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

Tax Foundation Ranks Washington the 9th Best Business Tax Climate

September 24, 2009 in Blog

Earlier this week the Tax Foundation issued its 2010 State Business Tax Climate Index. Washington moved up a few spots, from 12th to 9th best. However, our overall score actually declined. The reason for this? Other states hurt their ranking by making bad moves more than Washington took steps in improving its system. Good news in a relative sense I suppose.

A few interesting finds from the 60-page study:

  • WA ranks 33rd (1st is best) in the Corporate Tax Index
  • WA ranks 1st in the Individual Income  Tax Index
  • WA ranks 50th in the Sales Tax Index
  • WA ranks 26th in the Unemployment Insurance Tax Index
  • WA ranks 21st in the Property Tax Index
  • There is a disturbing trend of states proposing or imposing a "millionaires tax" to cope with budget shortfalls
  • WA has the highest tax on spirits, Oregon is 2nd highest
  • WA has the highest taxable wage base for Unemployment Insurance

The methodology the Tax Foundation uses puts the most weight on the Individual Income Tax Index (30%), then the Sales Tax Index (24%), Corporate Tax (20%), Property Tax (15%), and finally Unemployment Insurance Tax (11%) -- see pages 33-34.

So, as in other tax rankings, Washington ranks the best in the category for which we contribute no data. That's not to say this ranking is bunk -- the Tax Foundation does great work. But readers should know that each Index is weighted differently and the index that carries the biggest impact is one Washington decided not to tax. The takeaway? Any move towards adding an individual income tax will surely knock us down quite a bit.

The other issue I am always asked about regarding business tax rankings is how these institutions (or media outlets) treat our much-maligned Business & Occupation tax. A simple reading of just about any of the numerous tax rankings out there will show little or no acknowledgment of our wha!
cky home-grown system and therefore either underweight or completely ignore it. Obviously, simply ignoring the B&O tax is a mistake, and the Tax Foundation does try and compensate for our gross receipts system. In fact, it has some not-so-nice things to say:

"Such economic imbalance from this (gross receipts tax) often leads lawmakers to enact separate rates for each industry, an inevitably unfair and inefficient process... Delaware, Ohio and Washington score the worst for gross receipts tax deductions because they do not offer full deductions for either cost of goods sold or employee compensation." (page 13)

There is a lot of data to play around with in this study. And the conversations that arise from debating our state's tax structure can play a role in determining policy priorities we want to see in Washington. The Tax Foundation hits the nail on the head when it says,

"The ideal tax system, !
whether at the local, state or federal level, is simple, trans!
parent, stable, neutral to business activity, and pro-growth. In such an ideal system, individuals and businesses would spend a minimum amount of resources to comply with the tax system, understand the true cost of the tax system, base their economic decisions solely on the merits of the transactions, without regard to tax implications, and not have the tax system impede their growth and prosperity."

Relying solely on ranking systems works only in a relative sense; what good is to be said of a tax system that ranks well to others if the model for our imitation is flawed? Let's use these established tax principles as a gauge as to whether or not our state is living up to these ideals, which have proven to lead to economic growth and prosperity.

Read more responses to the study at WashACE, the Everett Herald, Vancouver Columbian, and Puget Sound Business Journal.

Workers' Comp Costs Go up 7.6% for 2010

September 21, 2009 in Blog

The Department of Labor and Industries today proposed a 7.6% increase in workers' comp premiums for 2010. It would be the largest premium increase since 2004 if adopted. Preliminary rate increase speculation from the Department earlier this summer had hinted towards a 15-20% possible rate increase. 

Since 2001 workers' comp rates have increased or (decreased):

2001: (2.2%)
2002: 1.8%
2003: 29.2%
2004: 9.8%
2005: 3.7%
2006: (0.3%)
2007: (2%)
2008: 3.2%
2009: 3%
2010: 7.6%

State law requires employers to carry industrial insurance
and only a small portion of the state’s thousands of employers are allowed to
self-insure. All others are required to use the state’s system. Currently the
state program covers over 2.5 million workers and over 170,000 employers and collects over $1.6 billion in annual premiums.

But other states have, or are looking at introducing
private-sector competition in the area of industrial insurance. Last year, West
Virginia privatized their workers comp insurance system and at the one-year
mark the results were dramatic:

  • 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 the first 30 days
  • Claim protest fell 68 percent
  • The overall appeals process was streamlined resulting in claim disputes being resolved in a shorter period of time

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FCC Proposes "Net Neutrality" Rules for Wired and Wireless

September 21, 2009 in Blog

FCC Chairman Julius Genachowski, in a speech to the Brookings Institution today, proposed the FCC adopt six rules governing "Net Neutrality." This is the result of the Obama Administration wanting more regulations governing Internet Service Providers (ISPs) -- one of his campaign platforms.

State Increases Workers’ Comp Rates by 7.6% during One of Nation’s Worst Economic Downturns

in Press releases

Olympia - Today the Department of Labor and Industries announced a 7.6 percent increase in workers’ comp system premiums for calendar year 2010, which will result in a $117 million cost increase for businesses. This marks the third year in a row premiums have increased and it is the largest increase since 2003 when state officials raised the rate 29 percent.

