The state unemployment rate stood at 9.2% (revised) for the month of December 2009, while nationally the rate remained at just under 10%. A year-over-year comparison shows that Washington has shed almost 108,000 jobs since January 2009. However, there was some positive growth for the first time in quite awhile.
The House finally released its revenue package today to the tune of $758 million in new revenue (really more like $858 million when you account for "anticipated budget actions").
It shapes up to resemble the Governor's proposal (mostly because it lacks a general sales tax increase) more so than the Senate's version. But I'll leave the budget minutia in the more capable hands of WPC's budget savant Jason Mercier.
But how will these tax increases affect the business community? Along with the Washington Research Council, we have
et="_blank">issued data that show the negative impact on jobs from increasing either the sales or B&O tax. If policymakers want $1 billion in increased sales tax revenue, they should be prepared for the loss of thousands of jobs over the next couple of years.
But according to some analysts, the state should increase taxes even more in order to save more jobs. This comes from the Economic Opportunity Institute's Marilyn Watkins who wrote an op-ed in last week's Puget Sound Business Journal saying just that (subscription required for whole article).
She quotes former McCain economic advisor (who also advises President Obama) Mark Zandi's assertion that each $1 of government spending results in a $1.41 increase in economic activi!
ty. It's called the multiplier effect and it's somethi!
ng we've written about before (and here too).
Watkin's assertion is that, due to the multiplier effect, the state should actually increase state spending. And to do that the state needs to increase its coffers, therefore, we should raise taxes even more than is being proposed.
In the wake of yesterday's Health Care Summit, and the lack of progress towards any sort of compromise on the issue (as if we expected something different) comes a reminder that while the big guys duke it out back in D.C., there are still people waiting for reform.
Some of those who would benefit most from meaningful health care reform are the owners and employees of small businesses. The number of small businesses that can afford to provide health insurance to their employees continues to drop and is at a level that is far less than larger businesses.
Even though the issue is grandiose, there are small steps that policymakers on both sides of the aisle have talked about -- even here in Washington state. One of the steps is to allow for purchase of!
health insurance across state lines. This would help create more competition and drive prices down.
Alan Reynolds of the Cato Institute points out that up to 11 million previously-uninsured Americans could gain health insurance through such a move, and without costing taxpayers anything.
Why isn't this happening already? Because, according to Reynolds,
"Because the main barrier to choice and competition has nothing to do with 'market dominance' or the health insurers' anti-trust exemption that Congress is targeting as this week's scapegoat. Rather, much of the 'national' access-to-insurance problem is that states like New York, New Jersey, Massachusetts and West Virginia impose burdensome mandates and regulations that push premiums sky-high."
A story out of the Post and Courier today (hat tip Stateline.org) highlights the fact that South Carolina was not alone in borrowing funds from the Federal government to shore up their unemployment insurance systems!
. States borrowed about $31 billion over the last two years -- South Carolina to the tune of $800 million. Now the trick for policymakers is to figure out how to pay that back to the feds.
South Carolina officials don't yet have a firm plan in place to pay back the feds, but they did start the process of a head-to-toe review of their Employment Security Commission and found widespread mismanagement and waste.
John Rainey, South Carolina's chief economic adviser, hit the nail on the head when he said that raising fees on businesses now will slow the state's economic recovery because every dollar spent in taxes is a dollar that is not available to hire more staff or expand operations.
Yes, here in Washington we are fortunate to have a system that needs no federal government bailout. But the bad news is that the business community is shouldering the burden of a system that increa!
ses costs during a downturn, instead of when times are good. Doing so, as Rainey says, only slows down the economic recovery this state needs.
The oft-maligned, or much-loved (depending on your viewpoint) Congressional Budget Office, or CBO for short, issued a couple of papers over the last few weeks looking at policies for increasing economic growth and employment for 2010 and 2011.
While some of the proposals in the CBO's reports deal with federal-only policies such as Social Security payroll taxes, and stimulus spending, some of the underlying themes can be refocused towards state policy. And seeing as how creating jobs seems to be the number one priority for policymakers in Olympia this Session, perhaps there are lessons to be gleaned from the various reports. And, keep in mind that the CBO isn't lobbying for any one particular course of action, they are merely laying out the economic impacts of policy proposals.
1) some firms would react to lower employment costs by reducing the prices they charged in order to sell more goods or services. Higher sales would in turn spur production. 2) some firms would pass the tax savings on to their employees in the form of higher wages or other types of compensation, which in turn would encourage more spending by those employees. 3) some would retain the tax savings as profits, which would be passed on to shareholders. 4) some firms would use slightly more labor during the period when it was temporarily less expensive.
CBO does point out that output (GDP) could be increased by a total of $0.40 to $1.30 per dollar of budgetary cost. This is where things get tricky, and why re!
ducing government spending is so important. CBO estimates that!
such a policy would have economic benefits in the short run, but could add to already large projected budget deficits. In other words, tax cuts are great and spur economic growth, but the benefit has to outweigh the cost or else deficits increase. A $0.40 benefit on the low end increases the deficit, a $1.30 benefit reduces the deficit and spurs further growth and tax collections. Reducing government spending levels provides more wiggle room for tax cuts.
