THE LOCAL CAPTAINS of industry met in Seattle last week. They had a surprising message—this recession isn't so bad—and a familiar one—the state Legislature needs to cut business taxes.
Despite the fact that tens of thousands of people have lost their jobs in recent months, experts at the annual economic forecast conference hosted by the Economic Development Council argued that this downturn is one of the mildest recessions ever. Their evidence? Orders for capital goods are picking up again. And even better news, reported Sung Won Sohn, the chief economic officer for Wells Fargo Bank: Middle-income households were not hurt much by the drop in stocks and are cashing in on refinanced mortgages. That means "we're swimming in cash. This is a lot of dry powder," Sohn concluded.
This rainy economic squall could pass with investors and capitalists barely getting their feet wet. And then, of course, there are the little people and their job problems.
Dick Conway, publisher of the Puget Sound Economic Forecaster, predicted that the region won't regain the number of jobs it had in 2001 for another two to three years. That means a lot more jobless claims in a state that already has around 206,000 unemployed and distributed $1.4 billion in unemployment benefits in 2001—money that comes directly from corporate receipts.
Though business taxes weren't a primary focus of the conference, as soon as they came up, that's all that attendees wanted to talk about. In addition, some of those in attendance are making sure the newly convened state Legislature hears their appeals. An October report commissioned by the Economic Development Council of Seattle & King County through the Washington Research Council says the state's taxation laws, labor costs, and lack of financial incentives for new industry are squashing entrepreneurial enterprise. In other words: Give us a leg up—don't you pols know times are hard? Seattle area business leaders are also a weighty presence on the board of Gov. Gary Locke's recently convened Washington Competitive Council, which, not surprisingly, came to the same conclusions.
While the recession may not be as deep as we feared, business leaders are saying, it's still a good time to make the business climate more favorable. They note that under the current tax system, businesses pay more than half of the state's total tax receipts. They say the tax code doesn't grant enough exemptions for capital investment and even taxes new facilities while they're still under construction. The state's unemployment insurance program, meanwhile, pays out some of the most generous benefits in the nation (horrors!). That's particularly aggravating to companies prone to large layoffs and seasonal employment (of which Washington has plenty), because companies that fire workers often have to pay the highest unemployment tax rates (can you imagine?).
There aren't many who would argue that the state's tax system is a good one; it imposes no corporate income tax and tends to fall heavily on smaller firms that operate on slim profit margins. But what business executives are selling as a state "competitive" issue looks to policy watchdogs like a familiar lobbying effort for tax relief and cheap labor.
"It's the same old thing—it's another way for [companies] to drive down their costs of labor," says Don Hopps, consulting director of the Institute for Washington's Future.
It's too early to tell how much attention corporate lobbyists will receive from legislators in the upcoming 60-day session that is sure to be dominated by transportation initiatives and budget deficits. But local delegates say that, right now, their sympathies are with the poor and sick, whose services could be heavily curtailed this year, rather than employers with laid-off workers to feed. Liberal stalwart state Sen. Adam Kline (D-Seattle), for one, doesn't buy the argument that Washington and Puget Sound are briar patches for industry. "Businesses will tell you, 'Oh, they're throwing us out. They're going to make us go to Idaho.' That's horseshit; that's just plain horseshit," says Kline.
In addition to billions of dollars in other tax cuts enacted since 1995, the Legislature gave companies a break on unemployment taxes in 2000, lowering the rate for companies with steadier employment, saving them about $500 million over six years. Officials at the state Employment Security Department say that the 2000 decision left the program in compliance with federal standards, and with the trust fund balance already sliding precipitously, it isn't likely anyone will suggest shrinking the unemployment tax any time soon. Hopps says the cuts in 2000 prevented the state from raising a healthy fund surplus during the boom, which could have been used to retrain workers laid off in this recession.
State Rep. Hans Dunshee (D- Snohomish) says if business leaders want the tax system changed, they'll have to come up with workable alternatives rather than complain about high taxes. But he doesn't think that will happen during this session. "I don't think it'll be anything except the same stuff: Just cut our taxes," says Dunshee.