Gov. Jerry Brown said recently that if he were unable to raise taxes through the budget, labor groups were likely to propose a change to Proposition 13, California’s landmark property tax measure.
Los Angeles Mayor Antonio Villaraigosa went even further, volunteering to lead the charge to increase property taxes. As the debate over Proposition 13 heats up, it is important to understand just how devastating dismantling it would be for California’s small businesses.
California already has the second highest unemployment rate in the nation at 11.8 percent, and in Los Angeles it’s 12 percent. The state is also ranked 49th in the country in tax burden and 50th in regulatory costs, causing businesses and families to flee the state. We are consistently ranked dead last as a place to do business, and it is critical for businesses to rely on consistent and fair property taxes.
The majority of small businesses – doctors’ offices, family-owned restaurants and gas stations – rent their shops and office spaces. As property taxes increase by billions each year, these businesses will have to pay higher rent in addition to the other taxes they already pay on payroll, equipment, and income. Businesses will be forced to lay off employees, cut wages, increase the prices of their products and services, or simply go out of business.
This is why all Californians should be concerned about a change to Proposition 13. The billions of dollars in increased taxes on small businesses will be passed on to consumers of products like food and gas, and on services from health care to auto repair.
Sting of higher taxes
Renters will feel the sting of higher property taxes, too. Senior citizens, students and others on fixed incomes will see their rental costs increase dramatically as taxes on apartment buildings and rental homes rise.
According to the state’s nonpartisan legislative analyst, an increase in property taxes would raise taxes on Californians by billions each year. A recent study by a former legislative analyst estimated that increasing property taxes on business by just 1 percent would lead to the loss of 43,000 jobs.
Another recent study found that women- and minority-owned businesses operate on smaller margins than other companies, so one could conclude that they will be disproportionately affected by an increase of business property taxes.
A recent study by our organization, the National Federation of Independent Business/California, found that nearly 80 percent of small-business owners are strongly opposed to proposals that would tax business properties at a different rate than residential properties.
With California ranking near the top in tax burden and at the bottom of nearly every economic indicator, now is not the time to increase taxes on our small businesses, which President Obama acknowledges are responsible for most of the new jobs in this country. Businesses should be encouraged to grow and expand in California, not flee to states with more business-friendly environments.
Small businesses in California have persevered through the recession by cutting back and living within their means. Sacramento should do the same.
John Kabateck is executive director for the National Federation of Independent Business/California, which represents small and independent businesses.