Business Climate

WPC's Center for Small Business focuses on improving Washington's small business climate by working closely with business owners and policymakers. The Center provides accurate information and analysis on the state's regulatory climate, tax structure, health insurance systems, and more.

What's New

Who are entrepreneurs and what makes them tick?

July 31, 2009 in Blog

The Kauffman Foundation released a new study entitled, "The Anatomy of an Entrepreneur: Family Background and Motivation." The purpose of the study is to delve into the backgrounds of some of America's successful entrepreneurs, to see what makes them tick, and if there are ways to spread their knowledge of what it takes to be a successful entrepreneur to the thousands of new businesses founded each year by intrepid entrepreneurs.

A few of the report's findings include:

  • Company founders tend to be middle-aged and well-educated, and did better in high school than in college
  • These entrepreneurs tend to come from middle-class or upper-class backgrounds, and were better educated and more entrepreneurial than their parents
  • Most entrepreneurs are married and have children
  • Most had early interest in becoming an entrepreneur
  • The most popular motivations for becoming an entrepreneur included building wealth, owning a company, participating in the startup culture and capitalizing on a business idea
  • Most entrepreneurs had significant industry experience when starting their companies

It is always fascinating to other entrepreneurs, or those like myself who study them and ways to make them more successful from the policy-oriented side of things, to see how the successful ones made it. A lot of the success can be traced directly to the space between an entrepreneur's ears -- the mindset it takes to overcome the long odds of starting and maintaining a successful business is key.

But providing an environment that is conducive to these entrepreneurs is important as well. Policymakers oftentimes need to be reminded that tax and regulatory policies have real-world implications and can provide unnecessary burdens to entry for entrepreneurs. And in this day and age, we should make sure the barriers to entrepreneurship are as low as possible.

Come learn more about what makes entrepreneurs tick and make your own suggestions on how Washington could be a better place for small businesses at WPC's 2009 Statewide Small Business Conference on November 10th in SeaTac.

West Virginia's Privatized Workers Comp System Turns One

July 31, 2009 in Blog

While the state labor council points to Washington state as a supposed model for workers comp systems, West Virginia's newly-privatized system turned one year old recently. And guess what, the sky did not fall.

Quite the opposite as a matter of fact, as the Insurance Journal reports:

"West Virginia Insurance Commissioner Jane L. Cline says her state's one-year old privatized workers' compensation system is offering better claims administration, lower costs for employers and better treatment of injured workers."

West Virginians experienced a number of improvements since the switch a year ago:

  • claim protests have fallen 68 percent
  • the overall appeals process has been streamlined resulting in claims disputes being resolved in a shorter period of time
  • claimants have received better claim management by claims adjusters having fewer claims to manage, and
  • the unfunded liability no "old fraud" claims has dropped from $3.1 billion to $1.5 billion

West Virginia's open market for workers comp has also resulted in:

  • overall premiums have dropped 30 percent, or more than $150 million
  • 198 different workers' compensation insurance companies have filed rates and forms
  • There are 120 policies in the residual market representing premiums of about $1.9 million
  • More than 90 percent of all claims are ruled upon within 30 days

And then there's this assessment from earlier in the year from Workers' Comp Insider:

"Thus far, West Virginia's transition to a competitive market seems to
be going smoothly. The pain has been distributed across the board: to a
population of workers that had long viewed comp as an entitlement, to
employers in favored industries who long benefitted from suppressed
rates for coverage and to some of the former state employees who ran
the old, rather bloated system. No one would describe the new approach
to workers comp as perfect, but the competitive market appears to offer
a reasonable balance between the often conflicting interests of workers
and employers. The creation of an assigned risk pool for poorly
performing employers is simply one more necessary step in the eternal
search for an effective and equitable system."

I'm sure that the folks defending our status quo will point to West Virginia's workforce (761K compared to 2.9 million) and average weekly earnings ($785 compared to $892) as evidence to keep the state monopoly system intact. But, if the goal is to assist injured workers in the best way possible while maintaining a competitive business environment, shouldn't we look at examples where both are apparently taking place?

More Talk on a Second Stimulus Package

July 24, 2009 in Blog today carries a Q&A session with state legislators from both parties around the nation asking "What would make you push for a second stimulus?"

