Washington state fares well in early stimulus projects, Michigan not so much

June 2, 2009 in Blog

Last week USA Today published an enlightening interactive map breaking down the first round of stimulus money by state and ranking each state by stimulus money received per capita -- essentially, how much money did each state receive per person.

Overall, Washington state ranked second in the per capita ranking -- we also ranked first in money received from the feds so far ($1.4+ billion). This is interesting because Washington state is nowhere near the largest, and probably most neediest state. Even if our unemployment rate is at an alarming 9.1%, there are other states in the double digits (our neighbor to the south is a healthy 12%, Michigan at about 13%). That being said, I am still weary that the "stimulus package" will stimulate anything more than discussion.

But one of the keys to supposedly stimulating the economy is that the $787 billion package is sp!
ent quickly. If higher government spending is the key to getting us back on track, the money has to actually get into the economy, and fast. But the Obama administration has only doled out $4 billion nationally, according to USA Today:

"Nationwide, federal agencies have awarded nearly $4 billion in contracts to help jump-start the economy since President Obama signed the massive stimulus package in February. But, with few exceptions, that money has not reached states where the unemployment rate is highest..."

In other words, only one half of one percent has made it into the economy. And this infamous CBO analysis from February also shows that the largest chunks of the stimulus package are a year or two away from hitting the economy.

At least Washington is ahead of the curve. The same thing certainly can't be said!
about Michigan (unless, of course, you count the auto bailout!
s, which have worked great so far!).

Lastly, if you want to see where the federal stimulus money will end up in Washington by county, the ever-evolving has another nifty interactive map that breaks it down.

Wrapping up the 2009 Legislative Session - Small Business Style

May 21, 2009 in Blog

When the Governor signed the budget bills yesterday, she wrapped up the work of the '09 Legislative Session. How did the business community fair? Not bad, considering all the proposals that were in the works.

At the onset of the session I, among many others, were fairly certain that we would see the Legislature push through pretty large tax increases to help shore up the $9 billion budget shortfall. Things came very close there towards the end with the proposed sales tax increase dying in the last stages of the session, and the high-income tax also falling by the wayside. However, there are about $300 million in new "fees" that the business community and citizens will have to fork over during the next biennium (see more on the fees).

For small businesses, there were some baby steps toward improving the!
business climate. SB 5042 will provide a waiver of penalties for small businesses that incur paperwork violations for the first time. Again, baby steps but a step in the right direction. I was encouraged, however, that so many of WPC-type regulatory reform ideas were introduced as legislation (e.g. executive sign-off on agency rulemaking, increasing legislative oversight of rulemaking activities, sunset provisions, and more). As Session progressed and economic stimulus became one of the top issues, WPC asked instead for a "de-regulatory stimulus package." Let's make Washington's morose regulatory climate a little easier for businesses to understand and therefor encourage more entrepreneurs to make that leap into small businesshood.

During the interim the Center for Small Business will continue!
to ascertain what the new rules and regulations mean for small businesses. We are also working on finalizing plans for the 2009 Statewide Small Business Conference, to be held in the Fall. This Conference will also address what happened this year and look ahead to the 2010 Legislative Session and let small business owners contribute their own thoughts and recommendations to the policy process. After all, if, as a small business owner, you are not involved in the policy process, you'll likely be unhappy with the results.

Is the economic downturn leveling off?

May 19, 2009 in Blog

Today's Unemployment Level report from the Employment Security Department (ESD) may give some hope to economists whose job it is to prognosticate on the health and well being of Washington's economy. The unemployment rate in April remained essentially unchanged with March's rate (both at 9.1%).

This is good news in that for the first time in almost 15 months the unemployment level did not get worse (it did not technically get better, but a tie is a win in this situation).  Consider that a year ago the unemployment rate in the state was 4.9%, so we are still almost double where we were not too long ago. Obviously, not everything is smiles and champagne. And there are still many serious concerns with the lack of credit for businesses, as well as no s!
ign in the construction industry
that things are turning around soon.

