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Bring Business Back to California

by Susannah Kopecky, published

California felt about a 20 percent drop in exports through the month of February, which means that only a little over three-quarters of the amount of goods typically exported from California, were actually exported during the month of February.

This isn't great news for the Golden State, which has also recently found itself in a more than $40 billion mess of a budget situation, using what can only be affectionately referred to as half-baked schemes, to get out of it.

If California wants to get those export figures back up, and attract business back, officials need to get a few things straight: first, businesses do not respond well to high taxes. Why are businesses rapidly relocating from high-tax states such as California, to lower tax states, such as Louisiana? The question answers itself.

According to the United States Commerce Department and the Bureau of Economic Analysis, the state earned approximately $9.1 billion in February through exporting goods. This figures illustrated nearly a 20 percent drop in all exports, from that same period one year earlier, and more than 20 percent drops in some industries, including vital California ports such as the one at Long Beach.

Overall, in February the United States exported $126.8 billion worth of goods, and imported $152.7 billion worth of goods. Some of the major areas which saw decreases were "services" (down $0.4 billion, and including travel, freight services, port services, business, insurance services and financial services), and "goods" (with automotive-related exports down $4.8 billion, food and beverages down $1.7 billion, "capital goods" down $6.1 billion and all things classified as "industrial supplies and materials" seeing an export decrease of $9.7 billion).

The somewhat silver lining of this news is that California was not alone in its recent poor showing.

In an April 9 statement by Commerce Secretary Gary Locke, it was noted by the Commerce Department that though U.S. exports saw a rise of 1.6 percent since the month of January, imports shrank by 5.1 percent.

Secretary Locke said the lowered numbers "amplify the importance of continuing to do the hard work necessary to get the economy back on track," and that the government is working to create new jobs in a number of ways, including by "speeding relief through the Economic Development Administration to communities hardest hit by the recession. We must continue to increase exports by fostering innovation-a goal in which the Recovery Act makes important investments-and breaking down barriers to U.S. goods and services."

According to the Bureau of Economic Analysis, throughout the United States, "personal income declined nationally and in 41 states in the fourth quarter of 2008." The states in the highest quartile of percent change included Texas, South Dakota, New Mexico and West Virginia. As a state, California ranked in the second quartile.

The BEA also found that throughout the country, February saw a decrease of $29.1 billion (0.2 percent) in personal income and a decrease of $10.5 billion (0.1 percent) in "disposable personal income."

U.S. personal income growth slowed to 3.9 percent in 2008 from 6 percent in 2007 with all states except Alaska sharing in the slowdown, according to preliminary estimates released today by the U.S. Bureau of Economic Analysis. The U.S. growth was the slowest since 2003. Inflation, as measured by the national price index for personal consumption expenditures, rose to 3.3 percent in 2008 up from 2.6 percent in 2007.

The short of it is: to get California back on track to glory days ahead, business needs to be welcomed, not taxed into the ground. Let's say, for example, you are business owner in California and you have regular employees. According to the California Tax Service Center, you're even taxed once you pay a threshold amount ($7,000) to your employees. Say you're part of a general partnership: even your losses can be taxed, come tax day. Just being considered a limited liability, incurs an annual $800 tax. If your limited liability corporation earns $5 million or more annually, you are subject to another annual fee of $11,790... and that's not even the income tax! Retailers and resalers also understand that come tax day, it's the best time to have sales, as businesses can be taxed on property, even if it is not generating cash.

Thankfully, there have been some pro-business overtures in the state, though with the possible passing of Proposition 1A, businesses would need an awfully good reason to stay or relocate to the Golden State (in terms of taxation). Already, pro-business movement has been taken in surprising corners. San Francisco Mayor Gavin Newsom laid out measures for 2009 in which businesses would be urged back to the city with the lure of tax breaks. San Francisco's film gurus also have been working to get innovative incentives out to filmmakers, by offering lower fees and additional perks. Filmmaking is a two-way street, however, and savvy leaders in San Francisco must recognize as such.

One interesting option to consider is the flat fee: tax for a certain percentage of profits, and be done with it; eliminate confusing tax rules and loopholes, and make paying taxes relatively pain-free (so long as the taxation rates are reasonable and not fluctuating).

Individuals are less prone (and less able) to start up and run small businesses when credit is tight, money is tighter and taxes are unbelievable. Government can't help solve the economic problems of California... but business can.

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