Patrick Connor is the Washington State Director for the National Federation of Independent Business (NFIB). Two days after sine die, Wire reporter Sara Gentzler talked to Connor about what happened over the last 105 days, from NFIB’s perspective.
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Sara Gentzler: Can we begin with an overview of wins and losses, from NFIB’s perspective, over the session?
Patrick Connor: Sure, of course. With the end of session, I think we scored some bigger losses than we had anticipated.
For us, the B&O tax is a substantial loss. There’ll be thousands of small businesses, either directly or indirectly, hit by the B&O tax increase on selected services. That is our biggest loss of the session, I think, by far.
SG: The higher-education bill is framed as being aimed at big businesses, right? Would you mind explaining how that impacts smaller businesses?
PC: You bet. We heard that claim about a lot of stuff this session: That some of these taxes were geared toward wealthier individuals, big business. But, when you actually dug into the text and studied the effect of the legislation, small business was really the target — whether intended or not.
When it comes to the B&O tax for higher education, the 20% surcharge hits a number of services provided by and/or used by small businesses. For example, accounting, tax preparation, advertising, legal services, and a variety of other business-to-business types of transactions are going to be subject to the 20% surcharge. So, not only will the small payroll company or bookkeeper that a small business may be using to do their weekly payroll be hit with the increase, that increase is then pyramided when a business has to try to find a way to eat that cost and pass it along to their customers.
So, there are a number of instances where those business-to-business transactions will result in higher prices, both to a small business and to a small business’s customers. And, as I mentioned, often it will be pyramided.
The B&O tax increase is one of a couple of different ways that health care costs were increased, despite all the talk about and recognition of unaffordable health insurance. On the one hand, you’ve got the governor crowing about a public option that’s somehow going to reduce costs. And yet, at the same time, the 20% B&O surcharge applies to, basically, every medical provider except hospitals.
That, one way or another, is going to help drive up the cost of health insurance for small-business owners and the families they support. And, moreover, will drive the cost of those procedures when they have to try to use that health insurance.
When it comes to the building sector, it’s a similar kind of thing: A pyramiding of B&O taxes, because now architects, engineers, land surveyors, as well as the other business-to-business transactions I mentioned are all going to be subject to the 20% B&O surcharge.
So, we’ve managed to increase the costs on small businesses. We’ve managed to increase the cost of health insurance and health care that will make health insurance less affordable for small businesses and families they support, and we’ve made housing more expensive, despite all of the public investments and policy directed toward reducing the wave of homelessness that’s been hitting this state for the last couple of years.
SG: I think it’s also true that, when a business that owns property sells or transfers ownership, REET applies?
PC: Yes, you’re absolutely right. And REET is going to hit commercial and industrial properties more than residential. If you’re going to sell your office, shop, factory — whatever land or property your business is located on — chances are very good that you’re more likely to be hit with the increased REET, as well.
SG: So, a lot happened over the last few days.
PC: We were having an unexpectedly good session until the last 72 hours.
SG: What did those 72 hours feel like?
PC: It was sort of like getting hit by a train. That’s probably not the best analogy, but those last 72 hours were very trying. All of a sudden, the B&O tax bill was rushed through Appropriations and to the floor of the House, and then raced through committee and floor action in the Senate.
Same thing with the REET. That one was a little bit less of a surprise, because we had REET bills up in both chambers.
I guess we were just lucky that we didn’t get hit with a capital gains tax, as well. We were actually expecting that one more than we were the B&O, since just the one chamber had considered the B&O, initially, and it appeared to have been stalled as late as the 22nd. In fact, it appeared stalled until the 25th or 26th.
SG: Were there things that went well?
PC: Small businesses, in general, benefited greatly from the mass demonstration by the cosmetologists, barbers, and others in the beauty industry. That managed to help stop a number of bad-for-small-business bills that we expected to get more traction than they ultimately did.
It certainly is impressive when you get more than 1,400 people who come to campus and sign in, opposing a particular bill, as they did for Keiser’s booth-rental bill. That spilled over and helped to stop, I think, four other bills that dealt with limiting the rights and abilities of independent contractors to continue to remain in business as independent contractors. It also seems to have helped derail the restrictive-scheduling legislation, which would have hit bigger business initially, but I think, in time, was likely to trickle down and hit smaller businesses.
