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[Note: This material is copyright by the Des Moines Register, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Des Moines Register.]

Forbes Magazine recently published a list of the largest privately held companies in the United States. I counted the number of businesses for each state and then ranked the states for the number of large, privately held businesses per million of population. Rhode Island (surprisingly) had the most large privately held businesses at 2.8 per million, followed by Wisconsin, Missouri, Nebraska and Idaho.

At the other end of the spectrum, Hawaii, Louisiana, New Mexico, both Dakotas, Vermont and Wyoming had none of the businesses. Iowa, with 1.3 businesses per million, was in the middle of the pack.

Would the states that are more tax-friendly have more large, privately held businesses? Not especially. The Tax Foundation ranks the 50 states on how "business friendly" their tax systems are. According to the report, "The worst state tax codes tend to have complex, multi-rate corporate and individual income taxes; above-average sales tax rates that don't exempt business-to-business purchases; complex, high-rate unemployment tax systems; and high effective property-tax rates, as well as a host of other wealth-based taxes."

Iowa ranked toward the bottom for worst state tax codes (42nd among the states). I ran a correlation analysis of number of businesses per million per state with the Tax Foundation's rankings. The correlation was a measly .108. In other words there was almost no relationship between how tax friendly a state is and the number of large, privately held businesses it has.

But perhaps tax-friendly is too narrow a specification. A more general measure of business friendliness is provided by the Small Business & Entrepreneurship Council. In addition to tax rates, the council considers such factors as health-insurance mandates, utility costs, crime rates and spending of state and local government. Iowa didn't fare well here either (41st). Again I did a correlation. This time the correlation was negative, i.e., there was a negative, albeit weak, relationship between supposed business friendliness and number of large, privately held businesses in the states.

So is there any ranking that is positively correlated with the location of large, privately-held businesses? Well, the Morgan Quitno Press publishes rankings of the most livable states. Forty-four positive and 25 negative factors are considered. In addition to various economic statistics, some of the factors used are crime rates, bankruptcy rates, pupil-teacher ratios, infant-mortality rates, poverty rates and books in public libraries. Iowa looked great in this ranking (third). The correlation here was a positive (though very weak) .161.

Conclusion: Perhaps tax rates and various handouts to businesses are not as important as we think. Just maybe, in attracting and keeping businesses, it is more important for states to maintain a high quality of life for their citizens.

Instead of worrying incessantly about our tax rates, perhaps we Iowans should focus on education, clean air and water, recreation facilities and vibrant cultural opportunities. Something for our leaders to think about.
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GARY L. MAYDEW is a retired accounting professor in the College of Business at Iowa State University.