Because hiring usually lags behind economic output -- meaning the unemployment rate will be one of the last economic indicators to recover even after the economic recovers -- firms must first focus on increasing productivity among current workers. Higher production levels, and higher consumer demand will spur the need for hiring. The good news is that productivity jumped 6.7% in the later half of 2009. The concern remains that economic output is growing only slightly.
EHB 2444, an act relating to providing leave from employment for participating in a child's educational activities, passed out of the House earlier this week and is on its way to the Senate.
For years policymakers have been introducing legislation to expand the scope and reach of both paid and unpaid leave laws. You may remember a similar issue two years back when labor pushed for a state-run paid family leave law, which the legislature delayed until 2012.
The benefit from 2444 is for unpaid leave (as opposed to paid leave) of up to four hours per year for a parent to participate in their child's activities. Even though this sounds relatively benign, it's only four hours per year and unpaid, the problem is that this benefit falls on top of numerous other!
paid and unpaid mandates from both the state and federal governments.
Family and Medical Leave laws are very complex and tough to coordinate. As mentioned earlier, both the state and feds mandate unpaid leave for the birth or adoption of a child, care of immediate family members with serious health conditions, serious health conditions of the employee, pregnancy or disability related to pregnancy, and more. Every year there are attempts at expanding the scope of family or medical leave laws. This year, mandatory paid sick leave was touted necessary because of H1N1; in past years mandatory paid sick leave was supposed to be the only thing standing between the Avian flu pandemic and workers, and before that SARS.
There is no question that parental involvement in a child's education !
is necessary to produce a good educational outcome. But the bu!
siness community should not be forced to carry this regulatory compliance cost, especially when there are avenues in place to handle employee leave. As cited in previous WPC research, most businesses, especially small businesses, are able to work with employees to arrange time off necessary for medical or parental duties without the state forcing a costly mandate on the employer.
Yesterday (Feb 16th) marked the house of origin cut-off date; meaning bills that did not make it out of the legislative body in which they were introduced are now considered "dead." Now, "dead" in Olympia-speak doesn't mean that those bills couldn't be resurrected, just that they are almost certainly done for the session.
Kicking off this legislative session, members from both parties indicated that on the business front, there were few big ticket items to address, although those few issues were considered important. In the wake of Boeing's 787 decision, reforming the state's workers' comp and unemployment insurance systems became much more of a visible battle than originally anticipated. Newspaper editorial boards from all over the state called on the legislature to reform the systems, especially after state officials released the rate hikes for 2010. Businesses struggling to stay afloat during this Great Recession are now shouldering a bigger workers' comp/UI tax burden.
It is no surprise that Labor officials strenuously fought business' attempts at reform. A good summary of the battles on both workers' comp and Unemployment Insurance can be found over at Washington State Wire.
The bottom line is that the legislature passed up an excellent chance to reform both workers' comp and UI for the better, without curtailing benefits for injured or l!
aid-off workers. On one hand, some in the business community a!
dvocated for privatization of the workers' comp system, while others focused on a bi-partisan bill that would take more incremental steps that could help contain costs in the short term. But no go. No workers' comp reform bills were even heard in committee.
On the UI front, legislation to smooth out future tax increases without driving the state further into debt also went nowhere. As did, thankfully, legislation that would have increased the benefits for UI recipients, as well as expand the voluntary quits provisions for eligibility -- including the provision that part-time workers would be eligible for benefits.&!
This Legislative Session began with one of the major goals from both parties being that government needs to take steps so that the private sector can grow and create the jobs and wealth our state has desperately missed the past couple of years. The state has lost almost 175,000 private sector jobs and even if the economy turned around tomorrow, it will take time to recover a majority of those jobs and even longer for state coffers to see a benefit.
With yesterday's cutoff deadline passed, it now appears that very little will be accomplished in 2010 towards easing the business community's costly burdens in workers' comp and unemployment insurance. That's a shame.
Last week Google announced an ambitious plan to connect up to 500,000 households to its own fiber-to-the-home network that will deliver connections speeds up to 1 gigabit per second. By comparison, most Comcast and Verizon FIOS customers currently have 10-25 megabit connections. In the coming year or so, many of those traditional cable modem customers will see connection speeds increase upwards of 100 megabits but Google's speeds wou! ld still surpass some of the major ISPs tenfold.
Last summer the state broke ground on the new Department of Information Services data center. The project will cost upwards of $255 million and consolidate the state government's I.T. infrastructure and its 32 current data centers. But some legislators are concerned that such a large project isn't necessarily the best way to go. Why? Because of the emergence of cloud computing.
