Tag Archives: regulations

California’s Business Climate — Myths & Facts

I just came from the Capitol press conference on the sham of a report about the supposed cost of regulation in California. Not surprisingly conservatives and business groups are touting the study, as “evidence” that we need to de-regulate California and they took great glee in perpetuating a tired myth – California is a bad place to do business. The problems with the study are numerous, as noted in previous Calitics posts . The study takes much of its data from right-wing think tanks and Forbes magazine, not exactly subjective sources. It is purposefully vague in naming specific regulations that are supposedly so burdensome to business. It doesn’t take into account the myriad benefits of California consumer, labor, environmental and wage protections. And many of the arguments it does make are completely misleading.

The familiar refrain that California is a high-tax, high-wage-state that drives businesses away is simply not supported by the facts.

MYTH: California has the highest taxes in the nation

FACT : California is a high-income state with a wide range of revenue sources. Besides local and state taxes, California collects fees, assessments and other taxes. Taking into account all of those sources of revenue, California has a very moderate tax rate. The percentage of average income Californians pay in all taxes, which is a measure of tax burden, is reasonable compared to other states. Using that measure of tax burden, California ranks number 17 behind states like Alaska, Wyoming and North Dakota that have a higher tax burden per capita.

MYTH: California’s high-taxes and cost of doing business is driving businesses and jobs to states with fewer regulations

FACT: California loses very few jobs from businesses leaving the state. In fact, only 11,000 jobs leave the state annually out of a total of 18 million jobs. That’s only 0.06% of California’s total jobs that are lost by businesses moving out of state. The biggest job creation and loss engine are businesses opening, expanding, shrinking and closing within the state due to normal business cycles-very few businesses leave the state to our neighbors.

California has lost fewer jobs than our ostensibly “business-friendly” neighboring states. California does not rank in the Top 10 of states suffering job loss from 2008-09 and three of our five neighboring states lost more jobs than California. Our low-tax neighbors of Arizona, Nevada and Oregon had over 6.5% job loss, while California only had 4%. Even notoriously low-tax, little regulation states like Florida and the Carolinas have suffered more job losses than California.  

MYTH: Businesses will not come to California because of our high-taxes and high-wages

FACT: Businesses chose their locations for many different reasons including the tax burden, but also based on other criteria such as infrastructure, education and skill level of the workforce, access to intellectual and natural resources and many others. In that regard, California has an advantage because of our natural and human resources and the high concentration of research and technology centers. In addition, California workers are among the most productive with  an annual average output that is 13% higher than in other states.  

However, we are in danger of losing our competitive edge. Budget cuts result in crumbling roads, under-funded education systems that fail to educate the workforce, traffic-clogged highways that slow delivery and inadequate housing stock. California businesses can’t be globally competitive when they don’t have the infrastructure to perform. That is what will drive business from the state.

MYTH: California already taxes everything

FACT: Actually, California has many untapped sources of revenue that other states regularly tax. We could raise billions from the following immediate changes, with little impact on small businesses:

    $855 million: Oil Severance Tax of 9.9% on any oil pumping from California soil or water (California is the only oil-producing state without one.)

    $2 billion: Close the corporate loophole on Proposition 13 and raise the rates on assessments of corporate property.

    $1.1 billion: Impose a tax on services, similar to the sales tax. California only taxes 21 of a possible 168 services that many states tax. In contrast, Washington and New Mexico tax 158 different services.

    $470 million: Raise the corporate income tax by only 0.46% which barely keeps pace with the 557% net profit corporations saw from 2001-05 in California.

TOTAL: $5.725 Billion

If there’s one thing we’ve learned from our nation’s deep financial crisis it’s that when a group of Republicans come together and start scheming about de-regulation, everyone, including small business, should be concerned. Very concerned.

Yacht Party Rushes To Tout Snake Oil That Works, Works, Works!

Around 11:00 this morning some senior Yacht Party members and their acolytes will stand in front of microphones in Sacramento trumpeting a report about state labor regulations and small businesses.  They can be expected to say that the real problem with the California economy is all those gosh darn regulations, and if only businesses could free themselves from the iron boot of – I don’t know, the 40-hour work week, child labor, the right to have an employee saw off his fingers in a lathe without responsibility, it’s a different thing every week with these people – the state could be saved.

It’s worth understanding what this report that makes them go ga-ga is all about.  John Myers had a sketch of it the other day.

The document, wonkishly titled Cost of State Regulations on California Small Business Study, was quietly made public late yesterday. You can read it here […]

The summary says it all, at least in the eyes of the business community:

The study finds that the total cost of [business]regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.

Basically, regulations take your wives, enslave your children, throw your ice cream on the ground, and write “loser” on your chest in sun tan lotion when you fall asleep at the beach.  It’s amazing how in line this study is with standard conservative tropes about onerous regulations and big government.  I wonder why that is?  Here’s Myers.

So how do (authors Sanjay Varshney and Dennis Tootelian) reach their conclusions? The 33 page report (85 pages if you include the charts) relies heavily on Forbes Magazine and its annual report of the best — and worst — states in which to do business. The 2008 report ranks California #40 in the nation, and that’s the relative placement the authors used for their calculations.

“Forbes data is reliable,” says the study, “in that it uses credible sources of secondary data that are well recognized and respected as credible independent research in the business world.”

Perhaps, but Forbes’ proprietary methodology isn’t entirely transparent. Its website does note the sources for its rankings: data from both the federal government and nonprofits like the Tax Foundation and the conservative-leaning Pacific Research Institute.

