Calif. govt. killing small businesses

Oct. 9, 2012

By Katy Grimes

It is no secret that small businesses are losing ground in California. Every neighborhood throughout the state has stores with shuttered windows and doors. Every neighborhood can point to lost jobs and disappearing small businesses.

California’s attractions appear to be running thin, as its residents can’t live on mild weather and beautiful scenery alone.

Mom and pop are scared

Small business owners report that they are scared and uncertain about what is ahead. They are frustrated. But their frustration is not because they fear challenging economic times, or the difficulties in owning a business. Small business owners report that their frustrations are rooted in California’s broken state government, the Governor, and the Legislature, for placing their own careers well above the good of the people and the state, for far too long.

What’s so frustrating?

According to John Kabateck with the National Federation of Independent Business-California, small businesses end up paying 37 percent more than large businesses to comply with California’s growing giant book of regulations.

That’s a frustrating statistic.

Small businesses pay 18 percent more for health insurance than larger businesses.

The cost of tax compliance for small business is 65 percent greater than big businesses.

Mounting paperwork, reporting requirements and the costs of the taxes are much more costly to a small business, which often has to hire additional employees just to administer the many different regulations and multi-agency tax paperwork.

The ignorance and selfishness of lawmakers choosing to increase regulations and taxes on small business owners instead of cutting state costs is killing the geese which lay California’s golden eggs.

What’s a small business?

According to Kabateck and the NFIB-California, 99.2 percent of all businesses in California are small businesses, and small businesses in California create two-thirds of all new jobs.

That’s a lot of golden eggs.

But small businesses are more severely penalized by the Legislature than big businesses just for existing, and just for being located in California.

Where do you take your clothes to be dry cleaned? Who repairs your used car? Where do you get your hair styled? Who does that fabulous mani/pedi? Where do you buy your cupcakes, pastries and muffins? Who makes the banner for your kids’ soccer team?

These are all small businesses.

The quick print shop, your favorite Sushi spot, the local chiropractor, dentist and physical therapist are all small business owners. Chances are that your veterinarian is a small business owner. The running shoe store is probably a locally-owned small business, as is that cool burger joint down the street. Even many fast food restaurants are owned by a small business man or woman, who often manages the McDonald’s, Subway, KFC or Taco Bell.

But every time small business owners try to save a little bit of money for reinvestment, the state Legislature passes more regulations, approves more fees, hands out more welfare entitlements, adds licensing requirements, and bans something that these small businesses use.

Instead of helping these small business owners, the state just throws up more barriers to doing business profitably, preventing owners from doing what they do best.

What are regulations?

Regulations are rules imposed by government. Small businesses are impacted by regulations in many ways including mandatory recycling, the number of parking spaces mandated for the disabled, diesel emission laws, hunting and fishing regulations, pesticide laws, and clean air and water laws.

There are plenty of really stupid regulations such as the plastic bag ban, the no-perfume ordinance in one California city, and the street light ordinance in Davis, Calif. which won’t allow the lights to glow upward, so the people of Davis can see the stars and moon at night without any light pollution interfering.

Many regulations start out because of a need. But most were created by and for special interests. But as government does with everything, instead of allowing the regulation to work as it was intended, government must grow. As it does, so do the far reaching fingers of the regulation, thwarting small business owners.

Why tax increases hurt

There are several tax increase measures on the November ballot which would disproportionately hurt struggling small businesses.

Proposition 30, Gov. Jerry Brown’s  “Millionaire’s Tax” ballot initiative, which would raise sales taxes and increase income taxes, is just one of the tax measures vehemently opposed by small businesses.

Prop. 30 will raise California’s sales tax to 7.5 percent from 7.25 percent, a 3.45 percentage increase over current law, according to Ballotpedia. Many counties will pay more because of local add-on taxes.

And it will create four high-income tax brackets for taxpayers with taxable incomes exceeding $250,000, $300,000, $500,000 and $1,000,000. This increased tax will be in effect for 7 years.

Individuals and small businesses making $250,000 will pay 1 percent more income tax to California. According to Ballotpedia, Prop. 30 “imposes a 10.3% tax rate on taxable income over $250,000 but less than $300,000–a percentage increase of 10.6% over current policy of 9.3%.”

Individuals and small businesses making $310,000 will pay 2 percent more as will those who make $400,000.

“If this proposition is passed in November, 2012, the income tax will apply retroactively to all income earned or received since the first of the year (1 January, 2012),” according to Ballotpedia. “Based on California Franchise Tax Board data for 2009, the additional income tax is imposed on the top 3% of California taxpayers.”

