Politics from the Palouse to Puget Sound

Thursday, July 24, 2008

"State's business friendliness debatable despite magazines"

The Queen has lately been touting what a wonderful place Washington is to do business. Ed Schweitzer, Eastern Washington's most prominent businessman, disagrees. So does Carl Gipson of the Washington Policy Center. In an editorial published in the Bellingham Herald, Gipson provided a reality check:
Is Washington state truly friendly to businesses? It depends on whom you ask. Some reports say Washington has a favorable business climate, yet other measures show our state isn’t anywhere near the top end of business-friendly states. Which are correct? There is no definitive answer, but examining the criteria used by the different reports might shed some light on this controversial subject.

The good news is that none show Washington at or near the bottom in overall business friendliness. However, several troubling statistics exist.

You may have heard that Forbes Magazine ranked Washington state as the 5th best state for business. Forbes is a respected national business magazine. Washington’s leaders should be proud of the good press. Does Forbes saying we’re number five truly make it so? Is the debate about our business friendliness over? Let’s take a closer look at Forbes’ criteria.

Washington ranked particularly well (4th) in Forbes’ “labor rank,” a criteria measuring educational attainment, net migration and population growth. We ranked 4thin the “growth prospects” category, a criteria that judges the prospects of individual income growth and business start-ups. For years Washington state has been ranked as a state with a high start-up rate, but we’ve also been ranked as a state with one of the highest business failure rates.

Forbes ranked us 5th in the “regulatory environment” category; something the hundreds of small business owners Washington Policy Center has worked with over the years might object to.

Where we didn’t score particularly well was in the “business costs” (33rd), “economic” climate (16th) and “quality of life” (32nd) categories. I’m curious as to how we can rate so well overall and yet be ranked so low in categories that include the cost of actually running a business.

Forbes is not the only national study to rank Washington particularly friendly to business. The Small Business and Entrepreneurship Council ranked Washington the 4th best state in tax systems for small businesses. That sounds like even better news right?

But wait a minute.

The SBE Council had sixteen different sets of criteria including personal income tax, corporate income tax, AMT taxes, property taxes, gas tax and so on. What is notable about the SBE Council’s ranking system is that out of the sixteen measures, Washington only registers in eight of them. Washington has no personal income tax, corporate income tax and several of the other taxes that states were ranked by, and therefore Washington has an artificially high ranking.

Washington ranked perilously low in the categories for which there is data. We came in 25th in property taxes, second-to-last in sales, gross and excise taxes (includes our B&O tax), 43rd in unemployment taxes, 46th in gas taxes, and our state’s estate tax was not ranked using a comparison of percentages among other states but only by the fact that it exists. That Washington received the highest marks among taxes we do not have, and mid-to-worst among taxes we do have, should be kept at the forefront of the discussion.

The Tax Foundation ranked us 11th overall. We tied for first in the personal income tax category (because we don’t have one) but when they account for our B&O tax we came in at 31st. We also ranked dead last in their sales tax measure. The unemployment insurance and property tax rankings were not much better.

The American Legislative Exchange Council ranked our economic outlook at a worrisome 31st. Here too we ranked tops in the income tax standings, but fell to 25th for property taxes, 49th in the sales tax burden and 28th in the estate tax.

Despite the tax and regulatory burdens faced by entrepreneurs in this state, thousands of businesses open each year. But the pool of people willing to risk their livelihoods and their capital is finite – at some point the cost of doing business will become prohibitive. In 2007 the state’s business community paid almost $15 billion in taxes – an increase of 36% since 2002. At what point does the business community look for better, cheaper options and friendlier states?

During this election season, as rankings are being thrown about remember that while the business cli-mate may be good for some, it certainly is not great for everyone. The data in these reports show where we need the most improvement.

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