I recently spoke with a small business owner who compared the burdens of doing business in Washington state to his experience decades ago as a military recruit.
He recounted how basic training included running six miles with a progressively heavier backpack. The first mile began with one 10-pound rock in the pack, the second with another, and so forth until the recruits were carrying 60 pounds while running the sixth mile. He said in the first mile the 10 pounds was barely noticeable, by the third mile he could definitely feel the 30 pounds but it was bearable, and by the sixth mile the 60 pound burden was back-breaking.
He said doing business in Washington is like running with a backpack full of rocks. Any one of the state’s many costs of doing business isn’t that noticeable, but added together the cumulative burden is crippling.
Let’s consider some of the ten pound rocks Olympia lawmakers have placed on businesses:
•Workers’ compensation taxes have increased 66% in ten years, with another 40 percent increase planned for the next ten years.
Washington employers pay the 5th highest unemployment tax in the nation.
Washington mandates the highest minimum wage in the nation.
Washington employers bear the 9th highest business tax burden (state plus local) in the nation.
Washington is one of just seven states that tax gross receipts, so businesses pay even when they have no profit, all for the “privilege of doing business in Washington.”
Individually, none of these costs are back-breaking. But when weighing the total government burden, the collective effect of all government mandates is what matters.
For instance, the Legislature is considering a bill that would require employers to pay for up to 24 weeks of paid family and medical leave per year. A worker would be able to use 12 weeks of paid leave for the birth or adoption of a child, or to care for a family member’s serious health condition, and another 12 weeks of paid leave would be available for workers to take for themselves. The worker could collect up to $1,000 per week of paid leave, and each year that amount would automatically increase with inflation.
The paid leave entitlement would be financed by a new payroll tax, with up to half of the tax taken directly from worker paychecks. The new payroll tax would be in addition to Social Security, Medicare and state taxes on pay checks. The family leave tax would start at .2 percent of wages beginning 2014 and would double to .4 percent of wages in 2016. Of bigger concern is what happens after 2016, when the tax rate would be “adjusted” every year to pay the administrative costs and benefits of this new state program. As a state monopoly, the cost would probably rise far beyond official estimates, as usually happens with public programs. What the tax rate would be in the future is anyone’s guess.
The Office of Financial Management estimates the paid leave entitlement would amount to an $825 million tax increase on employers and workers in the first five years, with no idea what the long-term tax burden would be. It would become just one of the many costs of doing business already borne by employers and their employees in Washington, and these costs together have a negative effect on our state’s business climate and employees’ take home pay.
Washington has one of the nation’s highest business failure rates. The Department of Revenue reports that “taxes and the costs of complying with government regulations” play a significant role in those failures. Adding yet another tax and regulation will certainly not improve our standing.
Only two other states, California and New Jersey, have a law mandating paid family and medical leave. The benefits in those states are not nearly as generous, and the payroll tax that funds those programs is paid solely by employees. Incidentally, last year California and New Jersey were ranked the 1st and 5th, respectively, worst states for business in a survey of 650 CEOs. Those are the last states we should be looking to when it comes to labor policy, if the goal is to improve the state’s business climate and promote job creation.
The paid family/medical leave entitlement feels like a nice give-away and it has a seemingly innocuous impact on employers, but there is a limit to what our faltering economy can endure, and businesses in our state are already at their breaking point. Another rock in the backpack will further erode our state’s competiveness compared to other states, hurting employers and working families alike.
Erin Shannon, of Tenino, directs Washington Policy Center’s Center for Small Business.