My friend Armen Yousoufian was forced to sell his hotel. In spite of the sluggish economy, local authorities kept raising Yousoufian's taxes until he had no choice but to close the hotel and lay off all of his workers. In an e-mail, Yousoufian explained:
A few examples of how businesses in Seattle are under assault by local and state government – in the form of innumerable license fee, payroll tax, and utility rate increases of 25% to 58% or more:This should be a lesson to those who believe that an activist city government can create economic growth by redistributing income. But I'm not optimistic. Posted by Stefan Sharkansky at February 04, 2004 12:19 PM1. Electricity rates rose 58% in the past two years. For my hotel, that meant a $5,000 monthly electricity bill increased to $8,000 – a $36,000 annual increase that could not be covered by profits that had ceased to exist.
2. As of January 1, 2004, the unemployment insurance payroll tax went up nearly 50%, after having increased 30% only a year ago.
3. The annual elevator, boiler, restaurant, hotel, signage, and other license fees increased 25% to 50%. (My hotel is subject to approximately 15 to 20 different licenses, fees, and permits, everyone of which has increased by exorbitant percentage amounts.)
4. At January 1, 2004, Washington State’s minimum wage increased to $7.16 an hour – putting it $2.01 an hour above the federal minimum wage. Worse yet, unlike 80% of the other states, there is no reduction in Washington state’s minimum wage for the extra $10 an hour or more in tips earned by restaurant workers (i.e. the Federal “tip credit” observed in 80% of the other states is not observed under Washington law, burdening restaurant employers so heavily that restaurants keep going out of business). The combination of the highest minimum wage in the U.S. and no “tip credit” is lethal to most full service restaurants. In fact, as many know, I closed my hotel's restaurant and bar operation in mid-December. That closure was a prelude to the closure of the entire hotel operation.
You can look at San Francisco as well. The same failed liberal philosophy.
Posted by: Joel on February 4, 2004 02:18 PMI'll set aside for now the minimum wage and tip credit issue (and the fact that Restaurants are one of the most likely-to-fail small businesses even where the federal minimum and tip credit combine to make restaurant workers the lowest paid (by their employers) workers in the country). Washington State's case here is unusual and odd and I probably agree with you about it.
Most of the other taxes, however, are going up similiarly around the country as states suffer the combined effects of the Bush econmic downturn, a lower level of federal spending than any year between 1975 and 1996 (according to the non-partisan Congressional Budget Office), and higher unfunded federal mandates such as the mis-named "No Child Left Behind" bill and Homeland Security. The higher electric rates come from deregulation, Enron, and Bush's refusal to set market caps. The multiplicity of licenses and fees come from Republican activists who think that it's unfair to collect a tax for a service that someone might not use, so instead of one hotel tax to cover everything in a hotel, there's a separate elevator tax and boiler tax to cover the costs of licensing and inspecting those items for public safety that only is charged when there is an elevator or boiler to license. So, Mr. Shark, I say you and your friend are blaming the wrong Washington and the wrong activists.
The higher electric rates come from the Seattle City Council's excruciatingly stupid decision to bail out of their investment in the Centralia coal-fired generator, coupled with Grey Davis's even stupider populist attempt to veto the law of supply and demand in the California power markets. Enron may furnish a convenient scapegoat for socialists, but the legislators who attempted to control prices by fiat are due the bulk of the blame. Who was it who forbade locking in long-term power contracts? Not Enron.
Posted by: Insufficiently Sensitive on February 4, 2004 06:21 PMSimon can blame Bush if he really wants to, but the various states have the problems they have with their budgets because they ran surplusses in the 90s (yes under the Clinton White House) and, whether the states were led by Democrats or Republicans, they sharply increased their spending commitments. When the ecomomy turned down (at the end of the Clinton White House, by the way), the revenues decreased while the spending commitments remained.
Neither Democrat nor Republican seems willing to decrease spending in response, and are opting for tax increases instead.
That's great for government. They can mandate fresh income in this way, provided those who are mandated to pay can pay.
Unfortunately, a downturn in the economy means decreased revenues for both governments and businesses. So there is business, with less income and higher bills.
Think of it this way: If you have a loan, and you are falling short on the payments, would it solve the problem for you if the bank increased the payments? If you struggle to carry a hundred pounds on your back, will it be easier to carry one hundred fifty?
If you want businesses to be able to contribute, your policy should be to do whatever you can to make sure businesses are succeeding. In the short term in a downturn, it is crucial to REDUCE taxes, lest you create a downward spiral. The states that cut spending and/or taxes first will be the first (or only) ones that emerge from budgetary crisis, baring another tech bubble.
Posted by: Mike Kole on February 5, 2004 07:20 PM