Kansas Secretary of State Kris Kobach reports new business filings set another record in 2016. There were 18,147 new domestic business filings last year and the total number of entities in existence also set another record at 187,305. The number of entities in existence does not include proprietorships.
It’s noteworthy that both the number of new filings and total entities in existence has grown much faster since tax relief was passed in 2012.
Setting a record for new business filings is much more important than mere ‘bragging rights.’ As explained in A Thousand Flowers Blooming – Understanding Job Growth and the Kansas Tax Reforms, “Job growth is critically dependent on new business formation. Several studies have found that start-ups and young firms drive overall job creation.[i] A key academic study found that “firm births contributed substantially to both gross and net job creation.”[ii] To see how this has played out over time in Kansas, [the chart below] shows the trend of total job creation and jobs created excluding those created by new establishments from 1977 through 2014, the most current data available from the Census Bureau.
Census defines an establishment as “a single physical location where business is conducted or where services or industrial operations are performed;” they define a firm as “a business organization consisting of one or more domestic establishments that were specified under common ownership or control, with the firm and the establishment being the same for single-establishment firms.” For example, new establishments could be a new bio-tech startup, a proprietor opening a new restaurant or even a new Walmart location. In Kansas, with the exception of 1979 and 1984, the total number of jobs created would actually have been negative if not for the job creation from new establishments.”
Good news from last year must be tempered with extreme caution going forward, however. Legislative efforts to repeal the exemption on pass-through income for small business and significantly increase income taxes on individuals will likely derail business formation and negatively impact the economy. Some of the jobs from new establishments come from C-Corporations but given the recent disparate growth for pass-through jobs and the record number of new business filings from Kansans, it’s reasonable to expect that pass-through business filings and employment will be negatively impacted.
Tax increases aren’t necessary and public opinion is overwhelming opposed, but so far, many legislators in both parties seem determined to raise taxes so that government can continue to be inefficient and set new spending records.
[i] For a review of this literature, see Stephen J. Davis, John Haltiwanger, and Ron Jarmin, “Turmoil and Growth: Young Businesses, Economic Churning, and Productivity Gains,” Ewing Marion Kauffman Foundation, June 2008, available at: http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2008/06/turmoilandgrowth060208.pdf
[ii] John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Who Creates Jobs? Small Versus Large Versus Young,” The Review of Economics and Statistics, Vol. XCV, No. 2, May 2013, available at: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00288