State of the Week: California Policymakers Apparently Don’t Celebrate Small Business Week

By at 3 May, 2018, 3:24 pm

Not California dreaming during National Small Business Week 2018.

by Raymond J. Keating-

Small Business Policy Index 2018: California ranked worst – number 50 – among the 50 states.

SBE Council’s “Small Business Policy Index 2018” 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: California ranked worst 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 taxes.

National Small Business Week 2018 runs from April 29 to May 5, but when you look at the policy climate for entrepreneurship and small business in California, one has to wonder if policymakers in the Golden State simply dislike small businesses. Celebrate Small Business Week? In California, that’s hard to do under the circumstances.

According to the Small Business Policy Index 2018: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship, which I write for the Small Business & Entrepreneurship Council, California offers the worst public policy climate for entrepreneurship and small business among the 50 states.

The “Small Business Policy Index” arguably offers the most comprehensive comparison of the states in terms of policy decisions affecting the economy.  Of the 55 measures included in this 22nd edition of the Index, 27 are taxes or tax related, 20 relate to rules and regulations, 5 deal with government spending and debt issues, with the 3 remaining measures gauging the effectiveness of important government undertakings.

California has to do a great deal wrong to land dead last. For example, the state lays claim to the highest personal income and individual capital gains taxes; high corporate income and capital gains taxes; high levels of state and local government spending and debt; the highest diesel tax and second highest gas tax; the highest workers’ compensation costs; the second highest energy regulatory burden; an added minimum wage burden; and is a right-to-work state. Yikes!

There are a few plusses, such as no death tax and the lowest unemployment tax. But in general, state and local lawmakers in California work hard to make an otherwise appealing state into a hostile environment for the entrepreneurial sector of our economy.

Indeed, California has become well known for exporting people to other states. From 2010 to 2017, in terms of net domestic migration (that is, movement among the states, excluding births, deaths and international migration), California suffered a net loss of 556,710 to other states. That followed on a loss of 1.5 million from 2000 to 2009, and a loss of 2.2 million from 1990 to 1999.

Is recognition of California’s challenges finally taking hold?

In an Orange County Register piece by Dan Walters, an analysis by Cal Lutheran University’s Center for Economic Research and Forecasting, noted: “For the past 25 years, the number of households and people moving out of California to other states has been greater than those moving into California from other states. This points to a future for the state that exhibits less demographic and economic vitality. Our forecast calls for the net domestic migration trend to continue to worsen. Related to this, the state’s population growth will decline. Population growth and economic growth are closely interlinked.”

For good measure, Arizona PBS made the following points in an article about businesses and individuals leaving California for Arizona:

• “A company that manufactures workbenches and lab furniture is relocating to Goodyear to save money, while creating 30 new jobs in Arizona. Matt McConnell, director of sales and marketing for IAC Industries, said the move will increase the stability and longevity of his business. IAC is located in Brea, California. ‘The commercial property costs in California versus the commercial property costs in other states’ made the decision easy, he said.”

• “And it’s not just businesses. It’s also families. McConnell said IAC has 20 employees who have moved already or are committed to moving to Goodyear.”

• “According to the North American Moving Services, in 2017, California was one of the top five leading states in the U.S. for people moving out of the state. Arizona is the top state for inbound moves, with 60 percent of people moving to Arizona last year.”

• “According to the U.S. Census American Community Surveys, more than 30,000 people have left California for Arizona in each of the past three years.”

• “Oscar Wei, senior economist at the California Association of Realtors, said the cost of living and doing business in California clearly are main factors in California-Arizona migration patterns.”

Finally, Brian Uhler, with the Legislative Analyst’s Office in California, told FOX40 that six million Californians left the state between 2007 and 2016.

To say that California is long overdue in terms of reining in its enormous tax, regulatory and general governmental burdens is to state the obvious – well, the obvious for most except, apparently, lawmakers in the state and the voters who put them in office.

So, until enormous governmental burdens are lifted off the backs of entrepreneurs and small businesses, it’s hard to say that National Small Business Week can be celebrated in any legitimate way in California.


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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