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Keeping the Good News Coming |
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Written On: Friday, January 09, 2009 |
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Written By: Don C. Brunell |
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When U.S. News and World Report announced this week that Washington tops its list of best states to start a business, it was a ray of hope in a time permeated by bad news. But in these tough economic times, we cannot afford to rest on our laurels. Instead, we should redouble our efforts to keep people working by ensuring that their companies stay sound.
Much of the magazine’s ranking focused on tax structure. It gave our state high marks for not having income or capital gains taxes, but overlooked our state’s business and occupation (B&O) tax which, unlike Oregon, taxes gross income rather than profit.
In recent years, increasing the B&O tax to balance the state budget made it harder for employers to keep people on the payroll, hire new employees and attract new companies to our state. For example, in 1993 when the Legislature increased the B&O tax on services from 1.5 to 2.5 percent and put a surcharge on manufacturers, it slowed our economic recovery.
While the magazine did not mention it, another plus for our state is that Washington assesses and taxes property uniformly, a concept which is embedded in our Constitution. Fortunately, we have no “split roll” property tax like that in Minnesota. Split roll systems shift the tax burden onto businesses and they discourage employers from locating and staying here. Therefore, it is essential that we avoid a system where warehouses, stores and factories are valued and taxed higher than homes and apartments.
In 1995, Gov. Mike Lowry (D) and a bipartisan majority of lawmakers recognized another state tax disadvantage and enacted a tax incentive designed to stimulate manufacturing activity and create good-paying jobs. The M&E exemption excluded manufacturing machinery and equipment, repair and replacement parts, and research and development from the sales tax. While that may not sound significant, the results are astounding. In its first 10 years, the M&E exemption added $81.5 billion to state coffers, generated more than $16.5 billion in personal income and created almost 285,000 family-wage jobs.
By reducing up-front costs, the M&E exemption encouraged manufacturers to expand their operations here or locate new facilities in our state. In fact, SEH America decided to invest more than a billion dollars to upgrade its Vancouver silicon wafer fabrication facility, rather than build a new complex neighboring Portland. Recent studies project that, over the next seven years, retaining the M&E exemption will create another 54,100 new jobs in Washington and add $27.5 billion to our state’s economy – a critical boost as state lawmakers struggle to stabilize our economy.
The U.S. News and World Report study also ranked Washington second in the nation for exports of manufactured goods and services, with a per employee value of $60,418, almost double the national average of $31,606. Microsoft’s software exports, together with Boeing’s aerospace manufacturing, are cited as largely responsible for Washington’s high ranking, confirming the immense value of our state’s manufacturing sector.
Ironically, our manufacturing sector is being jeopardized by our alternative energy policies, which won praise in the U.S. News and World Report study. Most manufacturers depend heavily on a reliable supply of affordable energy. But that supply is no longer available. The voter-approved Initiative 937 mandates increased use of alternative energy, but it doesn’t count affordable hydropower as renewable energy and its limitations force utilities to buy high-priced power. And when businesses have to pay higher power rates, they have less money to spend on people. Fortunately, state lawmakers have an opportunity to correct those problems this year.
Washington’s rank in U.S. News and World Report is a shot in the arm. The key to keeping the good news coming is to make sure our state not only continues to attract new start up businesses, but keeps those companies investing in new people, new technology and new opportunities. Low costs are key to fueling that momentum, so elected officials should help employers look for ways to lower their regulatory, workers’ comp, unemployment, transportation and energy costs.
The underlying message in the U.S. News and World Report study is that Washington’s private sector is positioned to lead our state back to prosperity. The challenge will be for us to build on our strengths, adjust to a rapidly changing world and keep our operating costs low.
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