Tag Archives: Forbes

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.