The information age owes its beginnings to taxes. Blaise Pascal invented the first computer in 1642. It was a digital calculator—the Pascaline—that could add, subtract, multiply, and divide numbers up to five digits. While the Pascaline was not an immediate success, the invention inspired other inventors and was a crucial first step for the modern computer. Readers may appreciate that Pascal was a child prodigy (he invented the Pascaline at age 18) and one of the world’s all-time great mathematicians and physicists. But they many not appreciate why Pascal invented the computer. He developed his revolutionary device to help his dad, a French tax collector, run tax calculations. In a way, taxes launched the computer revolution.
Fast forward to 2014, and taxes once again motivated positive entrepreneurial change. This time, they helped motivate New Hampshire to launch Live Free and Start. No stranger to entrepreneurialism and information-based economics, New Hampshire is among the leading states in transitioning from an industrial to an innovative economy. New Hampshire’s entrepreneurial strength has helped grow the economy, create jobs, and raise the standard of living for all New Hampshire residents. It should come as no surprise that New Hampshire is at or near the top of a number of state entrepreneurship rankings (Box 1).
New Hampshire’s success is no accident. Entrepreneurial companies operate within a complex innovation system. When the business, government, and education sectors work together, good things occur. And this is where taxes return to our story. In 2014, Ross Gittell (Chancellor of the Community College System of New Hampshire) and I were asked by a group of business and legal experts to examine New Hampshire’s regulatory environment for startups. Startup formation and growth is particularly sensitive to the regulatory environment. Burdensome regulations that are nothing more than a nuisance to a large company can mean the difference between survival and bankruptcy for a startup. We issued our report in 2014 (initially in March, and an updated version in July) click here to download July report. During our research, we found problematic tax provisions—most notably New Hampshire’s infamous phantom gain tax—were among the most serious regulatory problems for startups. Following our report, Governor Hassan met with business executives throughout the state and formed Live Free and Start to support entrepreneurs and tackle tax and regulatory impediments to startup success. While Live Free and Start is about much more than taxes, tax concerns helped get things started.
Live Free and Start won’t revolutionize the world like the Pascaline, but it is helping improve New Hampshire’s startup community. On the legislative side, Live Free and Start worked with legislators and the Bureau of Securities Regulation to modernize New Hampshire’s Securities Act, worked with the legislature and the Secretary of State’s office to make it easier for businesses to register their names, and helped secure funding for New Hampshire’s business incubators. And let us not forget those pesky tax issues. In June this year, Governor Hassan signed into a law SB 342, which eliminated the phantom gain tax. SB 342 is among a number of tax law changes the state has implemented over the last few years to improve the regulatory environment for entrepreneurial companies.
Every one of these legislative initiatives has been bi-partisan and involved policymakers, entrepreneurs, and other stakeholders working together to improve the state. This collaborative relationship is key to New Hampshire’s future economic success, as it prepares our policymakers for the challenges that come from an innovative economy. By their nature, innovations push policy boundaries. Just think of the regulatory challenges drones have caused. Nimble states that can innovate policies and regulations to keep pace with entrepreneurs will be the most successful. New Hampshire is well positioned to thrive in that environment.