To lure Amazon and more, California needs a statewide enterprise zone
Everyone wants a piece of Amazon. A city in Georgia has even offered to rename itself “Amazon” if only the web sales giant would locate its second headquarters there. Jerry Brown is making a pitch, too. The governor, according to the Mercury News, “is offering tax breaks and other incentives worth hundreds of millions of dollars should Amazon choose the Golden State as the site of its second home.”
We welcome our Democratic governor’s effort. But he’s only part of the way there. Tax cuts and regulatory relief should not be limited to only Amazon.
Governments have been using targeted tax breaks and other financial favors to attract businesses for decades. That’s how South Carolina landed a sprawling BMW factory, and Alabama snagged a Mercedes-Benz plant — which the state owns and leases to the automaker for $100. The German car companies were given hundreds of millions in tax incentives to open the facilities.
Targeting Amazon or any other company for special treatment is tempting. But policymakers should not be choosing winners and losers in a competitive economy. All businesses in this state, as well as those that might want to expand or relocate here, should get the same treatment Brown is offering. The entire state should be an enterprise zone.
Enterprise zones, introduced to California in the 1980s, dangle favorable tax policy, and sometimes regulatory relief, in front of businesses to draw them into areas that are suffering economically. The goal is to boost employment and stimulate local economic development. At one time, California had 42 enterprise zones.
But forget zones. Go statewide. Become “The Enterprise State” before another state grabs the name.
Companies naturally want to locate, relocate and expand their businesses here. Under the right conditions, there is no better place. But those conditions don’t exist at the moment.
For those conditions to exist, the business tax burden has to be eased, and any effort to do so should be a part of an entire state tax overhaul. As it is now, this state’s tax regime is an anchor holding back what could be a booming expansion.
The state’s regulatory web must be cut, as well. A 2015 study from the Pacific Research Institute’s Wayne Winegarden found that California has the highest regulation burden in the country. According to the 50-State Small Business Regulation Index, California businesses are handicapped with workers’ compensation rules, family-leave regulations, land-use regulations, payrolls needlessly swelled by forced union membership, energy regulations, start-up and filing costs, high minimum-wage requirements and the steep expenses of a civil legal system in need of reform.
A few months after that PRI report was released, the Small Business & Entrepreneurship Council published a study with similar findings. It confirmed that California has the “least-friendly policy environment for small business and entrepreneurship.” It’s the cumulative effect of the “ever-mounting burdens placed on entrepreneurs and small businesses by government” that negatively impact economic opportunity.
About a week after Brown made his pitch to Amazon, the Tax Foundation ranked California 48th in its 2018 State Business Climate Index. And not for the first time is the state ranked so low. It’s been 48th on that list since 2014, and has become a regular at the bottom of other business climate rankings.
The Democratic majority that runs this state says it believes in equality. Brown himself has called inequality one of California’s biggest challenges. If that’s truly an article of their faith, then the governor and his party have an obligation. They have to treat every business in the state with the same arrangement being offered to Amazon.
Kerry Jackson is a Fellow at the California Center for Reform at the Pacific Research Institute.