In the most recent quarterly Gallup Polling Small Business Index survey results, optimism among small business owners was at an all-time high. Although it is a national poll, North Carolina can learn some lessons from the results.
Hiring was the top concern
The most common concern for small business owners was hiring and retaining qualified workers. For North Carolina, this concern is likely to be fueled by the middle-skill job gap. The National Skills Coalition defines middle-skills jobs as those that require more than a high school diploma but less than a 4-year degree. In 2015, 55 percent of North Carolina’s jobs were middle-skill level, but only 44 percent of the state’s labor force have that level of training.
North State Journal Editor Donna King provided important context and policy implications of the issue in an April 2018 article. King wrote:
After the federal GI Bill was enacted in 1944, a belief emerged that the American dream included attending a four-year college. Generations of parents encouraged their children to join the white-collar workforce with a bachelor’s degree.
Community colleges became a second choice. But today, as the technical skills gap become more apparent and a four-year degree more costly, policymakers are focusing on the now-growing role of the state Community College System.”
This underscores the importance of North Carolina continuing to cultivate a trained workforce. As King mentioned, community colleges are an ideal place for this type of education. Career-focused or dual-enrollment trainings for high school students are another option.
The disconnect between the skills needed by employers and the skills being acquired by students and the workforce is exacerbated by massive government intervention in higher education, such as subsidies and government student loans. Rolling back such interventions would allow clearer signals and incentives for students to enroll in programs most valued by employers.
The state’s ability to foster small business development and growth may depend on its supply of appropriately-trained workers.
Fiscal and regulatory policies also matter
Behind hiring, taxes were the next most-cited concern by small business owners.
Most small businesses are taxed as “pass-through businesses,” meaning that the owners claim the business income on their personal income taxes. This means that most small business income in North Carolina is taxed at the income tax rate of 5.49 percent.
Compared to other states that levy income taxes, North Carolina’s income tax rate is at the middle of the pack. However, seven states have no income tax and two others only tax dividends and interest, according to the Tax Foundation. This puts North Carolina at a competitive disadvantage when trying to attract businesses. However, the state has made progress in the right direction; in 2006, the top personal income tax rate was 8.25 percent. If North Carolina passes the proposed constitutional amendment to lower the income tax cap to 7 percent, current and potential small business owners in the state will have the security that the rate will not get to the 2006 level again.
When the business owners’ concerns were grouped into categories, almost a quarter (24 percent) of small business owners say that government policies are the biggest concern for their business. This category included the concerns of taxes, regulations, trade wars or tariffs, and government in general.
These results remind us that businesses are not impartial machines. It can be tempting to think of “the market” or “the economy” as an inanimate object within public policy discussions. But it is important to keep in mind that the market is simply a collection of individual citizens – business owners, consumers, investors – who make decisions based on the information available to them. If state policymakers want to encourage the growth of small businesses, they should demonstrate the state’s commitment to deregulation, low taxes, and the free market.
Small business owners are keystone economic actors because their entrepreneurship creates jobs for others, perpetuating a cycle of economic growth. North Carolina should continue to send those individuals the signal that the state is committed to cultivating a qualified workforce and scaling back government intervention in the free market.
