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

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."

Unemployment Trust Fund Draining Faster than Anticipated

June 23, 2009 in Blog

This past legislative session, the legislature passed HB1906 which temporarily increases the amount of unemployment insurance (UI) checks by $45 as well as raised the minimum insurance benefit amounts by drawing down the state's health UI trust fund. The $45 is temporary, however, and only extends to the end of the year. At first this was part of the Governor's plan to help stimulate the economy. As I pointed out, however, raising unemployment insurance benefits doesn't fall under the category of economic stimulus. It's just increasing government benefits.

That being said, I was less concerned about this legislation because our state's UI trust fund was over $4 billion at the beginning of the year (which has since declined to about $3.7 billion). This means the state has about 18 months worth of benefits available in the trust fund. This is 50% more than the Department of Labor recommends (12 months).

The original fiscal notes on HB 1906 calculated the draw-down rate at 7.5% unemployment, but Washington's unemployment rate has not been below 7.5% since December 2008. Therefore, the state is drawing down from the UI trust fund faster than anticipated.

According to the Employment Security Department, the March forecast shows a 24% bump in the cost of the temporary!
. The Department uses these forecasts to guesstima!
te costs and November's forecast showed a $187 million cost for the $45 temporary increase in UI benefits (through 2011) but now that has been updated to $231 million. Again, this is off of the March forecast, so the June forecast released last week will most likely increase these costs. ESD won't have that information available for a few weeks.

True, a $231 million hit to a reserve fund of $3.7 billion is not a huge amount. But the latest ESD Economic Update also contains information that based off of this year's 1906 and 5963 legislation, the trust fund could dip as low as 11.7 months by calendar year 2011 -- or $2.4 billion. This would put the tru!
st fund below the DOL recommended levels.

Why is this a concern? Because unforeseen expenses can lead to tax increases. And since employers pay 100% of UI premiums do we really want to make the cost of labor even more expensive?

Let's debate the "public" health care option for small businesses

June 19, 2009 in Blog

Today the Puget Sound Business Journal (subscription required to read the whole article) ran an op-ed by Ana
Castro, a small business owner in White Center, on why small businesses need a
government-run health care option in order to offer “choice” in the

I will agree with Ms. Castro that small business owners
often think of their employees as family, and that the price of health care has
seen an extensive rise over the past decade. But Ms. Castro is severely
misguided if she thinks a government-run option will provide the choice she

First off, it’s always disappointing to see proponents of a
particular policy option whip out the preemptive ad hominem attacks. When Ms.
Castro says “In a smear campaign designed to kill reform, the insurance
industry’s public relations machine will try to scare us about a ‘government
takeover’ of health care, long waits and rationed care,” she is basically
saying that any debate, any position counter to her position, is a smear
campaign not worth listening to. So much for high-minded debate.

Secondly, Ms. Castro asserts, “For small businesses like
mine that currently have no good choices, the public plan would compete with
private insurers to lower costs across the board and guarantee coverage we can
count on.” If Ms. Castro were paying attention over the last decade in which
premiums skyrocketed, she would have to acknowledge that one of the main
reasons for these cost increases was greater government involvement (at the
state level) in the insurance market. How many insurance companies operated in
Washington in the 1990s? How many are there today?

The lack of choice does indeed cut down on competition. And competition is
good. At least Ms. Castro and I would agree to that.

Third, let’s address government “competing” in the
marketplace. I am curious how government will efficiently, and fairly, compete
in a marketplace it regulates. How will the government throwing around its weight affect innovation in research and development in the private sector?

Fourth, we cannot simply sweep aside the “cost” factor.
Again, Ms. Castro’s bromides include floury language such as “Our health care
system will work best when everyone has the opportunity to fairly contribute to
health care…” But she does not mention that $1 trillion in additional national
to insure 16 million people and that this costs does not include the public plan she is pushing.

The bottom line is that small businesses are hurting and
need help in this important area. And Ms. Castro and I agree that competition
is one of the keys towards health care reform – small businesses need more
choices than they are offered now. But a government-run plan will not meet
those needs and in fact, most likely deprive millions of Americans of their
private insurance plans and increase the load on the public plan, therefore
increasing costs and reducing choice even further. 

Read more on the ongoing health care debate.