- The Washington Times - Monday, August 13, 2001

The District still has a long way to go in its efforts to lure and keep small businesses, but the climate has improved slightly under Mayor Anthony A. Williams, small business owners say.
Fred Luskin, owner of Bell Wine and Liquor in Northwest, says high taxes, overzealous police officers and street vendors have caused him to lose sales.
"Police seem to delight in double parkers. That's how they get their revenue. The impression is they do everything to drive business into the suburbs, then they complain they have no revenue," Mr. Luskin says.
Street vendors, who he says charge no sales tax on their items, also hurt small businesses, he says.
"No one stopped to do the arithmetic. They lose millions of dollars because of vendors. People don't need to pay sales tax from them," he says. "I don't think anyone in the government has had any retail experience where they have had to look at a payroll."
Mr. Luskin says his business has to pay a high property tax and just finished paying off a special tax of $1,300 per year for six years for the construction of the MCI Center.
"The consensus is we're taxed to death," he says.
For the sixth straight year, the city ranked as the worst place to start a business in the United States in a national study by the Small Business Survival Committee, a nonprofit small business advocacy organization, located in the District.
The District placed 51st on the 2001 Small Business Survival Index compared with the 50 states. Nevada placed first, while Virginia ranked 15th and Maryland 27th.
Results of the sixth annual study were based on factors such as tax rates, electricity costs, crime rates, number of bureaucrats and minimum-wage rates.
According to the index, the District's top personal income tax rate ranked the fourth worst in the country, at 9.3 percent. Its top capital gains tax rate tied for last place with California, also at 9.3 percent. Its top corporate income tax placed second worst at 9.98 percent. The District fared better on its state and local property tax ratio, ranking 36th at 3.78 and 25th on a general state and local sales tax ratio of 2.60.
"[The index] informs the lawmakers about the government's impact on the small business climate," says Darrell McKigney, president of the committee. "Most of these factors are government-imposed costs."
Mr. McKigney says the the District's high income taxes and high corporate and capital gains taxes hurt business.
"It's a huge disincentive, especially in small businesses where personal income and business income are one and the same," Mr. McKigney says.
The District has some problems, but it's working to solve them, says Richard Monteilh, president of the D.C. Chamber of Commerce.
He says the D.C. Council has been working to reduce taxes, such as dropping the snack tax earlier this year, which taxed items such as popped popcorn, but not unpopped popcorn kernels.
Tony Bullock, interim director of communications for the mayor, says the city does enough to support small businesses, though they are focusing mainly on one sector.
"Mayor Williams has done a lot for small businesses, obtaining small contracts and just being there for them," he says. "The various federal programs providing tax credits do an awful lot in technology."
Mr. Bullock says that more than 300 small technology companies have been started in the District through tax-incentive programs.
But Raymond Keating, chief economist for the Small Business Survival Committee, says that isn't enough.
"The problem with that is that tax relief should be as broad-based as possible it shouldn't provide for one program over another. They should do a broad-based tax, and then let the market work."
He also says the mayor's tax cut last year was not enough to help small businesses effectively.
"The District passed a tax cut last year, but the original proposal was for a larger tax cut over a shorter period of time," Mr. Keating says. "Instead, under the mayor, the tax cut was smaller over a longer period of time."
Mr. Bullock says he isn't taking the study too seriously.
"I think it's somewhat of a joke in many respects," he says. "It purports to capture various government factors that influence businesses. The bottom line is that we are unique."
He also says the study compares the District to states with rural areas and doesn't compare similar quantities.
Other factors that the District scored high on, like crime rates and number of bureaucrats, make it harder to attract and retain employees, he says.
For example, Crystal Craft, owner of Deane Avenue Cleaners in Southeast, says two of her employees quit after her store was robbed two months ago.
"You're safe nowhere, but to come into your business and have a gun stuck to your head it gives you something to think about," she says. "The money the government is spending needs to be put into safety."
But comparing the District with states such as California is unfair, Mr. Monteilh says.
"Any state is going to have rural areas that will balance out the crime rate," he says. "We should be compared more with cities like Chicago or New York."
Mr. Bullock also says the comparison with other states makes the District look too tax-heavy, since many major cities levy city taxes on top of state taxes.
The District needs to pay better attention to how its neighboring states are taxing its residents, he says.
"You don't have to move too hard for a better tax climate, and D.C. will never prosper until they get a more competitive tax climate with their neighbors," he says.
Ms. Craft says if the District reduced or eliminated some of its taxes, local businesses would be in better shape.
Mr. Luskin also says the higher sales tax, coupled with the lack of a major mall in the city, drives business to the suburbs.
"All they have to do is hop on the Metro and they're in Crystal City," he says.

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