KO: Nevada vs. California

The long-running battle between California and Nevada for businesses, entrepreneurs and jobs has gotten hotter in recent weeks.

For example, the Nevada Development Authority has launched an ad campaign mocking California for its budget woes, and its grim tax and regulatory climate.

At least one California assemblyman, Jose Solorio, was irritated enough to launch an advertising counter-attack.

It's interesting to see what the respective ads have to say about their own state's positives. The Nevada ads emphasize that the state has no personal and corporate income taxes, lower sales taxes, lower electricity costs, and lower workers' compensation costs.

In contrast, the California emphasis is on the less tangible - highlighting the weather, for example - and a general lack of substance.

In terms of public policies impacting entrepreneurs, small businesses and investors, the comparisons show that it's not even close between California and Nevada.

SBE Council's "Small Business Survival Index " serves as the most comprehensive measure of which states are truly friendly to small business and which are not in terms of public policies. The factors included in the Index - taxes, various regulatory costs, government spending, property rights, health care and energy costs, and much more - matter a great deal to the competitiveness of each state and to the well being of small business. The latest edition of the Index covered 34 major government-imposed or government-related costs.

California came in 49th, with only New Jersey and the District of Columbia ranking worse. The policy negatives for California were overwhelming, including very high personal income and individual capital gains tax rates; high gas and diesel taxes; burdensome corporate income and capital gains taxes; the imposition of alternative minimum and death taxes when many other states do not impose such levies; a high state minimum wage; a large number of health care mandates; onerous electricity and workers' compensation costs; high per capita state and local government spending and a rapid rate of increase in government spending in recent years.

In contrast, Nevada ranked second best in the nation. As emphasized in the Nevada Development Authority ads, the state benefits tremendously from the lack of any personal and corporate income taxes, and that includes no individual or corporate capital gains taxes. In addition, unlike California, Nevada imposes no death tax. And Nevada has low workers' compensation costs. The state also has the lowest number of state and local government employees relative to population.

For good measure, earlier this year, SBE Council published the "Business Tax Index 2009: Best to Worst Tax Systems for Entrepreneurship and Small Business," which ranks the 50 states and District of Columbia according to the costs of their tax systems for entrepreneurship and small business. Again, California ranked poorly - coming in at 47th - while Nevada did extremely well - ranking second best.

Rather than ignoring economic reality, perhaps Assemblyman Solorio and his legislative colleagues should start moving in a positive direction in terms of providing much-needed tax and regulatory relief. Note what the Sun Herald newspaper in Colusa County said in an August 28 editorial:

Assemblyman Solorio voted in January along with every legislative Democrat, including whatever other "pro-job, pro-business" members of their party there may be, to impose California's highest-ever tax increase, $12.5 billion in income, sales and car taxes. Four months later, Solorio said he voted for ballot measures to impose a $16 billion extension of the same taxes, but was out-voted by Californians.

Rather than promote feel-good advertisements dodging the issue, Solorio ought to vote to undo the damage already inflicted on California's battered businesses. But Democrats in Sacramento already are clamoring for more new taxes.

Worse yet, the state's tax reform commission is about to propose three major tax increases for legislators to consider. One would increase businesses' taxes by removing their Proposition 13 property tax limits. Another would add a new "carbon tax." A third would impose a "net business receipts tax," like Europe's value-added tax. Mr. Solorio and his "pro-job, pro-business" friends soon will have an opportunity for substantive action, as opposed to feel-good sloganeering.

In the end, all elected officials seem to claim that they are for small business and entrepreneurs. But the proof comes in terms of what they actually vote for and advocate. In California, state officials apparently are intent upon making a very bad and costly situation even worse.

The Sun Herald editors are absolutely correct. Too many California politicians are good at sloganeering, but too few actually vote to establish a tax and regulatory environment in which small business, the economy and jobs can flourish.

Clearly, governmental costs are huge negatives for business in California. Nevada is a much friendlier place for entrepreneurs and small businesses. The facts are the facts. When it comes to how business is treated, Nevada beats California in a knock out.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.