However, even the state's chief economist, Dr. Arun Raha, seems cautiously optimistic. Listen to his remarks yesterday on KUOW.

Tech Policy Summit Will Address Innovation vs. Regulations

May 8, 2009 in Blog

TPSlogo This coming Monday, May 11th, marks the opening of the 3rd Annual Tech Policy Summit. This years' Summit will consist of panels on everything from broadband innovation to federal stimulus funding for technology infrastructure as well as the future of Internet regulation.

You might ask yourself why a free-market think tank cares about this issue. Well, if you are reading this blog then you may be affected by In!
ternet or telecommunication regulations being debated both nationally and in Washington state. How we access information, how this information is regulated and the convergence of technological innovation and government intervention will play a massive role in determining our society's future -- both from a social (Facebook, etc.) and commercial (Amazon, etc.) aspect. Personal technology and access to that technology has revolutionized how our society functions, brings a new level to government transparency, and it is important we do not lose sight of the potential for even greater growth. Innovation remains the key.

I'll be attending the conference, this year held in San Mateo and blogging about the forums. You can also follow me via Twitter at: @carlgipson, or #tps09.

Texas House passes bill to help small businesses

May 6, 2009 in Blog

There aren't too many states with a gross receipts tax system like Washington's Business and Occupation tax (B&O). But Texas has what is called a "margins tax" that functions somewhat similarly. The Texas margins tax is not an exact apples-to-apples comparison with the B&O tax but it levies a tax on gross receipts that is based upon taxing the value added -- so in reality it is much more like a Value Added Tax (VAT). Unlike Washington, Texas companies can deduct the cost of goods purchased, as well as the cost of employee payroll and benefits. 

Similarly to Washington, there is an exemption level. Businesses in Texas with less than $300,000 in total revenue are exempt from paying the margins tax. In Washington state the exemption level is just $28,000.

Yesterday the Texas House of Representatives unanimously passed a !
temporary exemption that, if the Senate concurs, will raise the $300,000 exemption to $1 million during the 2010-2011 biennium. Businesses with under $1 million in total revenue won't have to pay the 1% margins tax (0.5% for retailers/wholesalers). This tax cut would cost the state of Texas $172 million during the next biennium but would not bind future legislatures since the provision sunsets. The tax break is estimated to save 39,000 small businesses on average over $4,300 each.

WPC has long advocated for raising the B&O exemption, particularly for new businesses (read our B&O recommendations). Responsible tax policy means a low tax rate spread across a large tax base, so I'm inclined to perhaps change the Texas proposal towards new businesses. Why? How do we extend the tax base? By encouraging investment and lowering the cost bar!
riers to enter the market. Let's make our state a great st!
ate for new and small businesses by keeping the tax/regulatory cost down for the first few years. It might be a small step but it would be the correct one.

Maybe legislators should take their policy cues from national magazines after all...

April 17, 2009 in Blog

Seattle_Metros_logo Since it is all the rage these days to through out rankings based on what national magazines say (especially Forbes) about ourbusiness climate as justification for policies that usually make running a business in this state more expensive, I say, we might as well expand this trend to other areas.

In what is incorrectly going to headline today's "In Some Lighter News" category (this is serious stuff people) Forbes re!
leased another set of rankings this week, "America's Most Miserable Sports Cities, 2009." 

The winner? Seattle.

Forbes says that the loss of the Sonics put Seattle over the edge to gain this year's award. But not to worry, the Seahawk's 2006 Super Bowl tragedy, the Mariners lack of a World Series appearance, and only one national championship to speak of (1979 - Sonics) also contributed. We even beat out Cleveland, which is saying something.

But once again, I must point out the shortcomings of the Forbes ranking. Seattle actually has another national championship to its name -- that of the 1917 Seattle Metropolitans' Stanley Cup victory. It was the first time an American team had won the St!
anley Cup. Of course, seven years later the team folded. Come !
to think of it, the Seattle Pilots baseball team also left town in 1970. Perhaps there's a pattern here.

