October 20, 2009
The Slow, Painful Burn of a Dysfunctional Government
Yesterday, at lunch time, two younger carpenters were discussing the dirt-cheap real estate that's available and one opined that now might be the time to buy, with values expected to increase in the near future. I suggested that they be cautious about assuming proximate economic recovery in Rhode Island, as if a healthy economy is some sort of natural state of being. In fact, I argued that a national recovery will drive Rhode Island deeper. Consider John Kostrzewa's article in the Sunday Providence Journal focusing on one small business — long in local history — that has no option but to close its doors:
That's one of the tragedies of Rhode Island's recession, now in its third year.Small businesses are disappearing at an alarming rate.
That's important because of the clusters of jobs that are lost, and the income, sales, property and other taxes that will no longer be collected to pay for state and municipal services.
It's also important because when the national expansion starts, there will be fewer Rhode Island companies ready to fill orders or provide services. It will take time for new small companies to organize, get financing and open to do business. That means Rhode Island's recovery will be slower and shallower than in other states that compete for the same contracts.
I wouldn't even count the delay in new businesses as the biggest concern: Rather, the likelihood that the sorts of people who would start new businesses and make them successful, as employees, will see recovery elsewhere as an opportunity to leave. Even if they don't follow local news and politics as closely as we all do, they pick up the general reality that nobody in government (with the mild exception of the outgoing governor) is even making substantial noises about fixing what's wrong with the state that they ostensibly run.
And the opportunity to make even minor shows of comprehension and concern are so plentiful that the negligence can only be deliberate. Back to Kostrzewa and the lamp shop that can't:
"It's not a friendly state to get people to come to," [store owner Patricia Lena] said, "If anything, they leave."She mentioned the inhospitable business climate. She said the inventory tax on unsold lamps left on the shelves was costly. She said at one stage of the business she would have liked to hire more employees, so she didn't have to work seven days a week. But the taxes, specifically under the workers' compensation law, made the cost prohibitive.
The current General Assembly — whose members the last election gave no electoral reason to change — is more likely to increase the burden on such entrepreneurs with "living wage" legislation and the like than to respond to their plight. Brace yourselves, Rhode Islanders; we're chasing an ignorant fantasy to the bottom of the well.
Interesting that this business owner paid a sales tax when she bought her inventory, she pays an inventory tax while the item sits on her shelf and then pays a sales tax when she sells the item. Collecting a tax 3x on the same item, just so a business owner can make something of themselves. Terrible.
I used to be part owner of a small business and yes, this inventory tax is ridiculous. They even tax you on things you're not selling, like the office furniture. It was totally ridiculous. Feels like a giant shakedown scam.
Posted by: Patrick at October 20, 2009 12:53 PM" the dirt-cheap real estate that's available "
I wonder about that. When I moved back here, around 1995, you could buy a prety good sized pile of bricks off the Boulevard for about $150,000. That was less than 15 years ago, we might have some more to lose. I guess that is determined by whether you think 1995 prices were "under valued".
There is the problem that continued deterioration of the city is squeezing more people into the East Side.
About the Projo article, it is small businesses like that which give a place "texture". Otherwise, you only need to live near a mall. A lot of people would be amazed at how little many of those owners make. I am not pleased to hear how she was being taxed to provide inflated salaries and benefits for government functionaries making twice what she was. Of course, some of that is choice.
Posted by: Warrington Faust at October 20, 2009 4:30 PMFew to none of the small businesses in RI that have been closing for the last 18 months will ever open again. Take a drive through RI's towns' and cities' business districts and see how many businesses have closed, how many commercial buildings are for sale or rent, how many storefronts are empty.
An inventory tax is just the tip of the iceberg in a state too heavy in public employees to be private-business-friendly. Does anyone really think that the bottomless sucking hole known as RI's public employee trough can be filled with income and real property taxes alone? Add permit fees, filing fees, application fees, employer taxes and fees, license fees, renewal fees, annual fees for those things you got the permits for, town fees, state fees, and workers compensation premiums that boggle the minds of business owners in other states. Set up as an S corporation where income of the company passes through to the individual owner for taxation? Great - there's no (double) federal corporate income tax on that, and Rhode Island doesn't have a corporate tax on S corporations either! But please send your annual $500 "fee" (it's not a tax!), payable to the RI Division of Taxation. Business have a bad year, a loss? Too bad, make that $500 payable to the RI Division of Taxation anyway, it's not a tax.
At some point RI will tip the scale and public employees will outnumber owners and employees in the private sector - maybe they already do. Public employees have been compensated far beyond their worth for too long. Starting salaries and yearly increases dependent only on whether an employee is a warm body and unrelated to job requirements, job performance, whether a raise is deserved or whether the position is even necessary are obscene. And who doesn't know at least one relative of a past or present elected official who has been living off the rest of us for years in a government job? These schmuckles are moved from department to department, do-nothings doing nothing, only "job" being to wait it out enough years to retire with nice fat pensions and benefits at an early age, on us.
Thanks to the GA, who long ago turned it's back on those taxpayers who aren't on the public dole and handed RI over to the public employee unions. But maybe the GA will do the right thing on this binding arbitration issue.
My view, ranting as it is, from the private sector.
Posted by: riborn at October 20, 2009 8:22 PM