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.