Published May 2006

Legislature has let
small businesses down

By Carl Gipson
Guest Editorial

For years, small-business owners have been frustrated with the culture of government that has given rise to many of the regulations and rules that now inhibit our state’s entrepreneurs from truly succeeding.

The 2006 state legislative session was a great opportunity for legislators to prove their mettle and stick up for small businesses. After all, 97 percent of all firms in Washington have fewer than 50 employees and employ half of all private-sector employees.

So, how did legislators do in 2006?

If you are a small-business owner, you may see some positive results but more than likely not, particularly in the No. 1 area of concern for small-business owners: access to affordable health insurance.

Legislators tried to take steps toward affordable health insurance for smaller employers, but unfortunately, it was not to be. House Bill 2572 — the Small Employer Health Assistance Program — would appropriate $1 million for a state-run program to subsidize the health care for select employees of smaller firms (50 or fewer). After passing out of the House, the Senate attached several amendments that would have finally given small businesses what they have been asking for — a choice in plans to offer their employees.

According to the National Federation of Independent Business, in 1993 65 percent of businesses in Washington state offered health insurance to their employees. In 2001, that number had fallen to 47 percent. A large part of the reason for the high cost of health care has to do with the number of health-care mandates attached to health coverage plans. The Legislature attached 49 health mandates in the past two decades to cover such benefits and procedures as chiropractic care, mental health parity and acupuncture.

The amended HB 2572 would have let insurance companies offer health plans that had fewer than 49 mandates, thereby making plans cheaper to smaller employers. The amended HB 2572 passed the Senate with a bipartisan vote of 42-5, but the House refused to concur with this idea and stripped the amendments on largely a party-line vote.

Very few small businesses will benefit from this state subsidy; the real approach should be in the form of more affordable and different plans than the ones that currently exist. Having taxpayers chip in to help small businesses out by subsidizing an expensive health insurance plan only manages to partially sweep the underlying problem under the bed until the next session.

Washington’s unemployment insurance system has also long been a thorn in the side of small-business owners. Our state has the highest UI taxes in the nation and pays out more money to beneficiaries than most other states. Small-business owners continue to worry about a system that often seems to reward seasonal employees unfairly and is rife with fraud and overpayments ($118 million in 2004).

Legislators agreed to a bipartisan compromise on the UI system with Senate Bill 6885. This bill will give small-business owners a temporary break on rates but keeps in place many of the harmful changes passed in 2005 — a more expensive benefit pay-out system and tilting the adjudication scale in favor of employees.

Workers who have been laid off through no fault of their own will continue to receive generous benefits, but businesses will be taxed at a lower rate. Eventually, this will create a problem because benefits are being paid out at a faster rate than the fees paying for the benefits are coming in. Because of a surplus in the unemployment insurance trust fund, this practice can be sustained for a little while. However, there will come a day in the not-too-distant future when fees on businesses will have to increase or benefits for workers will have to be cut.

Small-business owners also were let down in other areas: Even though the state has a $1.6 billion budget surplus, many legislators refused to entertain the idea of abolishing the estate (death) tax. Though some projections show only a $100 million decrease of the state surplus should the death tax be abolished, small-business owners continue to be threatened by a tax that many of their competitors will not face.

Even though many legislators will tell you that this was one of the more fiscally responsible sessions in history, the real story tells a different tale. While small businesses saw minor improvements in the way of a few subsidies and rate decreases, the majority of small businesses are still waiting for meaningful reform to take place.

Carl Gipson is director of the Washington Policy Center’s Small Business Project. The Washington Policy Center is a nonpartisan, nonprofit research and education organization. For more information, call 206-937-9691 or go online to

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