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Small Businesses Don't Choose Low-Tax States

Small Businesses Don't Choose Low-Tax States
Illustration by 731 Lexington, Photo: Comstock/Getty Images

State lawmakers often argue that their tax policies for small businesses need to be more favorable than those in other states. A mellow tax regime, the argument goes, will attract entrepreneurs from other states, enhancing employment and economic growth within the state.

That oft-repeated bit of political theater ignores a basic reality: State taxes do little to influence where entrepreneurs choose to operate. That’s because no state has the “best” tax policy for all entrepreneurs. Rather, different states have tax policies that suit certain types of companies.