Let’s give a cheer for Tax Freedom Day

Is your wallet feeling a little lighter post-April 15?  Everyone dreads tax day.  We hate finding those receipts.  We detest the forms.  No one wants to revisit how they spent their money last year.  But the hardest part is writing that check.  On April 16 you feel like having a party.

While we associate April 15 with taxes, people pay some sort of tax almost every day.  In addition to income taxes there are sales taxes, property taxes, excise taxes, and estate taxes.

Individuals and businesses pay income taxes to the federal government based on wages and other income.  With the exception of Alaska, Florida, Nevada, South Dakota, Texas, Nevada, South Dakota, Texas, Washington and Wyoming, states also collect some form of income tax.

Californians are no strangers to sales taxes.  Individuals pay sales taxes on goods and some services. The sales tax is levied primarily to fund state and local government services.  Businesses collect the tax and submit it to the state.

Business and residents who own property pay property taxes based on the assessed value of the real estate.  The county usually collects the tax.  The process of dividing the tax varies by state.  In California the tax is remitted to the state which divides it among schools, counties and local governments based on a complex formula established by Proposition 13 and its progeny.

Excise taxes are taxes on specific services and products. The tax is included in the price rather than added at time of sale.  Examples include gasoline, tobacco, gambling winnings, and highway use fees paid by truckers.

The estate tax is based on the value of assets to be transferred after death.  In 2015, any estate with gross assets under $5,430,000 is exempt from taxation.  The portion of an estate that exceed this amount is taxed by the federal government.

Benjamin Franklin told us, “Nothing can be said to be certain except death and taxes.”  While we might not enjoy paying taxes, we understand why we pay taxes.  We want highways, parks, schools, emergency services and national defense to name a few benefits. 

However, paying different taxes to different levels of government at different times makes it difficult to understand exactly the total amount of taxes we pay.  The Tax Foundation, a nonpartisan research group, has found a simple way to help taxpayers understand their total tax burden. 

By counting total income, based on the Department of Commerce’s Bureau of Economic Analysis figures, then adding-up every payment to the federal, state or local government that is considered a tax, the Tax Foundation computes how many days a resident needs to work to pay their taxes for the year.  Count that number of days on a calendar and the next day is Tax Freedom Day!  Since state and local taxes vary, the day varies by state.

Californians, our 2015 Tax Freedom Day is May 3, the day we will have earned enough to pay our 2015 taxes. Does California have the latest Tax Freedom day?  No, that honor is reserved for Connecticut (May 13), New Jersey (May 13), and New York (May 8).  The earliest Tax Freedom Days are Mississippi (April 4) and South Dakota (April 8).

No matter how you celebrated April 16, I think May 3 deserves a celebration as well.  That is the day you start working for yourself.

Big business stepping up job creation

If someone asked you who employs more people - big businesses or small businesses - you’d probably reply small business.  That is the perception most of us have but it really isn’t quite that simple.

Every five years the U.S. Census Bureau collects data on the number of businesses, number of establishments, number of employees (full and part-time), annual payroll, cost of benefits and annual hours worked in each of 21 major industry sectors as a part of its Economic Census. They are incrementally releasing the 2012 Economic Census data as new reports are completed.

The Los Angeles Economic Development Corporation (LAEDC) has been reviewing the data and discovering some interesting facts.  For the sixth consecutive year, more than half of U.S. workers were employed by businesses with 500 or more employees.  The percentage of workers employed by big businesses is increasing and has since 2004 when it was 49.1 percent.

Of course, the employment data varies widely by sector.  In healthcare and social services, the largest U.S. employment sector, 54 percent of the jobs are with large businesses or organizations.   Jobs in retail sales and utilities are also dominated by big employers providing 64.1 percent and 82.6 percent of the total jobs respectively.

LAEDC found several business sectors that are populated primarily by medium, small or very small establishments.  These include personal services (85.8 percent), construction (83.3 percent), real estate and leasing (69.3 percent), arts, entertainment and recreation (63 percent), accommodations and food services (59.9 percent), wholesale trade (59.6 percent), and professional, scientific and technical services (59.5 percent).

Large employers - those with more than 500 positions - employ 51.6 percent of the workforce.  Medium size employers - those with 100 to 499 positions - employ 14.0 percent of the workforce.  Small employers - 20 to 99 positions - employ 16.7 percent while very small - fewer than 20 positions - employ 17.6 percent. 

In California, 50 percent of businesses have 500 or more employees just 1.6 percent fewer than the national average, with the remaining 50 percent of employment spread between medium, small and very small businesses.

Why do we usually associate more jobs with medium and small business? Probably because small business grows faster and are created more frequently than larger ones. Small businesses are often more innovative.   But they are also more vulnerable to economic swings and can lost jobs quickly. 

Still medium and small businesses are a critical part of our economy and they are producing new jobs for Southern California every day.

If you want like more information on jobs creation in Los Angeles County and the San Gabriel Valley, plan to attend the San Gabriel Valley Economic Partnership’s 2015 Economic Forecast on Tuesday April 21, 2015 at Pacific Palms Resort.  Dr. Robert Kleinhenz Chief Economist of the Kyser Center at LAEDC will provide the most recent data. More information is available at sgveconomicoutlook2015.eventbrite.com or www.valleyconnect.com

Legislation would benefit trade, SoCal businesses

International trade is a critical to Southern California’s economy providing 5.3 percent of the jobs in Los Angeles County.  In the San Gabriel Valley, the impact of international trade is even greater- 6.7 percent of the jobs depend on international trade.

