Mark Harmsworth spoke to some owners and they explained why
Mark Harmsworth
Washington Policy Center
The latest onslaught of tax increases imposed by Olympia in the last 12 months and now the proposal for an income tax, is already creating real consequences to Washington business owners and residents alike.
Over the last 6 months, I have received multiple calls from small business owners who know they cannot stay in Washington and remain profitable. The uncertainty created by proposals, such as the income tax, have many of the owners considering exit strategies in the next 12-18 months. Whether the income tax passes or not, there is no trust that politicians in Olympia won’t try again or within a few years and apply the tax to everyone.
For businesses that run razor thin margins because of the taxes Olympia is already extracting, the income tax would be the last nail in the coffin.
Just the threat of a Wealth Tax last year had many large businesses looking for the exit too. The recent layoffs by some of the large tech companies indicate that business leaders are hedging their bets against future uncertainty.
These are real people, trying to run small businesses, be part of local communities, pay their employees as much as they can and receive a fair reward for the risks they have taken. They have worked for decades to build something that creates jobs and provides family wage income and, if they are lucky, some retirement income too. The level of frustration, disappointment and anger I have heard over the phone is indescribable.
The uncertainty compounds the problem. Owners are unwilling to take investment risks or grow a business just to cover extra taxes. As an example, the retail and hospitality industry is particularly vulnerable to massive tax changes as the margins are so slim.
Why should someone put in extra work to grow a business, only to have the State of Washington create a new tax, like an income or wealth tax, in the next year or two? No sane person is going to waste their time.
The fallacy of the income tax and other wealth taxes is the ‘new’ tax revenue the state is going to enjoy once it’s passed. Typically, there is a bump as taxpayers are forced to pay, followed by a decrease in projected revenue as the taxpayers, with sense, move their wealth out of the state and take residency in places that don’t tax as much.
The income tax will not solve the long-term state budget deficits.
For those Representatives and Senators considering supporting this income tax, this is beyond partisan politics. As a former State Representative, I might not agree with the spending priorities of the opposition, but I’ll say this – the income tax will do real damage to our state. It’s beyond time to take a step back and consider other options to balance the budget. The income tax isn’t just another 10c on a gallon of gas or a new fee on liquor or cigarettes, it’s a sledgehammer to the very job creators the state relies on for the B&O, license fees and sales taxes the state receives. When the job creators leave, that revenue goes away.
The capital gains tax is a prime example. The projections for new revenue fell short because wealthy residents just left the state. How many other tax collections decreased because those residents are no longer spending money in Washington? How many jobs were eliminated or new jobs not created because spending in the state decreased? Washington’s capital gains tax is a prime example. The year after the capital gain tax legislation passed, the projected vs collected taxes fell short by over $1 billion dollars.
Legislators – stop the rhetoric and stand up to your caucus chairs that are driving this agenda. Work together across the aisle to create legislation that supports a stable business environment and focus on growing the economy here for all of Washington’s residents.
It may be too late for some business owners, but the legislature has the opportunity to stop owners still on the fence from leaving and encourage new businesses to come here. If you want more tax revenue for schools, social programs, public safety and infrastructure, the best way to do it is to add more taxpayers and not drive them away.
Mark Harmsworth is the director of the Small Business Center at the Washington Policy Center.
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