I-1098 will hurt jobs-producing small businesses
Initiative 1098 will impose a high-earners income tax, but one that apply to small businesses that are the best chance of creating new jobs in this difficult economy, write guest columnists Mike Sotelo and Craig Dawson
Special to the Times
Here's a sobering number: Washington state lost 130,200 jobs in 2009, the worst loss since the "Boeing bust" nearly 40 years ago. Nearly all of those — well above 90 percent — were private sector jobs.
The jobs picture at home remains weak even as the national economy struggles. So you'd think this would be the right time in Washington state to promote sensible policies that aid family-owned businesses and bolster our technology and innovation economy.
The same people who wore "raise my taxes" buttons when they got Olympia to approve $800 million in new taxes this year want to take even more. They want a new $1.7 billion tax — an income tax, which state voters have historically rejected. We'll vote on this income tax — Initiative 1098 — in November.
Will Washington state voters align with businesses working to produce the greenest, cleanest energy sources; doing research to stop malaria; opening new neighborhood drug stores and restaurants? Or will they allow special interests to divert billions of tax dollars to preserve Olympia's status quo: More government, fewer jobs and no accountability?
Income tax advocates say they're taxing "the rich." But this income tax scheme falls heavily on the most dynamic, job-producing part of Washington state's economy. Just how important these jobs are to our future is underscored by "America's Top States for Business 2010," a new CNBC survey.
Washington state is a dismal 34th in business friendliness, meaning there's heavy government regulation and it's easy to get sued. Yet the state's overall ranking soared with scores in two categories: Technology and innovation, and availability of capital. The state finished fifth in both (even edging Texas, the survey's overall winner, in technology and innovation).
But with I-1098 those advantages — and the ability to create jobs — would be significantly diminished because the very business owners who've been most productive are targeted. Almost 70 percent of those earning $200,000 — where the income tax first kicks in — are small business owners. They pay roughly 70 percent of small business wages and generate 67 percent of the profits.
Advocates of I-1098 say they are offering tax relief, but it is minimal at best. The 20 percent state property tax cut amounts to just 4 percent of an average citizen's property tax bill. Meanwhile, the business-and-occupations (B&O) tax credit offers relief to very small businesses, but they generate so little gross income that it amounts to less than 10 percent of the state's B&O tax collections.
Nor does I-1098 provide relief from the regressive sales tax.
Not having an income tax is a significant advantage for this state, something noted by Forbes Magazine when it ranked Washington third nationally for business climate. I-1098 would significantly harm the state's ability to attract new businesses and the best, most talented workers.
Citizens are going to have a choice in November. Voting yes on I-1098 gives Olympia a blank check, allowing politicians to once again dodge tough financial decisions we've all had to make during the recession. At the same time it sucks money out of jobs-producing small businesses and the innovation and technology economy. Is that really what we want to do?
Let's take a last look at those 130,200 jobs that disappeared in Washington state in 2009. Hardly any of them — around 5,000 — were in government. State government lost 3,100 jobs while local governments lost 1,900 jobs. The federal government actually added 1,900 positions.
Still, the innovation and technology sector held up relatively well in hard times. Given how strongly Washington ranks alongside other states in innovation and technology — and the availability of investment capital to create new jobs and enterprises — it is clear where our state's advantages are.
These are the jobs we need here. I-1098 and the income tax put them at risk.Mike Sotelo, president of Approach Management Services, also serves as chair of the King County Hispanic Chamber of Commerce. Craig Dawson is president and ceo of Retail Lockbox, and former President of Tabor 100.