This “academic” study cribbed their data from a MAGAZINE profile?  One owned by a movement conservative, which includes materials from wingnut welfare think tanks?  And we’re supposed to just let that go?

Myers goes on to note that the way Varshney and Tootelian transform the Forbes data into dollar amounts is entirely inscrutable, but designed to advance the proposition that every single state’s set of regulations are harmful to business.  “Even Forbes’ #1 state for business friendliness, Virginia, comes out with a regulatory climate that’s a net loss to the state of $4.4 billion.”  The study also neglects to determine which regulations harm business more or less.  It’s a partisan mess of a report and it should not be taken seriously.  Which is why the Yacht Party has taken to it so quickly, with classy headlines like “California Businesses Waterboarded by Governmental Overregulation.”

Look, labor regulations serve a particular purpose.  It’s true that they have a cost to business, but they also provide a significant cost savings to the individual, to the public health system, to the overall quality of life for the laborer.  We have made these trade-offs over hundreds of years.  The Yacht Party may think that The Jungle is a fantasy utopia, but in my experience, Californians and pretty much everybody else appreciate safe food and clean air and the minimum wage.

You can get a good sense of the intellectual honesty of a politician – and the media – by seeing if they bite at this crap sandwich of a report.

Tom Campbell’s Kind-Of-Interesting But Just-A-Mask-For-Friedmanism Health Care Proposal

Tom Campbell, among all the Republicans in the gubernatorial field, has at least been willing to lay out detailed plans for how he would fix the state.  Typically this manifests itself as the same old Hooverism.  But his health care plan at least gets points for creativity.

GOP gubernatorial hopeful Tom Campbell released a unique health care proposal Thursday that would redistribute $42 billion in federal and state funds already spent on health care in California to buy private health coverage for everyone in the state who’s “involuntarily” uninsured.

Under the former congressman’s plan, the funds would cover an estimated 2 million such people in addition to the 7.6 million already receiving public health coverage under the state Medi-Cal and Healthy Families programs.

“The astounding conclusion,” Campbell writes in his proposal, “is that, using only the money already being spent by the federal and state governments for health care in California, we could buy free market health insurance currently available and cover all involuntarily uninsured in California, and still have more than $700 per person left over!”

Instead of dedicating funds to services for the poor or children, Campbell would split the state into regions, and allow insurers to bid against one another to cover everyone in that region who earned below a certain level, along with everyone denied coverage for a pre-existing condition.  Insurers wouldn’t bid on price, but quality of coverage – the money would be fixed, and insurers would bid against each other based on what they would cover and at what rate.

I’m wondering why any insurer would bid for this right.  They deny people with pre-existing conditions because they are more likely to use health care, increasing their medical loss ratio.  And the poor are more likely to need health care treatment based on lifestyle and environment.  And the kicker to Campbell’s plan is, if nobody bids, the status quo would remain in place for that geographical area.  So basically, Campbell is touting a big plan that would do… nothing.  And he wouldn’t embark on it if the federal government enacts their own plan.

Mavericky!

Really, that interesting, if impossible (try getting a federal waiver to set it up and face Congressmembers with interests in protecting SCHIP and Medicaid), proposal is a cover for Campbell’s apparent agenda – to permit the interstate sale of insurance and to bring up the canard of tort reform as a panacea.  Medical malpractice is an insignificant percentage of total health care costs and states which have embarked on major medmal reform, like Texas, have seen no change in health inflation.  As for the interstate sale of insurance, you can do it now – only you’re responsible to comply with the laws of the state in which you sell.  This proposal would allow insurers to only be responsible to the regulations of the state where they are based.  Tom Campbell wants to do for the health insurance industry what this kind of proposal did for the credit card industry – send all insurance companies to a small state with no regulation, and gut all state-based regulation in the process, leaving California’s insurance customers at the mercy of the laws of South Dakota or Mississippi.

To his credit, Campbell wants to remove the anti-trust exemption on the insurance industry.  But really, that’s a means to an end here.  However, there is a point of consensus between conservatives and liberals to do away with the McCarran-Ferguson Act, that offers that anti-trust exemption.  Bills to this effect were just introduced in Congress.  If Campbell wants to talk them up to the California GOP delegation, go ahead.

Moment Of Truth For Schwarzenegger As Legislature Passes Anti-Rescission Bill

I mentioned this yesterday, but California lawmakers gave final approval to a bill that would ban the practice of rescission, where insurance companies drop coverage for policyholders after they try to use it based on alleged technical inaccuracies in their application form.  Here’s what AB2 would do:

AB 2 would require:

• Individual health care service plans to be subject to an independent external review before denying or rescinding coverage.

• The state to establish standard information and health-history questions to be used on policy applications.

• That intentional misrepresentation be shown before an individual health care service plan can be rescinded.

This language basically complies with what would appear in federal legislation before Congress banning rescission.

Now Arnold Schwarzenegger has a choice to make.  Does he side with people who are denied coverage after paying premiums for years?  Or does he side with his usual pals in the Chamber of Commerce who will push for anything, no matter how immoral, to maximize profits?

Everyone should know that Schwarzenegger vetoed a similar bill to this last year.  He’s always been a Chamber of Commerce sock-puppet and I don’t expect him to change now.  However, Schwarzenegger has been an alleged proponent of health care reform at the national level, and in a recent letter endorsed the concept of guaranteed issue of insurance, which obviously conflicts with allowing insurers to rescind policies.  He also supports continued state regulation of the insurance industry.

Well, here’s his chance.  The Legislature has acted to ban what I call insurer-assisted suicide, and Arnold can make his decision by either signing the bill or vetoing it.