That a government can tax its people to a point where revenues actually decrease and the services it seeks to provide cannot be done without a secure base of low-levied taxpayers is the most salient economic lesson of the 20th century. A lesson, it is to be applauded, that is passing the dawning stage with most heads of state and settling into comfortable realization. Consider recent European developments:
– In Germany, a former long-haired student protester who went on to lead a left-of-center government has just pushed through a $24 billion tax cut for corporations and individuals.
– In neighboring France, President Jacques Chirac has asked the Socialist-led parliament to do the same.
– In the most ironic of role reversals, Italy’s Communist government , by necessity , proved itself more fiscally conservative than decades of Christian Democrat administrations.
– And, stung by the success of the Thatcher years, Labour Prime Minister Tony Blair calls his governance a “Third Way” that avoids touching the third rail of high taxation.
Here at home, Gov. Gray Davis pulled out his board and hung 10 with the Europeans for a ride on the tax-cut wave. High-tech companies, large manufacturers and big aerospace concerns were the beneficiaries.
But now that the world’s moderate and left-of-center leaders have demonstrated their resolve not to repeat the mistakes of their predecessors , namely huge tax increases and bloated bureaucracies. Are they ready to learn a 21st century economics lesson and, in doing so, solidify their governance for years to come?
Leading The Way
California could lead the way and Gov. Davis could reap the political reward. The problem with his tax cuts, as with those of Gerhardt Schroeder’s in Germany’s, is that they reflect a big government/big corporation view that economies are stimulated when mega-manufacturers are provided government’s grace. Technological innovation has rendered that old-world view obsolete. It is sole proprietors and small business that are the engines of today’s economy. Actually, they were for yesterday’s, too. But it is one step at a time for our leaders.
– California has about 2.1 million full-time businesses.
– Of that amount, 64 percent are sole proprietors who have no paid employees.
– From the 36 percent balance, slightly more than three out of four businesses have fewer than 10 employees. Keep your Apples, your BankAmericas, and your Chevrons! In California, small business is big business.
Tending The Engine
If the governor wants to keep our state prosperous, and start burnishing his legacy, he should begin tending to the engine of the California economy, not the hood ornament or radio knobs. The most important thing to remember about small businesses is that they operate on very narrow profit margins. Compliance with state rules and regulations hits them disproportionately harder than they do larger companies. Indeed, for many mom-and-pop operations maintaining solvency and the jobs they provide for their neighbors is a weekly challenge. One that gets more difficult with each new mandate. This month the legislature returned for its final weeks of work in the 1999-2000 session. Awaiting action are several bills that have worked their ways through the committee process and are inching closer toward the governor’s desk.
How the governor values the contribution of small and independent businesses to the California economy will be on display when he chooses to act on the measures speeding before him. It will not be easy. Gov. Davis will have to show real leadership in standing up for Main Street businesses by showing the reality behind the well-meaning attempts and sweet-sounding titles cloaking the various bills thrown at him.
Items To Veto
He may run afoul of members of his own party, but if he wants to be a successful steward of the California economy he should veto:
– Assembly Bill 1751. The measure would abolish the pre-dispute arbitration clauses that have helped keep insurance premiums (barely) affordable for many small businesses. Rising health-care premiums consistently rank as the top concern of small-business owners.
– Assembly Bills 2178 and 2477. These measures would end the decades-old impartiality and integrity of the Workers Compensation Appeals Board and the Unemployment Insurance Appeals Board by effectively turning control of both bodies over to big labor unions.
– Assembly Bill 2509 would turn the labor commissioner into a super-czar with broad and capricious powers to regulate, prosecute and judge. It would also eliminate the judicial discretion to require non-binding arbitration on appeals.
– Senate Bill 546. This bill would add another dead-end corner to the unemployment insurance maze with the cost to be borne mainly by small business.
– Senate Bill 1224. Its stated intention of increasing health care coverage for workers is an illusion disguising the reality that it quite simply shuts out small businesses from competing for state contracts.
On the positive side of the small-business ledger, the governor could help many companies and individuals stay in operation by signing:
– Assembly Bill 1774. This measure would help many smaller firms keep their doors open by boosting , to 55 percent from 50 percent , the carry-forward deductions on net operating losses.
– Assembly Bill 2737. The bill would bring California’s tax code into the 21st century by recognizing the contributions of the largest growing work force in the state , independent contractors. In taking bold stands for small and independent businesses, Gov. Davis could teach his European counterparts a lesson. Progressive heads of state should realize that what needs reinforcement are not the dinosaurs of the past or the high-flying market darlings of the dot-com community, but the hundreds of thousands of small, family businesses that are the very cornerstone of our economy. Hopper is California director of the National Federation of Independent Business.