For Small Business, the Governor’s Budget Giveth and Taketh Away

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

While recognizing the emergence of an evolving economy and new ways of working, Governor Gavin Newsom’s second budget both promotes and raises obstacles to these circumstances.

With all the news about spending increases in Gov. Gavin Newsom’s proposed record $222 billion budget introduced Friday, there is a nugget buried in the document for reduced revenue–a tax cut for small businesses.  

Labeling small businesses “a major engine of economic growth in California,” the governor’s budget proposes a first year exemption for the $800 minimum tax paid by limited liability companies, limited partnerships, and limited liability partnerships.  He wants to encourage entrepreneurs to set up shop in California. With state spending increasing over $7 billion dollars from last year, the one-year projected revenue loss of $100 million will hardly be felt.

At the same time, Newsom sets aside $20 million to enforce AB 5, which undercuts many workers who choose an entrepreneurial strategy to set their own working schedules without becoming employees of firms. This enforcement effort is certain to intimidate independent workers and small businesses confused by the dictates of the law. 

AB 5 with a myriad of exemptions for certain careers, lawsuits challenging its approach by some industries, and potential for changes in the law that are sure to be offered during the legislative session, will make enforcement efforts difficult even for the enforcers– never mind small businesses and workers that are supposed to understand and adhere to the law.

Ironically, while Newsom wants to enforce the rules of AB 5, which promote old labor standards in an evolving economy, the governor’s budget acknowledges that “rapid advancements in technology, automation and artificial intelligence are reshaping the economy and the nature of work.” To confront this challenge, Newsom’s budget intends to create yet another state agency: the Department of Better Jobs and Higher Wages.

The new department is intended to bring workforce regulators, spread throughout other departments, under one roof. The cost of setting up this new department will be $2.4 million to establish an executive staff.

Will the new department help clear the path for a changing economy and new ways to work or will it encourage more regulation on workers, small businesses and entrepreneurs trying to fit into the new economy? The budget’s differing directives make its unclear which path Governor Newsom plans to follow.

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