The majority of California’s 3.6 million small businesses file their taxes as individuals, not corporations; $250,000 income a year is not very much money to run a small restaurant, hire employees, and still be able to make even a small salary. If Prop 30 passes, it will get worse for these small business owners, and many more part time and modestly paid employees will lose their jobs.

Mom and Pop income tax increase

Brown’s “millionaire” income tax increase should be called the “mom and pop income tax increase.” California already has the second highest income tax in the country, and the highest sales tax of any state.

Should Prop. 30 pass, California’s income tax will be the highest income tax in the nation. High sales taxes will only get worse.

The sales tax on all auto purchases will increase.

Small businesses will not only be taxed more, they will pay higher sales taxes on large and small equipment purchases and supplies.

A hair and nail salon will have to pay more for hair dye, shampoos, nail polish and towels.

Restaurants will pay more for paper supplies, silverware, glasses, tablecloths, wine and beer, as well as for bigger purchases: stoves, refrigerators, ice makers and soda machines.

Shoe stores will pay more for shoes, socks, clothing and accessories.

Many of these additional costs will be passed on to the consumers by the businesses. But there are many businesses which cannot pass along additional costs. Higher taxes end up eroding any profit, however meager, the business owner may have.

Tax increases will drive more shoppers away from small businesses and into discount and big-box stores looking for ways to save money. And more stores will close, move, or get swallowed up by larger businesses.

The one thing all of these small businesses have in common is that their voices are drowned out at the state Capitol by labor unions, very large businesses, and other special interests.

The one-party rule in California has left most legislators tone deaf to the concerns of business, who still see large and small businesses merely as a checking account with no limits.

As happened in 2010, this election may unleash the small business owner and turn the small voice into a roar.

30 comments

Write a comment
  1. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 9 October, 2012, 08:17

    I just feel soooooo bad for the poor job creators!!!!!!!!!

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 October, 2012, 08:29

    You feel bad!!!! Wait unil Nov 6 troughie.

    Reply this comment
  3. Ulysses Uhaul
    Ulysses Uhaul 9 October, 2012, 08:44

    #30 by 5…..what is a troughie……Winner? Master?

    Reply this comment
  4. Hondo
    Hondo 9 October, 2012, 09:14

    Again, so many of these small business in Kali are minority and immigrant owned. These are the minorities that are not on welfare or in the criminal justice system. They are working 50 plus hours a week and more. We conservatives (me included) sometimes fall into the trap of saying too many minorities and immigrants are on the dole or are in in jail. But if you look at who’s opening small business in Kali, you see it’s those same folks.
    And it is these same people, and their business, the democrats are trashing with their obscene regulations and taxes.
    I think we should deport illegals from the nations jails, not their place of work. The democrats ( and the ADA lawyers)want to, and are, destroying their place of work.
    Hondo………

    Reply this comment
  5. BobA
    BobA 9 October, 2012, 12:12

    Hondo:

    Small businesses can’t afford lobbyists or to give lavishly to political campaigns. Democrat politicians loathe small businesses and wish they didn’t exist. The only kind of capitalism they tolerate is crony capitalism.

    All others must surrender the proper tithes and offerings to the democrat party for the right to do business in California or be taxed and regulated out of existence.

    Reply this comment
  6. Douglas
    Douglas 9 October, 2012, 13:23

    “California already has the second highest income tax in the country, and the highest sales tax of any state.”

    As Rush Limbaugh says: words have meaning.

    California has the second highest income tax “rate” in the country, and the highest sales tax “rate” of any state.

    California does not pay the highest per capita tax or tax as a percentage of income. Largely because of deductions and exemptions.

    For instance, California does NOT tax Social Security income, as some other states do. And California does NOT tax groceries, as some other states do.

    According to most studies, “We’re number eleven!!”

    Reply this comment
  7. Douglas
    Douglas 9 October, 2012, 14:23

    Small Business Survey: Lack Of Demand Top Concern For Small Business Owners.

    A survey of small business owners conducted by the American Sustainable Small Business Council, The Main Street Alliance, and the Small Business Majority released February 1 “shows small business owners see weak customer demand as the most important problem they face right now”:

    Small business concerns:
    Weak customer demand………………..34%
    Health care and benefit costs………..15%
    Government regulation……………….14%
    Level of taxes……………………..12%
    Competition from large companies……..10%
    Credit for business investment………..6%
    Quality and skills of available workers..5%

    Reply this comment
  8. BobA
    BobA 9 October, 2012, 15:10

    Douglas:

    Careful what you say my friend. Some California politician might read your comment. Don’t give them any new ideas for tax revenue that we will all later regret.

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 October, 2012, 18:48

    Dougie the Trough feeder, we are talking about CA here, NOT the nation, so your stats are meaningless, like your comments!!!!!