It seems that Forbes got this ranking correct. (sigh)

Business tax rankings: WA does really well in areas it doesn't tax (yet)

April 16, 2009 in Blog

As some policymakers continue to push for "revenue enhancements" to shore up the state's $9 billion budget deficit, some are oft to quote studies showing Washington's pro-business climate in order to justify said "revenue enhancements (tax increases)". 

Get ready for another round of citations because this week the Small Business & Entrepreneurship Council released its "Business Tax Index 2009: Best to Worst State Tax Systems for Entrepreneurship and Small Business."

Their study ranks Washingt!
on as the 4th best place for small businesses viz a viz tax systems. This is a one place improvement over 2008. 

While I do think the world of the SBE Council, for years we have had issues with the way they weight their index. I've blogged on their methodology before but here's a quick summary:

Washington ranks very well in the rankings where there essentially is no data. We rank 1st in personal and corporate income taxes becau!
se we do not have them
. We rank 1st in capital gains tax rates because we do not have them. We are in the middle of the pack for property tax rates. We are second-to-last in state, local sales, gross receipts, and excise taxes. We are 44th in adjusted unemployment taxes. Second-to-last in gas taxes. 

Basically, we are overweighted towards a high ranking because Washington is unable to be ranked in so many of the criteria. And when we can contribute data to the study, we rank pretty low.

So as poli!
cymakers pitch a sales tax increase and while pointing to this study as reason why businesses should be able to "handle it", they are forgetting that we are already ranked second-to-last in the sales and gross receipts tax column. Maybe they are trying to shoot the moon. I think this is one reason why the business community, and a lot of other folks, are nervous about letting the state establish new avenue of taxation. Washington ranks very well in the SBE Council study in the areas where we don't tax, but pretty awful in the areas we do tax.
Perhaps its just a matter of trust

But this same group apparently doesn't think so great of us when it comes to health care for small businesses. It ranked Washington second-to-last on its "Health Care Policy Cost Index." 

Federal effective tax rates average 20% for small businesses

April 15, 2009 in Blog

A new report out from the Small Business Administration reveals the effective tax rates for small businesses when it comes to federal income taxes. Average rates range from 13.3% for small sole proprietorships to 27% for small S corporations. And remember, the effective tax rate is the actual amount of taxes paid by a firm as a percent of its net income. This is important because these rates reflect the statutory benefits aimed at lowering a business' tax liability. In essence, the 13-27% is lower than what the rate would otherwise be without legislative deductions, exemptions, credits, et al.

And keep in mind that the SBA defines a small business as a firm with less than 500 employees. In my mind, a firm with 499 employees is a pretty large enterprise. I do appreciate that the state government defines a small business as one with 20 or fewer wo!
rkers and earn less than $3 million or less in annual gross income. 

As the economic downturn interminably lags on, the importance of supporting small businesses is more important than ever. Looking at data from the last recession in the early 2000s (granted a different type of slowdown, but a strong one nonetheless), sole proprietorships and LLCs see strong growth during the downturn. Even going back to the early 1990s recession -- and before LLCs were available in Washington -- sole proprietorships skyrocketed while corporation registrations floundered. This also happened during the recession of the early 80s.

When unemployment takes off during a recession, budding entrepreneurs who have been laid off are almost forced to finally start that small business they have been thinking about for so long. In fact, according to the t="_blank">census bureau, during the 2001-2002 period, firms with between 1-4 employees saw a 14% increase in employment while firms with 5 or more employees saw an average employment percentage decrease of 5.3%. As the economy turned around over the next few years, and the unemployment rate improved, some of those small business owners went back into the fold of a large employer and steady paycheck.

Policymakers on both the state and federal side should recognize that right now there are a lot of laid off workers who are also budding entrepreneurs looking for their next opportunity. Washington's unemployment rate for March is now a startling 9.2% and is forecasted to get worse over the next year. The Small Business Survival a> report linked to earlier also mentions that, even with Washington's supposedly friendly small business climate, "Washington businesses pay a higher initial share of taxes than individuals compared to other states."

