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Business Red Tape: Is the Real Problem Local, Not Federal?

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There's been plenty of griping on this blog about what the federal government is or isn't doing to help small businesses grow. But maybe we've been pointing the finger in the wrong place.

What if the problem is really closer to home?

This week, the nonprofit Institute for Justice in Virginia released a series of studies of business conditions in eight major cities, including Chicago, L.A. and Washington, D.C.

Their findings are summed up in the entertaining video below:

In essence, the growing complexity of local and state laws about how and whether you can operate a particular type of business in a particular place are choking the life out of small business.

"If the nation is looking to the federal government to create jobs in America, it is looking in the wrong place," says Chip Mellor, president and general counsel at the Institute for Justice, which fights overly burdensome bureaucracy in the courts. "If we want to grow our economy, we must remove government-imposed barriers to honest enterprise at the city and state levels."

For instance, IJ reports, in Miami, jobs are hard to come by. That may be in part because the city's paperwork burden is onerous. Miami has many industry-specific regulations and many business types such as cosmetology or interior design can require an occupational license you can only obtain with years of costly training.

In Philadelphia, a complex and confusing business-tax code stymies innovation. It is also flat-out illegal to run a business from your home.

By contrast, in Houston, the city doesn't have a zoning ordinance or a general business license requirement. Landscapers, handymen, beauticians and moving companies are all unlicensed businesses. Result? The city is now home to 23 Fortune 500 companies -- only New York City has more.

I have some personal experience with local red tape, as my husband was interested in opening a used-car lot or becoming a private car-sales broker in the Seattle-area neighborhood where we live. We discovered this was an impossible dream. Zoning specifically prohibited having a car lot. He could not have a home office as a broker, even if all he did was go out and meet with clients in their homes -- he'd have to rent an office. He gave up.

Federal stimulus can only do so much if it's impossible for small businesses to operate profitably due to red tape, or even to get their doors open.

How does your city and state rate for business red tape? Have they made it easy to be in business, or hard? Leave a comment and let us know.

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