Washington’s small business economy is underperforming the rest of the country on nearly every measure that matters, and a new report says the state’s own policies are the reason.
The National Federation of Independent Business on Tuesday released its first Washington-specific Small Business Economic Trends report, which puts the state below the national average on expectations for the economy, hiring plans, and whether now is a good time to expand.
The numbers back up what Washington employers have been saying for months as they eye the exits. Washington’s Small Business Optimism Index sits at 94.5, four points below the national reading of 98.5 and 3.5 points below the historical national average. The report says the metric is “flashing a bright red warning sign” for the state. The gap was even worse last period, at 93.6 against a national 98.6.
Labor costs crush hiring
The most damning finding involves labor.
Some 19% of Washington small business owners named labor cost as their single most important problem, more than twice the 9% national figure. That makes labor cost the second most severe issue in the state while it ranks just sixth of nine nationally.
Washington’s job numbers reflect it. Plans to increase employment run 10 points below the national average, current job openings run 8 points below, and the state’s 5.1% unemployment rate ranks 45th in the country.
The NFIB report does not dance around the conclusion.
“One key takeaway is that Washington small businesses find it exceptionally difficult to afford help. Why are their hiring plans lower? Why is Washington’s unemployment rate higher? The data here give a simple answer: It is too expensive to hire in Washington,” the report states.
Government regulation came in 7 points higher as a top problem in Washington than nationally, making it the third biggest problem in the state against seventh in the U.S. Taxes ran 3 points worse. Business health followed the same pattern; only 6% of Washington owners rated their business in excellent health, half the 12% national figure.
All eyes on page 9
Patrick Connor, NFIB’s Washington state director, has been leading the small business push to repeal the state’s new income tax, a fight that has already produced enough signatures to put the 9.9% levy before voters. He released the report with a pitch for how policymakers should use it.
“This new, semi-annual report condenses six months’ worth of SBET findings to come up with more solid datapoints that policymakers in Olympia and in local communities can use to improve the Main Street entrepreneurial climate in our state,” Connor said in a statement announcing the report.
He also told readers exactly where to look first.
“The whole report is worth a read, but for those on a tight timeframe, I suggest jumping to Page 9 on the Top Issues,” Connor added.
Page 9 is where the report explains why Washington keeps missing national benchmarks. It is also where the state’s Democrats will find the least comfortable reading, since labor costs, regulation, and taxes are all products of decisions made in Olympia.
A verdict Olympia earned
Washington Democrats spent the last two sessions raising taxes on the very businesses this survey measures, capped by an income tax that hits pass-through entities hardest. Small business owners warned lawmakers about exactly these outcomes while the bills were moving.
The report’s conclusion reads like a closing argument.
“Small businesses are not hiring, and a major reason why is because it is much more costly to do so in Washington than in the rest of the country. A second reason for their struggles is regulation, which the data suggests is much more challenging for Washington small businesses than for those elsewhere. Washington is a difficult place to operate a small business right now, and the data sends clear signals why,” the report concludes.
Gov. Bob Ferguson called his income tax a small business tax cut. The small businesses just answered.
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