Illinois’ economic policy problems are many, but the policy solutions fit into three categories of reform: permission, friction and preparation policies.
Permission policies include all the steps that stand between an entrepreneur with a new idea and the business embodiment of that idea: licenses, permits, inspections, regulations, taxes and incorporation. Friction policies include all the unnecessary and unfair irritants that can wear entrepreneurs down over time. Finally, preparation policies address the education of people for careers across the spectrum, from building trades to service workers to assemblers to CEOs.
Policies that are unfair to small businesses are unfair to workers who need jobs. Politicians who want Illinois to maximize its economic growth and job creation should adopt the mindset of an entrepreneur and take a close look at the policies that trip up small businesses on their path to success. Hindering the success of Illinois’ small-business community with bad policies diminishes the rewarding job opportunities Illinoisans desperately need.
A bulk of job creation comes from new enterprises that are growing and expanding in their first five years. These critical years can make or break a business. These are also the years when businesses can unleash the type of job creation that lifts incomes and opportunities, and builds the middle class.
Illinois must foster an environment in which budding businesses can thrive. Here’s how.
Permission policies
Starting a business in Illinois can be painful, but it doesn’t need to be that way.
In the city of Chicago, a new professional-services business will wait 32 days just to get a business license, which is only one step in the complex process of starting a business. This wait time is four times longer than in New York, the next-worst city for start-up wait times.
Phoenix, Arizona, on the other hand, recently became America’s first 24-hour city. Phoenix Councilman Sal DiCiccio spearheaded a regulatory revolution that gets permitting, regulation, inspections and site planning done in 24 hours for most new businesses in Phoenix. If Chicago embraced this type of reform, it could serve as a major economic stimulus for the city, which would also eliminate layers of cronyism, abuse and aldermanic privilege overnight.
This gets to the crux of permission policies: How difficult is it to get to “yes”? The Illinois Policy Institute’s Legislative Agenda for Entrepreneurs tackles several of these issues that affect entrepreneurs, including limited-liability-company fees, corporate franchise taxes, death taxes and burdensome occupational licensing for low-income occupations.
Illinois municipalities should take on revolutionary regulatory reforms such as Phoenix’s and should also make municipal zoning codes more flexible. State regulatory bodies could integrate these reforms, too, and all levels of government throughout the state should expedite business requests.
Friction policies
Consider the entrepreneur who has survived the start-up process and is getting ready to grow and hire. At this point, a new set of hurdles and irritants pops up that can block the path to success. These policies, which cause unnecessary friction, further hold back the state’s economic growth and job creation.
Some examples of this come from the manufacturing industry, and are a part of the Illinois Policy Institute’s Legislative Agenda for Manufacturing and Industry. A manufacturer is hit with a multitude of taxes, fees and regulatory costs before it makes its first dollar. Illinois’ out-of-control property taxes impose major costs on manufacturers and other industries that require a lot of property, as do sales taxes on input parts. When a business buys a service, such as strategy consulting, to help it make its product, there is no tax on that service. But when a business purchases a physical good, such as steel, to make its product, there is a tax on that good. Property taxes should be capped and lowered, and sales taxes for business inputs, such as steel and machines, should be eliminated. Sales taxes should only be levied on final retail sales.
Other major regulatory costs include Illinois’ broken workers’ compensation system, the state’s costly unemployment insurance program, and Illinois’ forced unionization. A closer look at individual industries reveals many other regulations that create unnecessary friction among the entrepreneur, workers, the government and regulators.
Preparation policies
After businesses have borne the burden of permission and friction policies, they must be able to hire qualified workers. But the state’s education system is not preparing high-school graduates for work. It’s no secret that workers’ compensation and property taxes are extremely costly and can even drive manufacturers out of the state. But too many of those who keep their businesses in Illinois struggle to find qualified and prepared workers. Illinois’ bureaucrat-driven education system is not responding to the needs of the marketplace.
The Illinois Policy Institute supports school choice, especially for students in Illinois’ worst-performing schools. But the concept can be broadened. Too often, the focus of high school is preparation for college, even if the vast majority of students in a specific area don’t go to college. Illinois should allow more start-up schools to offer specific programs to prepare students for immediate employment in technology, manufacturing, trades, transportation, agriculture and Illinois’ other blue-collar industries. The schools can partner with local businesses and labor to help teach high-school students skills that will put them on the job as soon as they leave the classroom. Creating jobs is much easier when there are qualified and adaptable workers who can fill open spots. College is a sound plan for many Illinois students, but it should not be the only pathway to success.
Healing Illinois’ economy will take time, and related reforms, such as fixing government-worker pension systems, will be needed in order to control the state’s tax burden. But there’s no reason to wait to reform permission, friction and preparation policies. Now is the time for Illinois’ policy leaders to prepare for a brighter and more prosperous future for workers across all income levels and skill sets.
Michael Lucci is Director of Jobs and Growth for the Illinois Policy Institute.