Because they can respond quickly to new trends and demands, and are often powered by the enthusiasm and focus of their owners, California’s small businesses are a job-creating machine. Responsible for 80 percent of all new jobs in the state, small businesses are our best hope to get the economy back on its feet.
However, an entrepreneur moving to take advantage of new niche markets often is working with little capital, slim financial resources and almost no margin for error. That makes it especially difficult to survive in the state’s battered economy along with a tax burden on businesses that ranks second highest in the nation and a regulatory environment that is the worst.
So, small businesses can be looked at for the earliest evidence of economic troubles. And small businesses can be seen as our best chance to reduce an unemployment rate that is also second highest in the country. Ironically, some of California’s most successful small businesses are providing new and dramatic evidence that the state needs to find a new way to nurture these companies and the jobs they provide.
Instead of staying home, small businesses are choosing to expand outside the Golden State. As evidence, leading business relocation coach Joe Vranich says the rate of California companies moving to other states is five times higher this year than it was in 2009.
Even among the state’s most favored industries – those in the green economy – business owners say they are finding the grass is (pardon the expression) “greener” in other states.
The list of California woes is familiar: a tremendously high tax burden, oppressive regulations, expensive environmental laws, and a tort system that targets small business.
We don’t hear plans to attack these problems. A streamlined, less expensive, less draining approach is not on the agenda. Cutting bloated government programs is out of the question. Instead, politicians are burning the midnight oil trying to find new ways to raise taxes, and with AB 32, California is implementing the largest and most expensive regulation ever, by any state.
Nothing appears safe while politicians search for tax targets. Proposals include higher taxes on property, cigarettes, cars, tobacco, oil, and income, to name a few.
Especially threatening to small businesses are proposals to tax the “rich.” Many owners of small firms pay their business taxes by declaring the firm’s income through their personal income taxes. These proposals must be seen for what they are: a direct hit on California’s small businesses at a time they can least afford it.
Besides raising existing taxes, some are pushing the idea that the government needs to tax more things. Unleashing a new sales tax on services (accounting, dry cleaning, landscaping, etc.) during this recession would have the impact of throwing an anchor to a drowning man.
It may surprise you to learn that among those companies with California in the rearview mirror are growing businesses that are part of the state’s green economy. A typical company on this list has started from scratch in California and with a good idea and hard work has reached the point that a manufacturing plant is required to meet demand.
California-born SMA America will eventually employ 700 people in Denver at its new solar panel manufacturing plant. General Manager Jurgen Krehnke told KXTV that the company wanted to stay in California but it didn’t make economic sense.
“There was some concern about the cost of the location, the availability of manufacturing labor, there was concern about the budget crisis and whether it would lead to increased taxes,” said Krehnke. “This all led us to believe that California was a little bit more difficult to defend.”
A similar decision was reached by Green Trail Energy as it moved all its operations to Maryland earlier this year. The CEO explained the reasons for the move were the state’s higher costs and the fact that “everything is difficult to do in California.”
Still the tax-raising drumbeat goes on. There seems to be a never-say-die attitude among those who demand ever higher taxes. These politicians and their allies have created an atmosphere where the specter of an even larger burden for small businesses is a constant threat.
It is a threat many small businesses have already taken seriously.