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 October, 2012, 18:50

    Small business concerns in CA:
    Weak customer demand……………….1%
    Health care and benefit costs……….1%
    Government regulation……………….60%
    Level of taxes……………………35%
    Competition from large companies…….1%
    Credit for business investment………1%
    Quality and skills of available workers..1%

    Fixed 🙂

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 October, 2012, 18:52

    California does not pay the highest per capita tax or tax as a percentage of income. Largely because of deductions and exemptions.
    ==
    CA has the HIGHEST per captia taxes in the nation. And the HIGHEST absolute taxes in the nation.

    It also has the higheest taxess as a % of income, as the regressive sales tax is the highest in the nation.

    Go home troughie, only the big boys can play here.

    Reply this comment
  12. Douglas
    Douglas 9 October, 2012, 19:27

    “We’re number eleven!!”

    Reply this comment
  13. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 9 October, 2012, 20:37

    8 out of 10 small biz’s go bust in 2 years– that happens with no help from the gov– always been that way for many reasons.

    Reply this comment
  14. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 October, 2012, 21:02

    Calif. govt. killing small businesses
    =================
    If gov could only kill Teddy and his sock puppets 🙂

    Reply this comment
  15. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 9 October, 2012, 21:36

    Poodle–“kill Teddy”? your dull-normal rhetoric is continuing a turn for the violent…..maybe you should grow up a bit?

    Reply this comment
  16. CalWatchdog
    CalWatchdog 10 October, 2012, 06:25

    Douglas, your stats come from a shadowy organization called the Alliance for a Just Society which promotes “economic justice.” The Alliance believes, “The economic recession that began in 2008 resulted from years of growing economic and racial inequity in the United States. Rather than building an economy based on the common good, in recent decades lawmakers renewed and adopted policies that slashed taxes for the wealthy and deregulated big business, including Wall Street and the banks.”

    They were formed in 2008, coincidentally when Obama was elected.

    Get better stats – yours are from a group promoting economic and social justice – code words for redistribution of wealth.

    Katy

    Reply this comment
  17. Ulysses Uhaul
    Ulysses Uhaul 10 October, 2012, 07:56

    Poodle should be banned. For personal threats. This guy has some problems!

    Reply this comment
  18. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 10 October, 2012, 08:14

    Spirited debate is good. Threats of violence have no place in the public square.

    Reply this comment
  19. Douglas
    Douglas 10 October, 2012, 08:19

    I checked out the website for Alliance for a Just Society and couldn’t find any reference to this survey. 

    I did notice a Gallup poll from Feb 2012 with the headline “Health Costs, Gov’t Regulations Curb Small Business Hiring”

    Yet “government regulations” we’re number six on the list (46%),  under:

    Don’t need additional employees at this time….76%
    Worried revenues or sales won’t justify adding employees….71%
    Worried about current state of economy….66%
    Worried about cash flow or ability to make payroll….53%
    Worried about potential cost of healthcare…..48%

    Reply this comment
  20. CB
    CB 10 October, 2012, 10:24

    As on of the small business owners of California, I can tell you that after the last election in 10, I realized that there was no turning back. My business has been prospering for 2 years in Las Vegas. I have opened 3 more businesses and employ 15 more people now then when I did in CA.

    Every time I tried to expand in CA, my workers comp jumped, every year, my taxes grew and the number of ‘visits’ from the good people at the government increased. I felt like the calf they were getting fat for slaughter…so I got out.

    I don’t care who you are, what studies you site or what you believe. The facts are that CA business are closing or leaving and there are fewer and fewer new businesses taking our place. You will find the cupboard bare soon enough.

    Reply this comment
  21. Rex the Wonder Dog!
    Rex the Wonder Dog! 10 October, 2012, 10:56

    I checked out the website for Alliance for a Just Society and couldn’t find any reference to this survey.
    ===========
    LOL….that is 100 times funnier than “CalTURDS Responds”!!!!!!!!!

    Trouguie, please, no more, I am dying of laughter and can’t take anymore of it 😉

    The Alliance for a Just Society (formerly the Northwest Federation of Community Organizations) exists to advance a *******progressive national agenda by executing …

    http://www.westernstatescenter.org/our-communities/organizations/northwest-federation-of-community-organizations

    Reply this comment
  22. Douglas
    Douglas 10 October, 2012, 11:03

    I am glad your business is doing well.

    The situation you are describing is anecdotal evidence.

    My wife works for a small business in California which has been expanding every year since she started there 7 years ago. Luckily for us, the business is doing very well and she has had COLAs equal to or better than the CPI every year. Profit sharing, 401(k), and good health insurance. She is in accounts payable/receiving, so she does see changes in HR regulations and taxes, workers comp.

