State of the Week: Washington is a Great Place to Start and Operate a Business – Except for Seattle

By at 25 July, 2017, 1:18 pm

by Raymond J. Keating-

Small Business Policy Index 2017: Washington ranked 6th among the 50 states.

SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2017: Washington ranked 5th among the 50 states.

SBE Council’s “Small Business Tax Index 2017” ranks the states according to 26 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

Washington: The Policy Climate is Great for Entrepreneurs

The state of Washington is a great place to start up, build and run a business, at least when it comes to public policy.

The state ranks among the best states in terms of SBE Council’s “Small Business Policy Index 2017” and “Small Business Tax Index 2017.” The key positives for Washington is that the state imposes no personal income, individual capital gains, corporate income and corporate capital gains taxes. Those are significant advantages on the policy front.

Of course, the state also has issues. For example, consumption-based taxes are very high, including an ugly gross receipts tax. It also imposes a death tax. For good measure, the state inflicts a high state mandated minimum wage.

Indeed, even states ranking among the very best on SBE Council’s indexes have opportunities to improve. That is the case with Washington. But at the same time, Washington stands far ahead of most other states.

…and then there’s Seattle

Matters have gotten rather grim in the city of Seattle. First, the minimum wage in Seattle is a staggering $15 per hour. While there are a few outliers today, the vast majority of economists long have agreed that a higher minimum wage hurts low wage workers by reducing employment opportunities. That’s standard Economics 101, backed up by decades of studies. Contrary to assorted media misrepresentations, the economic realities of a higher minimum wage are only denied by those who choose political fiction over sound economics.

But there’s more. The Seattle city council voted in July to impose a 2.25 percent income tax on upper-income earners. That specifically undermines the state’s main competitive advantage, diminishes incentives for working, investing and undertaking entrepreneurship in the city, and drains resources from the private sector and hands it over to government to be doled out according to politics.

Many in the city and the state are opposed to the income tax, as it clearly violates state law. In a statement, the Washington Policy Center explained: “Seattle officials say the state’s graduated income tax ban is unclear, but as the state supreme court said in 1951 when invalidating an income tax: ‘It is no longer subject to question in this court that income is property.’ The city’s decision to pass a bill that violates state law and supreme court precedents teaches the public that it is acceptable to ignore the law if it is to your advantage.  The violation is so obvious that city leaders know they are inviting a lawsuit, as citizens seek to defend their rights under state law and the state constitution. Washington voters have rejected a state income tax nine times.

There is also a 1984 state law that explicitly prohibits local governments from imposing an income tax.  That law says, ‘Tax on net income prohibited – A county, city, or city-county shall not levy a tax on net income.’ With today’s political vote, litigation is guaranteed as taxpayers turn to the courts to protect them from the Seattle City Council’s decision to adopt an illegal and unnecessary income tax.”

Let’s hope that the courts uphold the state’s constitution and state law, thereby overriding the Seattle city council’s abuse of power and fit of faulty economics.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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