So, as policymakers in Olympia debate what (not if) kind of tax increases should be leveled on businesses, they should remember that any kind of tax increase will come on top of the 13-27% federal income tax.

Technology Tax Creep -- Washington State Style

April 14, 2009 in Blog

Ok, so apparently playing off of yesterday's posting about the New York Post's story on new wireless taxes and fees for New Yorkers, lawmakers today introduced HB 2351, which would raise the e-911 fee for wireline communications. The fee would raise the current county tax from $0.50 to $0.70 and the city tax from $0.20 to $0.25. This would result in an extra $3.25 per year in fees (about $11.40 total) and represents a 40% increase from current levels. This fee would go largely towards funding new equipment to handle newer communications technology. But every year the rate would be adjusted based on the state's "enhanced 911 coordinator." So don't expect the fee to go down.

But there's a catch and one I a!
m going to need some follow-up on. This fee will be extended to VoIP (Voice over Internet Protocol) phones, which were previously exempt. This is a big change. As I've pointed out in the past, people are fleeing traditional wireline telephones as if the old phones were covered in the ebola virus. 

Mostly, consumers are dropping their wireline service for a cell-phone only plan because the barrier to entry on cell phones is so ridiculously cheap. (Seriously, how many people above the age of 18 do you know that do not own a cell phone?) Recapturing some of this lost revenue is one of the reasons for this bill.

But people have been taking advantage of the cheaper VoIP options as well, largely because VoIP services are also inexpensive and allow you to call pretty much anywhere in the U.S. for one low price. And because VoIP c!
urrently is regulated by the FCC and not the state's Utili!
ties and Transportation Commission, it can be offered in the bundling packages from cable and phone providers for a further discount.

So here's my question. What about non-stationary VoIP services? Specifically, services such as Skype? A Skype Pro subscription lets you use your computer as a phone and so all you need is an internet connection and I can call anyone and anyone can call me. Skype does say that it is not, and cannot, be used for emergency purposes, so I am guessing that Skype-type VoIP services are exempt, whereas Comcast/Verizon/Qwest VoIP subscribers will have to pay.

As a subscriber to both Skype and a traditional VoIP service, will I have to pay twice?

State unemployment rate now 9.2%

April 14, 2009 in Blog

The state's Employment Security Department released March unemployment rate numbers for Washington this morning. The rate is now 9.2%. This is almost a ten percent rise above February's 8.4%. The federal unemployment rate for the month of March was 8.5%. 

It is important to remember that unemployment rate numbers are a lagging economic indicator -- meaning this is a look backwards to assess the past month in regards to job levels. There are other economic indicators that are more forward looking (ala stock market, construction permit levels, etc.).

Earlier this year, Washington state Economic and Forecast Council director Arun Raha indicated that he expects the unemployment rate to top out around 10% in 2010. This is despite the fact that some areas of the economy see!
m to be bottoming out. Even if the economy "turns around" in 2009 3rd quarter, don't be surprised to see a continuation of jobs lost.

The U.S. economy has lost just over 5.1 million jobs since it's December 2007 peak. Washington's nonfarm payroll has declined by almost 100,000 jobs since March 2008.
According to the ESD release, practically every sector of the economy lost jobs. The construction industry was hit hardest; accounting for half the job losses in the goods-producing industry and March marked the 14th consecutive month with employment declines in this sector. The financial services industry also was hit very hard, losing 9,000 jobs. Professional and business services shed 16,100 jobs. 
But government reflected year-over-year growth of 4,400 job!
s. The federal government expanded by 1,600 jobs, state govern!
ment by 1,100 jobs and local employment by 1,700 jobs. 
Back in March 2008, Washington's unemployment rate was 4.8%. Today's numbers represent a 92% increase. 

Paid Family Leave to be Officially Delayed?

April 13, 2009 in Blog

That looks to be the case. Senate Bill 6158 delays the system implementation date from October 1, 2009 to October 1, 2012. It is evident the legislature recognizes the financial difficulty the state is in and that piling another expensive government benefit on top of everything would be irresponsible.

