Crossposted on San Francisco Chronicle
California small businesses failed in 2011 at rates 69 percent higher than the national average. Four of the top five metropolitan areas for small-business bankruptcies in 2011 were in California. We also struggle with the third-highest unemployment rate in the nation. Yet despite these dismal figures, Sacramento politicians think now is the time to make it more expensive to run a business. Proposals to increase business property taxes threaten to make it even tougher for the tens of thousands of small businesses in this state to hire workers and drive our economic recovery.
A March 2012 study by Stephen Frates and Michael Shires at Pepperdine University’s Davenport Institute showed that dismantling Proposition 13’s landmark tax protections for business properties would cost California about $72 billion of lost economic output and about 400,000 jobs in just the first five years. That is when we need these jobs and economic activity the most.
The prospect of a so-called split roll – where property taxes are levied at a higher rate on business and industrial buildings than on homes – is disconcerting when many businesses are already operating on minuscule profit margins. Just like homeowners, one of the things that businesses have been able to count on is consistent and predictable property tax rates that allow them to plan for their future, thanks to Prop. 13. The initiative, which voters passed in 1978, limits property assessments to 1 percent of assessed value and limits annual tax increases to 2 percent.
Many small businesses rent rather than own their spaces, yet they are not immune from property tax increases. Most leases held by small businesses include provisions that require them to pay the property taxes associated with their facility. In many cases, they simply can’t afford to absorb added costs. The Pepperdine study showed that a split-roll tax will disproportionately hurt minority-owned and female-owned businesses.
According to the Pepperdine study, a split-roll property tax regime will increase property taxes on businesses by an estimated $6 billion. In order to deal with these higher taxes, businesses would be forced to lay off employees, cut wages and pass on higher costs to consumers.
That means customers would also feel the pinch in the form of higher prices for the goods and services. Some small businesses even may be forced to shut their doors altogether. The devastating result would be more job loss. But higher taxes on business properties wouldn’t just eliminate jobs; they also would lead to fewer expansions, fewer investments and reduced business operations in California.
This study is not merely academic; it responds to a movement. Assemblyman Tom Ammiano, D-San Francisco, and Los Angeles Mayor Antonio Villaraigosa, among others, are pushing for a split-roll tax (an Assembly committee even held a March 12 hearing on the topic). A split-roll tax would make California an even tougher place to do business, and we can’t afford that. If California wants to get on the road to economic recovery, we need to create jobs, not eliminate them.