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Cumulative effect of taxes, regulations hurt small business

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Small businesses — and the 550,000 risk-takers who operate them — are the lifeblood of communities across Washington state. 

This fact may be more apparent in rural towns that often have few or no large businesses to help generate the economic energy that funds schools, safety-net programs and public safety.

That’s why the Association of Washington Business and its members have expressed concern with Gov. Jay Inslee’s budget proposal released in December. If adopted, it would raise $4.4 billion in new taxes for the 2017-19 budget on top of the nearly $2.6 billion — 6.6 percent — natural growth in tax collections. In all, the proposal would raise taxes more than $8 billion in future budgets.

Two of the many proposed taxes include raising the Business and Occupation (B&O) tax on service-sector employers from 1.5 percent to 2.5 percent, equaling $2.276 billion in 2017-19; and a 7.9 percent tax on capital gains earnings above $25,000 for individuals and $50,000 for joint filers, affecting an estimated 48,000 taxpayers and raising an estimated $821 million in 2019.

Although they are described as taxes on the wealthy — millionaires, lawyers and big accounting firms — the reality is both taxes would hit small businesses, too.

According to the state Department of Revenue, the proposed B&O tax increase would land on businesses in 304 classifications, everything from child day care services, restaurants and other eating establishments, to florists, grocery stores and a host of manufacturing sectors, including small medical device and aerospace product and parts manufacturers.

During AWB’s 15-stop, small business listening tour last year, one common theme we heard from employers and every-day Washingtonians, especially in rural communities, is that policymakers need consider the cumulative impact of higher taxes and increased labor costs.

In 2017, the statewide minimum wage increased 16 percent to $11 per hour, shortly after another increase in workers’ compensation taxes. These are on top of higher property taxes and new or increased local fees and taxes. Add the bump in B&O tax rates and higher energy and fuel costs through a carbon tax also proposed by the governor, and the extra costs would be difficult for small employers to absorb.

Likewise, it’s not just the wealthy who would pay the proposed capital gains tax. A small-business owner who has worked hard all their life to grow value in their operation and are relying on it for retirement would be hit with the tax upon sale of the business.

Employers understand the difficult balancing act the Legislature must play — pay for schools and critical services and maintain the state’s competitiveness. We wholeheartedly support those efforts.

But, we also believe that higher taxes that impact small business and rural communities that are still waiting for economic recovery should not be the starting point of budget negotiations.

And we know that it’s important to make sure that lawmakers understand how higher taxes and labor costs cause small businesses to pause expansion or even consider shutting their doors. That’s why AWB has completed a detailed report for lawmakers that outlines several policies that would support small employers and the communities they serve.

Healthy small businesses make for healthy communities. Working with the Legislature, we can find solutions that ensure great schools, strong communities, good jobs and careers, and preserve Washington’s competitiveness.

Kris Johnson is president of the Association of Washington Business, Washington state’s chamber of commerce and manufacturing association.