So, there’s several bills right there that met a quick and unexpected end. In terms of some bills where we were able to have some impact:
Helping to maintain the ability of health insurers to offer traditional plans through the new public-option process, I think, we consider to be a win. We were fortunate that both Sen. Frockt and Rep. Cody listened to our testimony and were willing to work with us to try to make sure standard-benefit design plans — which we support — were added to the exchange, but not to the exclusion of traditional plans. So that was a good balance.
We were able to get a minor, but important, change to the breastfeeding legislation — so, for those one-room offices or construction-site offices that don’t have a separate space that can be made into a private breastfeeding area, the owner and worker can try to find an accommodation that works for that particular situation, instead of being, basically, on the wrong side of the law by not having a physical division within that work space.
We were able to get another change to HB 1696, which is the law that requires employers to provide wage information to either applicants or workers. The key thing for us there was trying to make sure the penalty process was consistent with other portions of law — particularly the Minimum Wage Act and the Equal Pay Opportunity Act — so that job applicants have access to administrative remedies or legal remedies, but one person can’t sue an employer and file an administrative complaint for the same alleged violation.
SG: Did the Small Business Bill of Rights end up in the final budget?
PC: It did, yes.
We thought we had an agreement from the agencies heading into the fiscal cutoff, but our Senate vehicle stalled in Ways and Means, even though it was scheduled for a hearing and executive action on the same day. We were actually negotiating with the Department of Social and Health Services while the hearing was going on, and thought we had agreement, only to have the bill held up.
We did receive assurances from the majority that there is significant interest in our Small Business Bill of Rights, and that they intend to move forward with a bill next session. And, we were able to get that agreement sealed with the budget proviso, directing the Office for Regulatory Innovation and Assistance to convene the agencies, along with NFIB, to meet and try to hammer out an agreement, I think, by November of this year.
In advance of session so that, hopefully, we’ll be talking about the success of passing the small business bill of rights this time next year.
SG: Did this session feel different from past sessions in any way?
PC: Certainly the end of this session felt a bit different than others. It’s usually late in session that the budgets come together. That’s almost always the sticking point and, often, leads to special session. But, the fairly large number of late title-only bills and the surprise reappearance of a number of bills that should’ve otherwise been dead was a little surprising, to say the least.
We had sent out information to our members and we were watching for it, but the fact that the B&O tax sort of came out of left field and it became a centerpiece of the package was surprising.
The quick pace of this last week was a little bit unexpected, again, based largely on the number of bills we felt were otherwise dead reappearing.
The low-carbon fuel standard, for instance, was another one where we were pleasantly surprised that the Senate Transportation Committee had not acted. And then, in the waning hours of session, we saw it pop up on not just the hearing calendar, but also the executive action calendar for the Ways and Means committee.
SG: Is there anything else you’d like to add or talk about?
PC: Well, despite the B&O and REET tax results at the end of session, I am hopeful that we will be able to have some broader and more thoughtful conversations about meaningful, long-lasting tax reform in this state — particularly as it applies to small businesses.
We were optimistic, given our work with Sen. Hasegawa and with Rep. Frame, who both had bills to take a look at our tax structure. I believe the final budget also has language in it authorizing the Frame version of that tax panel. If so, hopefully we’ll be able to take our lumps in the short-term but have an opportunity to work with legislators over a longer term to come up with some changes that bring greater fairness to the tax system.
Because, as it is now, it’s oftentimes small businesses, effectively, subsidizing tax breaks and government giveaways for big business.
We saw this with the B&O deal for Boeing back in 2003 and 2006 or 2007, where their tax rates for unemployment insurance went down, funding for training programs went up, and small business had to help pay for that. We saw it again with the preferential 25-year B&O tax rates for Boeing. While other — particularly, service — businesses, were again subject to a B&O surcharge to help make up for holes in the budget.
This time around, small businesses are on the hook to help subsidize workforce training for the world’s largest tech giants, who managed to talk a big game about being willing to pay their fair share, but in the end, got a sweetheart deal where their B&O tax rates are capped.
Washington State is a good state for businesses, if you’re a big business. If you’re a small business, the story’s a whole lot different. I think that is awfully similar to some of the concerns we hear about the overly regressive nature of Washington’s tax structure, in general: As a percentage of income, individuals and working families pay more than do more affluent households.
I think it is high time that Washington State does take a serious look at its tax structure and try to balance it, so that we are not dampening the opportunities for the next Boeing or Microsoft or Amazon to evolve in this state because of a punishing tax and regulatory structure that values big business and expects small business to make it easier for big business to keep growing.
This interview was edited for clarity and length.