It has become increasingly evident to Capitol insiders, pundits and others that the Governor and Legislature may be close to reaching a budget “compromise” in the coming days.
As the leading representative group for California small businesses, we must ask: “What, in fact, is the true meaning of ‘compromise’ if it shutters the few remaining mom-and-pop businesses already on life support and sends the last batch of working Californians to the unemployment line?”
When it comes to identifying small business as a “priority issue”, many of our elected leaders surely make a valiant effort to “talk the talk” during campaign season, but a select few truly “walk the walk” when it comes to making important, sustainable decisions that will protect the very men, women and families that sent them to Sacramento in the first place.
With the first stages of furloughs, IOUs, layoffs and other draconian measures going into effect in recent weeks, it appears that many of our leaders are now willing to grab at anything to stop the hemorrhaging. But how will heaping unexpected new costs upon already-struggling Californians stop the bleeding of their current financial, employment or workplace turmoil?
No one disputes the fact that this budget deficit has reached unprecedented levels of pain and stress, and no one envies the incredibly difficult job our Governor and legislators have in determining how to make ends meet.
And make no mistake: small business owners are among the first to feel the pain when a state budget crisis hasn’t been resolved. Many “mom and pop” companies do business with the state; when they don’t get paid, they suffer. Many own stores in and around the State Capitol, and rely on state employees as their primary clientele; when state employees aren’t putting money into their small coffers, they suffer. It is patently false to assert that small business owners should stop complaining because they don’t have a dog in this fight – they absolutely do.
The problem small business owners have with taxes, fees, levies, assessments, whatever one wants to call it, is that these are new and unanticipated costs that working Californians can ill-afford to absorb – especially as we head into what many are already calling the Second Depression, especially with unemployment projected to reach beyond 10 percent in our state.
Consider for a moment the grim reality – and facts – about struggling small businesses in California:
California’s has one of the worst tax climates in the nation. In its 2009 State Business Tax Climate Index, the nonpartisan Tax Foundation ranks the Golden State 48th. Only bureaucratically-calcified Eastern Seaboard states New York (49) and New Jersey (50) are worse. In the Foundation’s Sales Tax Index Rank, California comes in 43rd.
The Index notes, “This point-of-sale tax can hurt the business tax climate because as the sales tax rate climbs, customers either make fewer purchases or seek out low-tax alternatives. As a result, business is lost to lower-tax locations, causing lost profits, lost jobs and lost tax revenue.”
Perhaps the proposed 1.5¢ increase in the state sales tax is the bone the Governor believes he must throw legislators in order to get the spending reforms he wants. If so, small business owners aren’t buying it. A recently-released report from the National Federation of Independent Business Research Foundation shows why.
In its Laissez Les Bon Temps Rouler [Let the Good Times Roll] 2008: The Continued Rise in State Spending and Deficits, NFIB’s Research Foundation claims unchecked state spending as the root cause of most states’ budgetary problems. In California’s case, the percent change in total, inflation-adjusted state expenditures from 1992 to 2006 rose 47 percent and the per capita, inflation-adjusted state expenditures by 25 percent. That’s why it comes as no surprise that a recent poll of NFIB/California members revealed that 92 percent of our state small business owners fiercely oppose a sales tax increase as a means of solving a budget mess – a mess, mind you, that our spend-crazy leaders got us into in the first place!
Moreover, when California small business owners pay sales taxes on productive assets, such as machines and vehicles, any increase will make it that much harder for them to grow their business and employ more Californians. The cost of nearly every business input from automobiles and gasoline to paper and staples will go up taking precious dollars out of our vital small businesses.
Yet there are worse tax increases prowling the frozen tundra of California’s budget talks. Increases in the state Personal Income Tax (not inappropriately known as the PIT) would hit the more than 80 percent of small business owners who file personal returns for their business. Increasing commercial property taxes would also be another foolish choice.
Indeed, within this budget debate, there are a number of “economic stimulus” ideas that small business owners would enthusiastically embrace to help invest in their businesses, jobs and communities: clarifying onerous meal period and overtime regulations so employees can determine a schedule that works best for them; speeding up public-private infrastructure projects to fix our highways and put more people to work; providing greater tax credits to help stimulate more investment in manufacturing and business growth.
Unfortunately, all of these worthy and thoughtful proposals to “invest” in California’s future won’t really bear any meaning or value if, in fact, painful new cost burdens end up destroying the very small businesses, jobs and communities they portend to create.