How to help small businesses during pandemic slowdown: slash regulations
Justin Adams, Chief Economist for Encina Advisors, has some advice for state and local governments who say they want to help small businesses survive and recover from the devastating impact of lockdonws: forget handouts, just clear the market of all the onerous regualtions and taxes that hold back business success. This article originally appeared in www.foxesandhoudsdaily.com.
According to the most recent data from the U.S. Census Bureau’s Small Business Pulse Survey (collected between November 9th and November 15th), 51.4 percent of California small businesses believe it will take more than 6 months before they return to their normal level of operations. Moreover, 23 percent of California small businesses have closed permanently while another 5.9 percent expect to permanently close in the next 6 months.
But is the state budget really the best vehicle with which to help California’s 4.1 million small businesses? In the current budget year, 91 percent of California’s $133.9 billion in General Fund expendituresis locked into spending on education, health and human services, and corrections, so there is not a lot left to repurpose. And while the Legislative Analyst’s Office recently reported that state tax collections are running $11 billion above projections, legislative leaders have already signaled that this revenue should be used to restore cuts to universities and state worker pay made in this year’s budget.
Consequently, any financial assistance from the budget, while certainly welcome, necessarily would be limited given already existing claims on state resources.
Thankfully, the National Federation of Independent Business regularly surveys small businesses about their problems and priorities, and its July 2020 surveycould spark some useful ideas for Gov. Newsom to pursue. Asked to rank 75 individual issues, California small businesses cited the following as their top five (in order): Cost of Health Insurance, Unreasonable Government Regulations, State Taxes on Business Income, Federal Taxes on Business Income, and State/Local Paperwork. While the Governor might not be able to influence the cost of health insurance or federal taxes on business income, he certainly can affect the other three.
Take unreasonable government regulations as an example. Gov. Newsom could provide flexibility to independent contractors and gig workers by leading the charge to repeal AB 5. Now that California voters have approved Proposition 22, a few hundred thousand ride-hail and delivery drivers join independent truck drivers and workers from dozens of favored industries as being exempt from the requirements of AB 5. That leaves the remaining independent contractors and gig workers – those without the political connections needed to obtain an exemption – facing an uneven playing field in the marketplace.
By prioritizing the removal of bureaucratic regulations like AB 5, as well as taxes on capital and taxes on labor, Gov. Newsom can truly support California’s entrepreneurs and help them survive the pandemic. After all, these are unnecessary slices of the wedge that stand between an individual’s effort and reward for that effort.
Read the whole thing at: www.foxesandhoundsdaily.com
Dr. Justin L. Adams is the President and Chief Economist of Encina Advisors, LLC, a Davis-based economics research and analysis firm
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Photo taken by Austin Kleon.