If you’re a small business, it’s not the taxes that will get you; it’s the regulations. The Economist has an excellent piece looking at the role barriers-to-entry play in suppressing entrepreneurial energy and creativity. Particularly bad are licensing rules that make it harder and more expensive for an American to start offering even basic services:
Licensing rules are a headache. In theory, they protect the public from incompetence, which is useful if you are hiring a doctor. But increasingly they protect incumbents from competition—the requirement to have a licence raises an occupation’s wages by 18%, according to Morris Kleiner and Alan Krueger, two economists. In the 1950s less than 5% of workers required state licences; now 35% do. […]Lowering barriers to entry for new businesses gives consumers more choice and cheaper prices. A gourmet-food-truck fad began in Los Angeles with $2 Korean tacos in 2008, and has thrived because the city is flexible about where such trucks can park. By contrast, Chicago forbids food trucks from operating within 200 feet of a bricks-and-mortar restaurant, and requires them to have a GPS to ensure compliance, which makes life very hard for them in the downtown business district.
The Economist argues that states should loosen these regulations as much as they can while still guarding public safety. This is exactly the right approach to take, and not only because these regulations are suppressing jobs and excluding willing workers in the here and now. It’s also right because the kinds of jobs most adversely affected by licensing requirements are service related: Food providers, hair dressers, even florists are all required to get licenses even though your average American doesn’t care if his florist is government approved. These jobs, in which people compete to provide better and cheaper services, are likely to be an increasingly important sector of our economy. Unnecessary licensing requirements will only slow the transition to a heavy service economy when we should be doing everything we can to grease its wheels.