International trade depends on the ability to sell American goods to other countries - 95 percent of the world’s customers live outside the U.S.  According to the U.S. Chamber of Commerce, 97 percent of the 300,000 businesses that export are small and medium sized companies. It is small and medium size business that provide most of the job growth in the U.S.

While trade is generally open, some current tariffs are in the double digits. Regulations can inhibit trade.  Trade agreements can breakdown these and other barriers and allow goods and services to flow more smoothly, thereby growing the U.S. economy.

Currently there are two pieces of federal legislation under consideration which could have huge positive impacts on international trade and Southern California’s economy:

1. The Trans-Pacific Partnership (TPP) Trade Agreement and

2. The Export-Import Bank (Ex-Im) Reform and Reauthorization Act.

The TPP is a giant trade agreement that would include Australia, Brunei, Chili, Malaysia, Mexico, New Zealand, Canada, Peru, Singapore, Vietnam and Japan.  Other countries including Korea might also join.

Trade in the 21st century brings more complications than trade in the past.  Most existing agreements are concerned with eliminating tariffs and setting standards for the sale of goods.  Today’s trade agreements need to also consider the import and export of products like financial services, telecommunications, and intellectual properties, not just cars and corn.  That requires a very different kind of agreement. 

Opponents say the TPP would reduce environmental protections, eliminate American jobs and hurt small businesses.  No one wants to see that happen. But fair rules based on strong negotiated trade agreements level the playing field and help prevent those impacts.

The second piece of legislation is a bill to reform and reauthorize the Export-Import Bank of the U.S.  The Ex-Im Bank is the “official credit agency” of the U.S.  It fills the financing gap for companies that cannot access private financing.  It’s been around for eight decades and since 1990 transactions enabled by the bank have repaid the U.S. Treasury $7 billion more that the bank received in appropriations.  It has a low default rate and holds reserves of $4 billion to cover losses. What do you know- a government sponsored business that makes money and helps create American jobs!

Opponents say the Ex-Im Bank serves big business, but usually don’t mention it also directly serves almost 9,000 small businesses.  And the big businesses Ex-Im does serve buy from small business. International trade benefits both.  Other nations understand the connection. Last year export credit agencies in our top trading competitors provided 18 times more export credit than the Ex-Im Bank.

Getting things done in Washington D.C. is difficult today and that is affecting these trade bills.  Tough global competition requires that politics take a back seat to the ability for free trade and global markets to support our national and local economies.

Drought a Concern Throughout the Nation

I just returned from eight days in Washington D.C. - one day it was 73 degrees, two days later it snowed.  I wasn’t there to experience the weather.  I was part of a Southern California delegation there to talk to members of Congress about important state issues and how the federal government could help.

At the top of the list was California’s drought.  You might wonder if elected officials in other states care about our drought.  They do. The lack of water in California impacts the entire nation.  It impacts their food supplies, their water and their economy.

The most immediate impact is on the nation’s food supply. California grows over 200 different crops including almost all of America’s almonds, apricots, dates, figs, kiwis, nectarines, olives, pistachios, prunes and walnuts.  It also leads in the production of avocados, grapes, lemons, melons, peaches, plums and strawberries.  Lack of water is having a major impact on the availability and cost of fruits and vegetables nationwide. 

The water supply for the entire western U.S. is affected by California’s drought.  Twenty-five million Californians depend on the Delta Watershed for water.  Last year Southern California received only five percent of its normal Delta water allotment.  In the Central Valley some farmers didn’t receive any Delta water.  That means other water sources were needed to help fill the void.

One significant water source for California is the Colorado River.   California isn’t the only state that diverts water from the Colorado River.  Nevada, Arizona, New Mexico, Utah, Colorado, Wyoming, California – and Mexico all need Colorado River Basin water. 

Demand for water from the Colorado River exceeds the supply.  To make sure users only take what they are entitled to, the Colorado River is managed under a complex collection of compacts, federal laws, court cases and contracts known as the “Law of the River.”  

Even with this level of strict management, the Bureau of Reclamation says that “based on preliminary assessments, large supply demand imbalances greater than 3.5 million acer feet are plausible over the next 50 years...”   Every user state is interested in making sure California’s drought doesn’t disrupt water supplies in their state.

Longer-term the economic impacts could be significant.  The California economy is the largest in the nation.  A strong national economy needs a strong California economy.

How can the feds help?  They can provide added funding for projects that increase local water supplies such as groundwater clean-up, capture and treatment of storm water, and increased use of reclaimed and wastewater.  The California bond funds will help but there is much more to do.

Congress also can expedite a bipartisan legislative package supporting enhanced conservation and drought mitigation efforts.  Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, was clear that this is a priority for his committee.

Finally, they can support programs that will improve reliable long-term water supplies through an improved Delta ecosystem. Helping to bring a peaceful end to our Delta battles would be welcomed indeed.