- The Washington Times - Monday, October 30, 2000

Will the politicians running the District of Columbia ever get it when it comes to creating a pro-growth, pro-opportunity environment for investment and entrepreneurship?

Looking at the results from the "Small Business Survival Index 2000," which I research and write annually for the Washington-based Small Business Survival Committee, the answer is not encouraging. When compared with the 50 states, the District of Columbia offers the most inhospitable policy environment in the nation for small businesses, entrepreneurs and investors.

The Small Business Survival Index ties together 16 different indicators into one measurement. These are: the top personal income tax rate, top capital gains tax rate on individuals, top corporate income tax rate, property taxes, sales taxes, death taxes, unemployment tax rate, health insurance tax rate, electric utilities tax rate, workers' compensation costs, crime rate, right-to-work status, government bureaucrats, tax limitation status, Internet access tax and gas taxes.

Washington ranks among the very worst when it comes to personal and corporate income taxes, and dead last for capital gains taxes, electric utilities taxes, the crime rate, and the number of government bureaucrats as a share of the population.

Of course, some hope was offered last year when city councilmen David Catania, a Republican, and Jack Evans, a Democrat, proposed a substantive, three-year, across-the-board tax cut, including a reduction in the top personal-income and capital-gains tax rates from 9.5 percent to 6.5 percent, along with a cut in the corporate income tax rate from 9.975 percent to 6.5 percent. Unfortunately, Mayor Anthony Williams and Alice Rivlin of the control board killed these tax cuts.

Instead, a far smaller tax cut, stretched out over a longer period of time, was passed. By 2004, the personal income, corporate income, and capital-gains tax rates will only decline to 8.5 percent. Not only is this phase-in far too long, but the end result is too skimpy. After the tax cut is implemented, the District of Columbia will still carry among the most burdensome tax rates in the nation.

Unfortunately, rather than getting back to the necessary work of tax reduction this year, the focus in the city's budget talks once again has been misdirected to more government spending. But for all the talk about cutbacks and belt-tightening, the city's total budget keeps climbing year after year.

In 1993, for example, the city's gross budget equaled $3.6 billion. For the coming 2001 fiscal year that number will probably top $5.6 billion. Meanwhile, federal subsidies to Washington will have grown from $636 million to about $1.3 billion over the same time.

In essence, the federal government in recent years has provided a massive federal bailout for the city. Meanwhile, critical issues such as broad-based tax relief and crime reduction have received, at best, only superficial attention from Washington's elected officials. Too many seem more interested in talking about statehood, imposing commuter taxes, building ballparks, or bringing the Olympics to the area some time in the distant future.

If officials are ever going to reverse Washington's long decline in population and absolutely horrendous economic performance, then they will have to get far more serious about reducing governmental obstacles to entrepreneurship and investment. It certainly is worth noting that out of the top dozen best-ranking states on the Small Business Survival Index, nine do not impose a general personal income tax, 10 levy no capital gains tax, and four do not inflict a corporate income tax.

Last year, a tiny step was taken toward recovery in Washington, but the focus during this year's budget negotiations represents a serious setback. The city still faces a long, uphill climb to become a place where entrepreneurship, and therefore economic growth and job creation, can truly flourish. Our nation's capital cannot afford to lose any more time in moving ahead with substantive tax relief, deregulation and reducing the size and scope of government.

Raymond J. Keating is chief economist for the Small Business Survival Committee, and co-author of "U.S. by the Numbers: Figuring What's Left, Right, and Wrong with America State by State" (Capital Books, 2000).

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