health can itself become a danger, since the next mayor may not see much need to limit spending growth or cut back regulations.
The city needs to recognize that an entrepreneurial ecosystem is fragile. New York’s future success isn’t a sure thing — but the best way to foster it is to make life easier for entrepreneurs, the key to urban vitality.
This piece originally appeared in New York Daily News
This piece originally appeared in New York Daily News