The Legislature convenes in Olympia for a 105-day session beginning Jan. 14, while city and county councils around the state assemble for the new year, with elected officials and representatives at all levels refreshed and reinvigorated from the holidays and ready to dive in to the issues of the day.
And across Washington, business owners and managers brace themselves for what’s coming next.
It’s not challenging enough to run a business these days in Washington, with the usual issues of competition, technology-driven shifts, changing customer tastes, finding skilled workers, congestion and freight mobility, energy costs and trade disputes, not to mention the current worry that economic growth might sputter out. To those have been added government-driven burdens and directives – higher minimum wages and paid family and medical leave are the big-ticket items, but hardly the only ones – that make this region of the country an increasingly expensive place to operate.
Not that it’s much consolation, but it could be worse, what with repeated efforts via initiative and legislation to impose some sort of tax on the production and use of fossil fuels (you know, the ones that do minor tasks like heat and light your home, power your car and run industrial processes). Those proposals have to date been thwarted, and in view of the substantial vote against the last initiative there appears to be little clamor to charge that (pardon the alt-energy allusion) windmill again, but there are still true believers who will argue that with just a little more persuasion voters can be made to see the error of their ways.
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But less time spent on a carbon tax just means more time spent on others, and the governor heads into the session with three such others:
▪ A capital gains tax (9 percent on the sale of stocks, bonds and other assets for capital-gains income above $25,000 for individuals and $50,000 for joint filers).
▪ An increase in the business and occupation tax on services including accounting, legal, real-estate, consulting and architectural from 1.5 percent to 2.5 percent.
▪ A change in the real estate excise tax on property sales from a flat 1.28 percent on all to a graduated schedule: 0.75 percent for those under less than $250,000, 1.28 percent for property sales between $250,000 and $1 million, 2 percent for property sales over $1 million and 2.5 percent for sales over $5 million.
The cap-gains tax will be of particular interest to those looking to sell a business, and there are a lot of baby-boomer entrepreneurs getting ready to retire. Gains from retirement accounts, homes, farms and forestry would be exempt, at least according to what the governor is proposing, and if it gets as far as legislative consideration there could well be other carve-outs and breaks.
The details will matter, and they’ll affect a lot of decisions and their timing.Of course, there’s one other minor issue with the cap-gains tax – whether it’s even legal in Washington, given the prohibition on an income taxes. Expect much wrangling over the finer legal points of the definition of income.
The other two taxes are attempts to grab revenue from the most productive sources at the moment. The rich are always a popular target, and given the design of loading the increase on the priciest properties, proponents may figure that those with that kind of money to throw around will hardly notice. But business properties are already expensive, and a higher tax, even measured in fractions of percentage points, might influence decisions.
The increase in taxes on what were once broadly known as “business services” – legal, accounting, consulting – will affect not just the firms providing those services but the businesses that pay for them – in other words, just about every business. Do not expect that one to plod along quietly and unnoticed toward passage.
Laments from the business community about taxes, regulations and the high cost and frustration of doing business around here are typically met with two responses: “It can’t be that bad, look at our booming economy,” and “If you don’t like it, leave” (the latter usually accompanied by a snide remark about Texas or the South).
To those points: The current success of the tech sector, however loosely that’s defined, certainly fueled economic growth in the region. But other sectors are struggling for reasons of their own (retailing) or related to the boom (industrial businesses dealing with high costs). Tech’s boom has papered over a lot of ills, and if the sector ever has another moment like the dot-com bust, that facade will be gone.
Already one group has been taking the relocation option – homebuyers who, looking for something they can afford, have been moving ever farther out. Most businesses can’t pick themselves up and move so easily. They find strategies to cope with the hassles and costs of operating where they are to reap the benefits – access to ports and airports, proximity to suppliers, customers or a pool of labor.
But those strategies don’t work indefinitely even if it seems the cost pressures are unrelenting. Eventually businesses reach a point at which the cost/benefit analysis tips from staying to going.
It hasn’t happened in great numbers and it won’t happen at the same time for all businesses. But those tipping points are out there. In 2019, we’ll find out see how enthusiastically the Legislature pushes the region closer to them.