Bring Business Back to California

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.