Don't shut out those looking for experience in the workplace

September 16, 2009 in Blog

Dallas Mavericks owner Mark Cuban recently found out the hard way that hiring unpaid interns is very difficult, if not downright illegal.

Said Cuban,

"This summer, in response to the changing sports media landscape, I
wanted to create a “media pool” for the Mavs.  I wanted to assemble a
group of unpaid interns that would acquire video, write game reports,
track unique stats, do interviews, interact with fans, and then compile
all of this incremental media and provide it free to any and every
outlet we could think of."

But apparently his efforts would run afoul of U.S. Department of Labor law, which states in part: "A common but frequently unreported labor violation is the use of unpaid interns in violation of minimum wage and possibly overtime laws. The scenario is fairly typical: a company offers an opportunity to 'break into the business' in exchange for the intern working for free."

According to Cuban, the Department also stipulates that:

"In order to qualify as an unpaid internship, the requirement is simple: no work can be performed that is of any benefit at all to the company. That is, you can not deliver mail, sort files, file papers, organize a person's calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business."

This is absolutely absurd. Why would anyone want to bring on an unpaid intern if that intern could provide no help to the business? And why would that same intern even want to participate in an unpaid internship if they are unable to gain valuable experience that will help them in the future?

It is commonplace to think of people only as workers or laborers. But in reality they are human capital. And people best serve thems!
elves when they invest in their own capital formation -- most !
often today this means education or experience in a trade. Why? Because more often than not, the more experience one has, the more in demand they become and the more they contribute to the market and the more they are likely to become prosperous.

Young people may have years of traditional education under their belts but are very unlikely to have experience similar to another person who has spent years in their industry. Experience is invaluable. Gaining experience for a young worker is paramount to their upward mobility. Inexperienced workers who are wise will seek out experience at just about any cost. That cost is often free labor. They do this not because they want to be taken advantage of, as backers of living wages may say, but because they have their eyes set on the longer term benefits.

Thomas Sowell, in his book Applied Economics, tells the story of a young man who applied for a job in a sales store in upstate New York. The young man had no experience whatsoever and was competing against twenty other experience candidates. The store owner told the young man that he would receive no pay for three months as a cost for teaching him the business. After starting work, the young man was so inept that he was relegated to sweeping the floors. Soon he became a paid employee and a salesman based on the experience he learned while doing menial tasks.

Eventually, the young man, F.W. Woolworth, began his own chain of retail shops; even making his former employer, the one who paid him nothing for three months of work, a partner in his business.

Who will stand up to "big mobile"?

September 16, 2009 in Blog

Senator Tom Harkin (D-Iowa) thrust himself center stage this week when he vowed to dig deeper into persistent rumors that excessive and prolonged cell phone usage could be linked to brain tumors and other cancerous reactions -- this despite various world health organizations such as the American Cancer Society, World Health Organization and the National Cancer Institute all saying there is no connection.

Citizens' Guide to Initiative 1033

September 6, 2009 in Publications

In November the people of Washington will vote on Initiative 1033. The measure is sponsored by Tim Eyman and would create a new revenue limit for the state, counties and cities with the goal of annually reducing property taxes. Eyman calls Initiative 1033 the “Lower Property Tax Act of 2009.” Initiative 1033 is the latest in a series of initiatives considered by voters which seek to control the growth of state government, though it is the first to include local governments under its requirements, and it is the first to focus primarily on providing ongoing tax rebates to property owners.

Unemployment claims still rising nationally

September 3, 2009 in Blog

In a topsy-turvy economy like this, it seems for every glimmer of hope there's an ugly reminder of our current status. While the summer unemployment rate stabilized (at least for the time being) at 9.4% nationally and 9.1% for our state, the Labor Department today released data showing that the number of people filing for unemployment benefits climbed over the past week. Analysts expected about 564,000 initial unemployment claims but 570,000 ended up doing so.

The good news for Washington state is that there were 1,100 fewer initial claims this week than the last one. 

Some interesting data also shows that productivity rose sharply during the second quarter, while labor costs fell. This is good because higher productivity and lower costs will help lead towards profit!
, which in turn leads to economic growth as businesses ramp back up.

Of course, let's hope this happens otherwise there won't be any way to pay for some of the federal government's audacious plans. As this article from the Federal Reserve Bank of Cleveland points out, the federal budget deficit as a percentage of GDP is already at a 60+ year high, around 11.2%, and both the OMB and CBO expect it to remain at around 4% for the next decade.

What does all this data mean? We're certainly not anywhere to even being close to out of the woods.

The Internet's new gatekeeper? Uncle Sam

August 28, 2009 in Blog

Word from CNET today is that the U.S. Senate is considering a bill which would effectively hand over the Internet to the control of the President during a cybersecurity emergency. Senate Bill 773 directs the Office of Personal Management to development and implement a "Cybersecurity Responsibilities and Authority" plan within 6 months of passage.

Net Neutrality sneaking in under the guise of "stimulus"?

August 25, 2009 in Blog

The Hill today published a story saying that Julius Genachowski, the recently appointed FCC Chairman, will support "net neutrality" requirements and go after any company that violates its tenets.