Recently, the Commission on the 21st Century Economy held hearings around the state to determine the best way to reform California’s tax system, which many believe is outdated. There were hours of testimony from economic experts, tax groups and businesses of every size, including small business owners and representatives of the National Federation of Independent Business. We all agree – the system needs to be reformed in order to get us out of a feast-or-famine revenue stream.
The efforts of the Commission have brought to the forefront a major challenge to business growth in California and deserve a critical analysis by all parties including legislators and other state officials, the small business community, organized labor groups and taxpayer organizations. The fact that most of these groups have already expressed concern over some of the recommendations put forth by the Commission should be enough reason to pause before implementation of any of the recommendations. But certainly it does not shut down all discussion of ways in which the Governor and Legislature can reform our state tax structure to improve our economic and fiscal situation.
Lost in the bulk of Commission proceedings over reducing volatility, an admirable goal, was the Governor’s directive to focus on economic prosperity and the ability of California businesses to compete with businesses in other states. When small businesses create more than three-quarters of all jobs, it is very obvious where our leaders must focus their attention and efforts. One analysis of the potential impact of the Business Net Receipts Tax (BNRT) shows that a business that lost $58,000 in 2008 would owe approximately $13,000 in taxes under the proposed system. That should be enough to cause our leaders to carefully analyze the recommendations as the Assembly Revenue and Taxation Committee has already begun.
A column by Governor Schwarzenegger in Fox and Hounds Daily asserted that all who question the Commission are “seeking to torpedo this proposal without even the decency of an open and honest debate”. This statement completely ignores the participation of NFIB, California’s largest and longest-serving small business advocacy group and many other groups who traveled to Commission meetings around the state in order to share their views on the developing proposal. Several NFIB members took time away from running their businesses so that they could have a seat at the table to discuss what meaningful reform of California’s tax system would look like. They did so willingly, knowing that any proposals that are adopted will affect how – and if – they can continue to run their businesses.
In addition, attempts to dismiss the concerns of California’s small business community as the “howling protests from an army of lobbyists and special interests…who benefit from the status quo”, does not create a hospitable environment for debate. An “open and honest” debate requires that those who support, oppose or have concerns have an opportunity to let those making the decisions know their thoughts and how certain proposals would affect them and their businesses. Study after study has shown that small businesses bear a disproportionate burden of any reforms that are put into place, simply because they tend to do more with less. So to marginalize small businesses and the impact the Commission’s recommendations have on them doesn’t show that their concerns were heard during the hearings.
In order for the Commission’s recommendations to achieve the goal of reforming the tax system in California to something far less volatile, they need to welcome and consider opinions from across the spectrum. We urge lawmakers not to forget the job creators of California – small businesses – when making final recommendations in the coming months.