The answers vary from "anything" to "hell no". Interesting stuff.

A second stimulus? Consider the ramifications first.

July 22, 2009 in Blog

Some policymakers in D.C. and syndicated columnists/economists have already begun talking about the need for a second stimulus package to bolster the $787 billion passed by Congress in February.

But before they move to quickly to spend even more taxpayer dollars on various government projects, a little reading should be in order; namely, this report from Wells Fargo.

In a "Decision-Makers' Guide to Stimulus Part Deux," the authors of the paper first take Vice President Biden to task for saying, "the truth is, we and everyone else misread the economy." The authors point out that, "Everyone did not misread the ec!
onomy. Contrary to political rhetoric, economic analysis outside the beltway clearly anticipated a nine percent plus unemployment rate even with the stimulus package."

One of the major concerns over the last several months as government spending ramps up, is inflation. Again, the authors of the paper address this:

"Unfortunately, a second stimulus could add too much to the growth momentum to be consistent with stability in the long-run inflation interest rates and currency expectations. Inflation/debt concerns, which are already rising, would accelerate quickly and thereby prompt negative interest rate/dollar reactions that would create a boom/bust cycle..."

The stimulus/bailout mentality goes back to the reality that politicians don't always make the most sound economic decisions because they are influenced by the immediate short-term political gains and do not take into account, or minimize, the long-term costs!
. But this type of thinking has immediate economic ramificatio!

The President's "Public Option" and Small Businesses

July 17, 2009 in Publications

This op-ed was published in the Puget Sound Business Journal on July 17th, 2009.

Customer Service Lacking in L.A. Bureaucracy. Surprised?

July 13, 2009 in Blog

As Seattle policymakers now say they will postpone consideration of ditching the $25 per employee head tax, a column in Friday's Wall Street Journal should provide a cautionary tale on why it is important for cities and states to endorse policies that encourage entrepreneurial growth.

The column, written by Rick Newcombe, president of Creators Syndicate, is about to move his business and the jobs involved, out of Los Angeles because the city is reneging on its own tax policy. For the last 15 years Creators Syndicate has wrangled with the city over their business tax classification. Mr. Newcombe thought his business, which helps syndicate national columnists, should fall into the "wholesale and retail" classification with a lower tax rate,!
whereas the city thought the firm fit into the "occupations and professions" which would mean a higher tax rate. 

The fight over the tax classification is nothing out of the ordinary. Businesses often appeal their tax classification. Creators Syndicate took their case to court, prevailed, and the city relented and everything seemed fine (this was in 1994).

But the city started running out of money in 2007:

"Suddenly, the city announced that it was going to ignore its own ruling and reclassify us in the higher tax category. Even more incredible is the fact that the new classification was to be imposed retroactively to 2004 with interest and penalties. No explanation was given for the new classification, or for the city's decision to ignore its 1994 ruling. Their official position is that the city is not bound by past rulings -- only taxpayers are."

Los Angeles just said to the taxpaying public, &quot!
;do as we say, not as we do."

A bigger hypocritical statement I could not imagine. 

Are U.S. Businesses Over-Regulated?

July 7, 2009 in Blog

A new survey by Moore Insight says that:

"by nearly a two-to-one margin, American voters believe business and industry are over-regulated in this country. Further, the data reflect an upward trend in the percentage since 1991 of the electorate who say government regulation has gone too far."

As one might expect, respondents most likely to express concern about over-regulation are mostly Republican, men over 65 years of age, and voters within the Mountain/Plains states. Conversely, Democrats, and voters with post-secondary educations lean towards believing there is too little regulation of business.

Interestingly, when asked about specific industries, most respondents were not as likely to be concerned about over-regulation. (This sort of reminds me how everyone hates Congress but everyone likes their Congressman!
/woman). Since 2005, the "Too much regulation" has been trending upwards and I'm willing to bet we will see a continuation of that trend for the next few years at least.

Teens feeling the summer unemployment heat

July 7, 2009 in Blog

Today's Everett Herald published a story about teens having trouble finding employment this summer, largely due to the fact that our state's large number of experienced unemployed workers are crowding out those with little or no work experience (more often than not teens or those in their early 20s).

