Small Business Insider
by Raymond J. Keating-
Small Business Policy Index 2018: Washington ranked 7th – that is, seventh best – among the 50 states.
SBE Council’s “Small Business Policy Index 2018” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.
Small Business Tax Index 2017: Washington ranked 5th – that is, fifth best – among the 50 states.
SBE Council’s “Small Business Tax Index 2017” ranks the states according to 26 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.
Washington: A Friendly Policy State (Currently) for Small Businesses
As noted in a recent SBE Council analysis, the state of Washington ranks as a state of extremes. Just take a look at how well the state scores on SBE Council’s rankings of the state policy climates, and then look at some recent policy initiatives, including a costly carbon tax on the November 6 ballot.
According to the Small Business Policy Index 2018: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship, which I write for the Small Business & Entrepreneurship Council, Washington ranked 7th best among the 50 states. And it earned number 5 on the Small Business Tax Index 2017. That’s impressive.
Among the key positives for the state are no personal, individual capital gains, corporate income, and corporate capital gains taxes, along with a fairly low level of state and local government employment. No income and capital gains taxes imposed on entrepreneurs, workers, businesses and investors are powerful positives for incentivizing the engines of economic, income and job growth.
But there are negatives as well in Washington. As noted in the “Small Business Policy Index 2018,” the state imposes a death tax, very high consumption-based taxes, a high unemployment tax, the third highest gas and diesel taxes, the highest wireless tax, a weighty energy regulatory burden, and a high level of state and local government debt. For good measure, the state imposes a very high minimum wage mandate, with the city of Seattle pushing that mandate even higher.
Also in Seattle earlier this year, the city council voted to impose a $275-per-employee tax on larger businesses (some 600 firms), and then after a tremendous backlash, the council voted to repeal the tax within a month.
The Next Costly Threat
Voters will weigh in on a proposed carbon tax (though it is called a “fee”) in a ballot initiative on November 6. Keep in mind that voters already overwhelmingly rejected a carbon tax in 2016.
This time, Initiative 1631 would, if passed, effectively impose a $15 per metric ton tax on carbon emissions mainly from utilities and sellers of fossil fuels. The tax would subsequently increase $2 per ton per year plus the rate of inflation. And if the state’s greenhouse gas emissions goals are met in 2035, the tax would persist and rise by the annual rate of inflation. If the goals are not met, the $2 per ton per year increase also would continue.
This measure, of course, would mean increased electricity costs and higher prices at the pump for individuals, families and small businesses.
A study by NERA Economic Consulting estimated that this measure would impose a net effective additional gas tax of 13 cents per gallon in 2020, rising to 59 cents per gallon by 2035; an added diesel tax of 15 cents per gallon in 2020, moving up to 66 cents by 2035; a tax on the delivered price of natural gas to households moving from $0.76 per million cubic feet in 2020, rising to $3.54 in 2035; and a delivered price of electricity to households from 3 cents per kilowatt hour in 2020 to 1.7 cents in 2035. These translate into big costs for the self-employed and small businesses.
NERA reported that the total net cost per household would be an average of $440 in 2020, moving up to $990 by 2035; and the state’s gross state product would be reduced by 0.4 percent in 2020 and 0.5 percent in 2035.
Policy Matters
Hopefully, the voters in Washington will, once again, make clear their rejection of a costly, misguided carbon tax. The state would be far better off if lawmakers concentrated on providing relief from energy-related burdens, such as Washington’s burdensome gas and diesel taxes, and weighty energy regulations, which would, in turn, boost the state’s growth and competitiveness.
As we’ve seen with other states that place too many burdens on small businesses and taxpayers, individuals vote with their feet. Many of Washington’s current residents and businesses have fled from California to escape its high government costs and crushing taxes. The Evergreen State is not immune from outward migration given efforts by other states to recruit businesses, investment and workers. The rejection of Initiative 1631 by voters would maintain Washington’s appeal and its competitiveness for fueling economic growth and entrepreneurship.
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.