    Her employer deals with the regulations and is currently actively increasing the size of their facility and hiring more personnel.

    Again, anecdotal evidence.

    The discussion is about government “killing” small business. I don’t disagree that regulations and taxes can can make business more difficult, or impossible. But even if ALL regulation and taxes were removed (can we agree that is a bad idea?), without consumer demand for your product or service, business is dead.

    From what I read in the paper, most of the “shuttered windows and doors”, in my area are not because of increased regulations. They are from lack of consumer spending, as in furniture and appliance stores construction materials and services, largely due to home values.

    Reply this comment
  23. double l
    double l 10 October, 2012, 11:57

    Let the roaring begin.

    Reply this comment
  24. Sean Morham
    Sean Morham 10 October, 2012, 13:08

    Gee, sounds like the turnaround is around the corner. Taxes increase, Cap and trade, higher energy costs. Has to help the business environment. HIgher costs to consumers, that has to make them want to spend more..must be the Oh well, f*&k it, just spend baby approach.

    Reply this comment
  25. CalWatchdog
    CalWatchdog 10 October, 2012, 14:11

    COLAs, cost-of-living-adjustments, are a luxury in today’s economy, and usually only offered by companies which are unionized and/or compete for business with unionized companies.

    As a former business owner and HR specialist, I know first hand just how much increasing regulations and tax increases impact business.

    The upcoming cap-and-trade auctions and implementation of AB 32 will have a huge impact to businesses — especially food businesses, transportation companies, manufacturing of any kind, and any processing businesses which use heat. AB 32 is a tax on business, hidden in clean air regulations.

    No one is asking for all regulations to be removed, but adding hundreds of new regulations every year is about nothing other than government expanding and dominance over the producers in the state.

    Katy

    Reply this comment
  26. Rex the Wonder Dog!
    Rex the Wonder Dog! 10 October, 2012, 15:24

    Douglas says:

    October 10, 2012 at 11:03 am

    I am glad your business is doing well.

    The situation you are describing is anecdotal evidence.

    My wife works for a small business in California which has been expanding every year since she started there 7 years ago. Luckily for us, the business is doing very well and she has had COLAs equal to or better than the CPI every year. Profit sharing, 401(k), and good health insurance. She is in accounts payable/receiving, so she does see changes in HR regulations and taxes, workers comp.

    Her employer deals with the regulations and is currently actively increasing the size of their facility and hiring more personnel.
    ==

    BULL!!!!

    Nmae the business Dougie, or it never existed or happened.

    Reply this comment
  27. Ulysses Uhaul
    Ulysses Uhaul 10 October, 2012, 16:05

    Yawn. This Poodle is really a constant nonevent….

    Reply this comment
  28. Douglas
    Douglas 10 October, 2012, 17:01

    Katy,

    No union, wholesale produce business. I don’t know if the competition is unionized.

    Each employee meets with their boss, usually in June for evaluation. Raises vary depending on performance, usually somewhere around CPI.

    Ironically, last year my wife did not receive a raise in July. They said she had an attitude problem. (I know, hard to believe, huh? What with my good influence and all). She was the only one not to get a raise, except for several that were “terminated”. She knows this because her main job is payroll. Not to worry, she got her raise within three months. And again in July this year.

    COLAs are not extinct, it probably depends on which industry one is in. My son in law is a machinist in the Bay area. He was “furloughed” ( four day weeks) for a while in 2008/2009, but is back to full time now, with pay now increased for inflation. His daughter is in IT and doing very well.

    I don’t have relatives in construction related industry. One of the sectors not doing well. Lack of demand? Or over regulation?

    For what it’s worth, they told me in Econ class that the big strength of American business is that they learn how to get around government interference. I am not saying there are not too many regulations, but we cant blame the whole worldwide recession on the banning of plastic bags. Or on public worker pensions.

    Reply this comment
  29. Rex the Wonder Dog!
    Rex the Wonder Dog! 10 October, 2012, 17:43

    Yes Doug I am sure your wife gets COLA’s every year, and I am the queen of England 😉

    The MEDIAN salary in CA is now $29K, that is down 10% from 2000, but your wife is not only not losing her wages, she is increasing them. Right.

    Yawnnnnneeeerrrrrrrrrrrrrrrrr…………. and machinist don’t make diddly squat, even in the Bay Area, luck if they get $15 an hour.

    Reply this comment
  30. Rex the Wonder Dog!
    Rex the Wonder Dog! 10 October, 2012, 17:45

    We can blame at least 75%-if not 90%- of CA budget problems on employee pay and pensions, where the AVERAGE comp package for a city employee is $150K and UP! AVERAGE…………

    Reply this comment

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