From the article: "Teens are having an unusually hard time finding jobs this summer. Positions they used to fill are being scooped up by more experienced workers who have been laid off and are settling for low-wage, low-glamour jobs...In Snohomish County this May, there were 1,300 fewer retail jobs than last May, 1,000 fewer positions at restaurants and bars, and 700 fewer jobs in arts, entertainment and recreation fields..."

We've seen this before. During the last recession in the beginning of the d!
ecade, teens and inexperienced workers were largely shut out of the labor market because employers had a larger pool of experienced workers to choose from.

The fact that our state has the highest minimum wage ($8.55) in the nation plays no small part in this. If you are forced to pay at least $8.55 per hour to someone with work experience or someone without experience, you most likely will hire the person with experience. This hurts the teen because they are shut out of the labor market because employers deem that the minimum wage is too high a price to pay for someone with no experience. When the economy recovers and the unemployment rate drops back down between 4-5% (which is essentially full employment), then employers will have a smaller labor pool to choose from and be forced to hire the inexperienced worker and pay him or her at least minimum wage.

But what!
to do in the meantime? It is unfortunate policymakers did not!
take seriously a few legislative proposals this session that could have helped out the teen/inexperienced workers. HB 1928 would have essentially the lowered the minimum wage for those between 16-17 to the federal minimum wage (about to be $7.25) and for those workers 15 years old and younger the new minimum wage would have been $6.42. Likewise, HB 1603 would have kept the minimum wage at $8.55 and decoupled the yearly wage hikes from the CPI-W formula which has kept the minimum wage well above the national average for the last decade. In years past legislation has also attempted to freeze the minimum wage whenever Washington's unemployment rate reach a certain threshold or was worse than the national rate. None of these ideas have ever reached fruition, however.

A lit!
tle disturbingly, the Herald article also points out that taxpayer money was set aside in President Obama's stimulus package to fund 243 jobs for young people in Snohomish County this summer. "The workers, who are as old as 24, are guaranteed at least six weeks of employment earning the minimum wage or more..."

This type of thinking underlies a lot of folks' concerns with the stimulus package. What the feds are doing is providing a very temporary patch for some people at the expense of others (taxpayers) while setting the beneficiaries up for a fall after the program runs out of money. True, I'm sure these kids want, and will appreciate jobs for the next six weeks, but let's not delude ourselves into thinking that this type of policy patchwork will sustain longer-term economic growth. And it is only through a more sustainable and substantial growth in the private sector labor market that will bring about a lower unemployment rate and therefor!
e bring these kids and inexperienced workers back into contention for t!
hese much-needed jobs.

Update: I neglected to include a link to this press release from the Employment Policies Institute, which says that national teen unemployment numbers from this spring are the worst in 17 years.

Digital Goods Taxation in Washington State

July 6, 2009 in Publications

During the 2009 Session the Legislature passed Engrossed Substitute House Bill 2075, which clarifies the definition of a “digital personal good” and sets some basic rules for taxation of intangible electronic products. An intangible electronic product means a digital good or service such as a digital book, digital audio and video files, ringtones, etc.

Some sensible tax reform in Seattle?

June 23, 2009 in Blog

Seattle Today's Seattle Times reports that Seattle Mayor Greg Nickels, along with City Councilmen Tim Burgess and Richard Conlin, are going to work towards abolishing the $25 per employee "head tax" within Seattle city limits.

While I and WPC mainly focus on state-based policy, with my work in the small business community I feel safe asserting that this "head tax" was one of the worst business tax policies I have ever seen. The level of frust!
ration and outrage from small business owners regarding this tax was just about the same as, if not stronger than, their dislike of the state's Business and Occupation tax.

Really, the head tax was a punitive response against employers for the "privilege" of hiring employees within city limits. The reason? Because these employees commuted from outside the tax's jurisdiction, therefore employers are responsible for the damage done by their employees' commutes to the local environment. This is why exemptions were in place for employees who walked, rode the bus, carpooled or biked to work.

It's good to see policymakers in the Emerald City realize the tax made Seattle that much less competitive. Now, if the city would just come to its senses on the "square foot!
age tax."