The SBEC report also faces disagreement from one of the very experts it cites. To support his index's assumption that small businesses will thrive in states with low taxes, SBEC chief economist Raymond J. Keating (not a Ph.D.) cited work co-authored by Donald Bruce (a Ph.D.) that found decreases in marginal tax rates "might lead to increases in entrepreneurial entry and better chances of survival" (Bruce and Gurley, 2005, p. 24). Ignored by Mr. Keating is Dr. Bruce's finding in the same paper that "higher average tax rates on entrepreneurship income might actually increase the probability of entry" (p. 24).
Keating also ignores a November 2006 paper co-authored by Dr. Bruce with John Deskins for the Small Business Administration Office of Advocacy ("State Tax Policy and Entrepreneurial Activity"). To the good for Keating and the SBEC, Bruce and Deskins conclude that "Higher top tax rates on individual income, higher sales tax rates, and the existence of state-level inheritance or gift taxes all tend to slightly reduce a state’s share of the national entrepreneurial stock" (p. 2). They also find an apparent negative correlation between larger state and local governments and entrepreneurial activity (p. 22).
But Bruce and Deskins also knock at least a couple legs out from under the assumptions of Keating's index:
- "...top marginal state tax rates on corporate and individual income do not have statistically significant effects on state entrepreneurship rates..." (p. 2).
- "...states with higher sales tax rates tend to have higher entrepreneurship rates" (p. 2).
- "The composition of state tax portfolios is generally not a significant determinant of state
entrepreneurship rates" (p. 2).
- "States with more progressive personal income taxes have slightly higher entrepreneurship rates" (p. 4).
- "...taxes have statistically significant but very small and scattered effects on entrepreneurship rates. Consequently, they are likely to be ineffective in generating desired changes in entrepreneurial activity" (pp. 5–6).
Bruce and Deskins's work shows the fatal flaw in Keating's report. The "Small Business Survival Index" does not measure the actual survival of small businesses; it advocates a specific anti-tax agenda which research shows does not have a big impact on small business activity.
In other words, Keating and the SBEC are more concerned with ideology than with what really works.