Uncertainty is the only certainty

AUG. 26, 2010

Every day, more homes go into foreclosure. Companies are not hiring. Credit card usage is at the lowest in decades. Banks are not lending.

The question everyone is asking is, do businesses and consumers feel optimism or pessimism?

If business owners are optimistic, they hire people, invest back in their infrastructure and equipment, and grow.

But business owners are saying that they wouldn’t invest in equipment right now, even if the government paid for it. The credits being offered by the federal government for buying equipment, or for hiring employees, are unrealistic and hardly an incentive for a business owner to expand.

Take a poll of business owners, and ask them what would help right now. The unanimous answer is to allow them to keep more of their money, through lower taxes and by removing regulations.

Instead, legislators continue voting on higher taxes, and keep adding business-killing regulations.

A recent report in Business Week demonstrated what is happening with small business and entrepreneurship in the country:

• Fewer people are starting businesses. The Bureau of Labor Statistics show that the rate at which people started new businesses fell 13.3 percent from 2007 to 2009.

• New and small businesses are dying at a rapid pace. In the first three months of this year, the number of business bankruptcies was more than double the level in the initial quarter of 2007, according to the American Bankruptcy Institute.

In addition, from 2007 to 2008, the Census Bureau reports that the number of non-employer businesses in the U.S. declined 357,000. From 2007 to 2009, the number of self-employed people fell by 562,000, with 270,000 of the lost self-employed having previously run incorporated businesses.

• Small business employment has shrunk dramatically. According to the monthly ADP Small Business Report, 6.4 million small business jobs were lost from December 2007 to June 2010. This decline occurred amid evidence from several sources that hours worked and compensation at small businesses had also fallen. Even at newly formed businesses, employment declined.

And in California, bill after bill expanding the size, scope and control of state government have been passed by the Legislature as recently as yesterday.

Just this week, Assemblywoman Nancy Skinner, D-Berkeley, passed a bill that “creates burdensome tax reporting requirements for businesses and discourages businesses from taking advantage of investment incentives,” according to the California Chamber of Commerce.  Skinner’s bill, AB2666, would create a database of publicly traded corporations that receive tax subsidies. The goal is to create a listing of companies that received tax breaks in the state, and penalize those companies, which do not volunteer the information.  Skinner said, “This bill will provide transparency and accountability to corporate tax expenditures in order to make them more effective at creating much needed jobs.”

The bill analysis explains that in 2009, nearly $14.5 billion in tax expenditures went to corporations as an incentive for them to do business and create jobs in the state.

Sounds OK, right?

Except that the state has no oversight of that money, or any way to assess the effectiveness at creating or retaining jobs. And since Democrats believe that creating jobs is best left up to the government, it’s no wonder they distrust business owners.

Opposition to the bill from Assembly members was substantial. Calling California the “Absolute worst place in America to do business,” Assemblyman Chuck DeVore, R-Irvine, said he was quoting Forbes magazine reports about the state of business in California. “And our regulations are the worst.”

DeVore reminded colleagues in the Assembly, “We voted for tax breaks to help some businesses move to California, or headquarter here.”

Assemblyman Kevin Jeffries, R-Lake Elsinore, read a letter from a constituent describing the “harassment” that businesses in California must endure from state and government agencies.

But Lori Saldana, D-San Diego, stood with the Democrats. “I take offense at being told we voted willingly for tax breaks,” Saldana said. She described the vote for tax breaks as “leverage on a budget vote,” and said she was against tax breaks for businesses.

Apparently Assemblywoman Diane Harkey, R-Dana Point, had heard enough. Harkey said, “Tax credits are part of the budget package – part of the deal made.” Harkey accused the Democrats of breaking the deal by trying to penalize businesses that receive tax breaks from the state.

Harkey suggested it was better for the people of the state when the Legislature does nothing, so at least the uncertainty will end. “Go home and leave them alone,” Harkey said.” “Every financial network is saying that people need certainty. We need to allow people to keep more of their money.”

The Senate taxation committee staff analysis sums up the problem: “If we require beneficiaries of state programs, such as CalWORKS, to provide fingerprints, report their income every three months, be checked continuously for fraud, and prove that they found work for thirty-two hours a week to keep their grants and assistance, we should require corporations to report to the state what they are doing with the billions of dollars they receive each year. AB2666 will help to ensure that state spending on corporate tax subsidies is transparent and accountable.”

Under the guise of “transparency in government,” the Assembly voted 41-19 on this bad bill, and many other like it in recent weeks.

Harkey is right – we are better off when they stay away from the Capitol. With more than 200 legislators working diligently to justify their full-time jobs, the volume of intrusive legislation will just keep coming.

Helmet laws, smoking laws, cell phone laws, baseball bat laws – the insanity continues. But the one thing they are charged with accomplishing every year does not get done – the budget. The people of California don’t care at all about ski helmet laws, but we do care that state employees are furloughed and the state’s vendors will receive IOU’s instead of being paid.

Businesses are closing because of this legislature. Dan Logue, the Republican Assemblyman from Marysville has it right: “Transparency in government – I’d like to see the Democrats make government as transparent as this bill is requiring of businesses.”

–Katy Grimes