But by simply delaying for three years its implementation, policymakers are gambling the state and national economy will have turned around enough that no one will notice this potential payroll tax. Chances are good that the "Great Recession" will be a blip in our rearview mirror -- and besides, there's always less resistance to expanding government when times are good.

We'd rather see it permanently go away -- to be handled by companies on their own -- but at least there seems to be an acknowledgement that new and expansive government !
programs have a direct cost on citizens and therefore should be avoided when times are tough.

Technology tax creep

April 13, 2009 in Blog

A New York Post story hit the news today about how wireless phone subscribers are paying up to 33 percent in federal, state and city levies. 

But this isn't news to the 260+ million wireless subscribers in the United States. Every month we get our bill and see the "government fees and taxes" section and have no idea what, if anything, that money goes towards. We simply shrug our shoulders and write out the checks.

Which is exactly what they want you to do.

A tax analyst the Post used to look at the information hit the nail on the head:

"There's a tendency to feel no one is going to notice this little tax...[policymakers] can do this without a lot of pushback from their constitu!

A report from 2007, published by the Beacon Hill Institute and the Heartland Institute, breaks down which cities have the highest taxes and fees on communications services. Seattle ranked competitively in the "Cable Video Services," and "Wireline Telephone Service" categories. But Seattle's "Wireless Telephone Service" tax rate greatly surpassed the national average. In fact, Seattle's ranking was 5th worst in the nation at a hefty 18.29% (national average: 11.78%).

As policymakers on all levels of government look to raise revenue to deal with their overspending and down economy, watch your communications services. I know I am not the only one who notices slight upticks in taxes and fees every couple of months on my cell phone, cable TV or broadband cable bills. It's often so slight that you wo!
nder if your brain isn't playing tricks on you.


But your brain is perfectly fine. 

Who's your daddy?

April 9, 2009 in Blog

There's no question that our state legislators work very hard. And during the long session (105-day) I know that things can get a little testy. Exhaustion can lead to making poor decisions. And so I'm willing to laugh a bit at some ideas I think are done in jest. 

But that doesn't mean I am not concerned about the precedent legislators are setting.

The latest example of this comes from HB 2337, which basically takes Boeing to task for wanting a better business climate for itself and its second 787 line, otherwise it is considering leaving to greener pastures.

The bill lists several national rankings that put Washington near the top of states with the best business climate. We've largely!
debunked these rankings in the past
. And the legislation goes on to direct the soon-to-be-formed state Depart of Commerce to:

"consider the societal benefits of unleashing the innovative, creative and entrepreneurial talents of the Washington state workforce to 'innovate here' through...the aerospace industry."

That sounds all well and good, despite the fact that it assumes the private sector isn't already doing just that. The legislation also directs Commerce to conduct a worldwide search for potential aerospace investors -- specifically encouraging direct foreign investment; and to bring them here by offering the same goodies that Boeing received as a result of the 2003 legislation.

But the most amusing part comes from the bill's sponsor, Rep. Mara!
lyn Chase
, who said that 

"We should do everything we can to keep Boeing here, within reason. Boeing is a good citizen when they behave. Sometimes they need to be taken outside the woodshed and spanked." (h/t Jerry Cornfield, Everett Herald)

So, let me get this straight. When a large business complains that the business climate it functions in is unsuitable for future expansion, it's the legislature's job to apply the smack down? Or, perhaps policymakers can feel cavalier enough to make their own threats against Boeing, apparently forgetting that Boeing already moved its headquarters to Chicago.

If Boeing, and its supporting subcontractors, skip town, why would other aerospace companies m!
ove in to take its place? I highly doubt Airbus and its parent company EADS will say to themselves, "hey, we're struggling just as much as Boeing. Let's invest billions into an infrastructure Boeing couldn't make work!"

And how about including in the legislation this independent Deloitte report that says Washington's aerospace industry faces more disadvantages than advantages by staying here?