Brad Smith, Microsoft’s Senior Vice President and General Counsel address! ed the Brookings Institution earlier this week calling for government to get involved to enhance the safety, security and privacy of the "
A new report out today from The Heritage Foundation reports that the United States is losing ground to its major competitors in the global marketplace. The 2010 Index of Economic Freedom, co-published with The Wall Street Journal, reports that out of the top 20 world economies, the U.S. suffered the largest drop in overall economic freedom.
"Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial freedom, monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts !
of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship and saddled American with unprecedented government deficits."
The U.S. was previously ranked at 6th most free and now occupies the 8th place. Canada now ranks higher and boasts the highest North American ranking. Hong Kong continues to lead the rankings, for the 16th consecutive year, followed by Singapore, Australia and New Zealand.
Why is economic freedom important? Because it leads to innovation, risk-taking, entrepreneurship and ultimately, a higher standard of living. This helps alleviate poverty and leads to higher levels of education. Not only that, but successful economies churn out product and profit and tax revenue, which is used to help pay for vital infrastructure such as roads, schools, police, a cleaner environment and social safety nets.
It's no coincidence that gro!
ups like Washington Policy Center advocate for freer economies!
and streamlined, accountable government. The smaller the tax and regulatory burden on our businesses and entrepreneurs, the more successful they will become. This results in a win-win for folks in the private and public sectors.
How does Speaker Frank Chopp feel about these cost containment measures, especially privatizing the system? He equated the potential move to letting AIG run the system. No joke, see this TVW clip from Inside Olympia:
This is one of those straw man arguments that is brought out for scare tactics and little else. Is there any evidence to support the supposedly scary proposition that a private sector insurance company may participate in providing competition in a government-run monopoly? It's easy to pick on insurance companies because, let's face it, they're easy targets just like cell phone companies, cable companies, utility providers, retail stores, etc. Everyone has had a bad experience with one of those kinds of companies. And you know what? Everyone has had a bad experience with government entities such as the DMV, or IRS, or DOR, or L&I, or city hall.
Simply stating that you don't want to open up a system to competition because there have been bad actors (even though Chopp states no evidence of bad actors in industrial insurance, just other insurance companies) is an insult to the good actors; those who have been responsib!
le stewards of their policy holders.
In other words, it's easier to knock down a straw man such as AIG then it is to refute the position that responsible companies can bring real reform that lowers costs, increases customer satisfaction and brings choice to the marketplace while still protecting injured workers.
In her state of the state address and subsequent address to the Annual Economic Forecast Conference, Governor Christine Gregoire laid out her plans to create 40,000 new jobs. The main strategy? She wants to stimulate $2 billion capital investment in the fields of biotech, software development, health care, clean tech, renewable energy and aerospace. She also proposed a new employee small business tax credit; in essence small businesses would enjoy a tax break for every new hire. The tax credit program would be capped at $100 million. The Governor also wants to implement the Rural County Tax Credit Program.
In her address the Governor also hinted at r!
egulatory reform through a new "One Front Door" program, aimed at improving customer service and streamlining the permit process, saying she will "expand our multi-agency permitting teams to help businesses break through the red tape and to quickly move from planning to job-producing construction." Whether this means expanding the Office of Regulatory Assistance and moving it to the Department of Commerce, or if she has another track in mind, remains to be seen. We have seen regulatory reform attempted before. Here's hoping that regulatory reduction is a part of the plan, not just reform.
It's good to see that tax breaks for small and rural businesses are on the agenda this year. Last year, everyone seemed to be caught up in
>"economic stimulus" that really didn't stimulat!
e anything (except higher deficits).
"Even though her plan is just a proposal right now, it is a good starting point and deserves our support. Combine that with much needed workers comp reforms, reduced unemployment taxes, holding the line on taxes and fees, regulatory streamlining, and reducing the costs of compliance with state mandates.....and, Washington will be ahead of the rest of the country as we all struggle to recover trom this deep recession."
For years the business community, representing both large and small businesses, has asked that the state-run workers' compensation system either be privatized or that the system should be amended to allow for private sector industrial insurance companies to compete with the state-run system. Washington is only one of four states that do not allow for competition in this area. And given the 7.6% 2010 average rate increase, businesses are looking for some relief.
HB 2879introduced today, looks to do just that. It aims to:
"Create an efficient and cost-effective industrial insurance system for the benefit of both employers and workers by introducing competition into the system through a choice of insurance carriers from whom employers may purchase industrial insurance;
Provide workers the benefits of safety systems developed by both private enterprise and by government;
Improve the state's economic climate by providing the private sector with the opportunity to engage in the industrial insurance business with appropriate standards and oversight;
Eliminate a government monopoly with respect to industrial insurance choices for small employers and provide private sector insurance choices for all employers; and
By July 1, 2011, make Washington a state in which employers may self-insure or obtain private sector industrial insurance and eliminate Washington's state-run industrial insurance fund."
So, does this bill have a chance in this legislature? Perhaps that's not the goal, as Erik Smith over at Washington State Wire reports. This could just be a precursor to a statewide initiative this fall.