Cgipson

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.

Late last year when Boeing announced its decision to open up the second 787 production line in South Carolina, many in the business community pointed to S.C.'s low cost of doing business as one of the major factors in Boeing's decision. The Governor and other labor leaders in Washington pointed that S.C.'s unemployment system was on the verge of collapse and that while Washington's system is more expensive, at least it is solvent. 

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.

Here in Washington, even with a solvent UI trust fund, state officials raised UI taxes an avera!
ge of 54% (though many folks are reporting triple digit percentage increases) for 2010 and have said that future increases are inevitable as well. But rather than look at ways to decrease costs, some officials are backing benefit increases, which would only put further strain on the system. 

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. 

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. 

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.

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. 

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).  

But it's not just about tax breaks for the little guys. Over at AWB's blog, President Don Brunell correctly points out that the plan is a decent start, but other reforms are also needed, 

"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."