I'd say that between the spanking in this bill and HB 2316, which prohibits threatening the relocation of manufacturing jobs based on pending legislation, that we have certainly rolled out the welcome mat for any future aerospace or other manufacturing companies thi!
nking about relocating or expanding in Washington. 

iv>I guess it's all fun and games until Boeing and its 70,000+ jobs head off into the sunset.

The importance of intellectual property in today's open source world

April 9, 2009 in Blog

As governments scramble to look for ways to cut costs over the next couple of years one area that is being highlighted is information technology (I.T.). Our post-industrial society, and therefore government, rely on the rapid transfer of information. The broad, indiscriminate dissemination of information helps keep governments accountable and citizens informed. This is a good thing.

And so a movement has formed that supports open-sourced software that is largely free to the user. These are programs such as the very popular Firefox internet browser and OpenOffice, a free suite of office tools (similar to Microsoft's dominate Office). 

I use Firefox, it's a great browser, and I use a lot of other open-source programs for my computer and mobile phone. I am not a developer, but if I were, I would apprecia!
te the openness and ability to take the core building blocks of a software program and be able to customize it to my specific needs.

But this is where things get interesting. Some proponents in the open source community are baiting policymakers with promises that mandating open source software will save taxpayers millions of dollars. But this is disingenuous. As the saying goes, "there is no such thing as a free lunch," and this axiom applies here as well.

Unfortunately, many in the open source crowd are also supporters of the "anti Intellectual Property" movement. They are against patents, property protection, profit motives, or basically anything to do with making money off of your idea and work. These are also largely the same folks advocating for the utopian Network Neutrality -- asserting that Internet access is a fundamental human right.

Open source software requires a lot of work to tailor-make it to!
your, the customer, needs. This means companies can offer ope!
n source programs to your department at a very low price, but then sell the consulting services in order to actually make it work to your exact needs. Proprietary software, ala Microsoft Office, is ready to use right out of the box. You pay more for it upfront, but then spend a lot less time, if any, customizing it on the back end. This is because you are paying for their Intellectual Property, as opposed to the open source programs, where you pay for their customization skills.

Personally, I think that we need both systems. A robust IP protection system in order to encourage proprietary development, and an open source system that harnesses the power of the community (for a great example of this see Apple's iPhone SDK and App store). I like having the choice. And governments should as well. In fact, several have already looked at mandating an open source only policy and have!
rejected the notion because of the limits it puts government IT crews into (see Texas' report on the subject).

Lastly, Raymond J. Keating, Chief Economist for the Small Business & Entrepreneurship Council hits the nail right on the head:

"Providing a clear and stable intellectual property system is critical to innovation, entrepreneurship and economic growth...After all, patents spur innovation in two ways. First, they incentivize invention and innovation by assuring that inventors reap the rewards of their inventions. Second, they in way stop others from finding better ways to better serve the market."


Read more about this issue:

Economic Stimulus from All Sides

March 31, 2009 in Blog

Washington's Employment Security Department today released a statement announcing the formation of a grant program that would help at-risk youths receive job training and summer employment. The $23 million program is funded by federal stimulus dollars as a part of the American Recovery and Reinvestment Act passed by Congress in February. 

Governor Gregoire said, "It's especially hard to find a job right now if you are a teen or young adult who dropped out of school and has few work skills."

I couldn't agree more. This is a difficult environment for finding work, particularly if you do not have much work experience. But here's an idea:

Lower the minimum wage -- especially for young workers (15-18 year olds).

This would open up positions for the young and inexpe!
rienced workers that need jobs. Some employers simply cannot afford to pay the $8.55 per hour to someone who has absolutely no work experience, but they may be willing to pay a little less. This would bring opportunity to those who are priced out of jobs because they are young or inexperienced. 

Many supporters of a high minimum wage use scare tactics to try and drastically increase the minimum wage. Most often they use an anecdotal example of a person with a spouse and children trying to survive on $8.55 an hour. But those examples are the extreme, as backed up by BLS data. 

Cutting the minimum wage, particularly for entry-level youth workers, would help grow the economy and hopefully direct these youths toward lives of production and responsibility. That is a win-win stimulus plan.