SPENDING MEASURES ON BALLOT HAZARDOUS WARM, FUZZY GOALS SET TRAPS TO KILL BUSINESSES, DRIVE JOBS FROM STATE.

Byline: Raymond J. Keating

MOST politicians in California say they love small businesses and respect entrepreneurs, but you'd never know it by the policies they impose. Amazingly, various measures on the Nov. 2 ballot, if passed, would actually make matters worse.

Each year, the Small Business and Entrepreneurship Council produces the ``Small Business Survival Index.'' The report ranks the states according to their respective policy climates for business and entrepreneurs. In the just-released 2004 edition, California does not rank last, but that's only because the District of Columbia is included. Among the 50 states, California offers the most hostile policy environment for small business.

The negatives are quite numerous.

For example, the state's personal-income and capital-gains tax rates are among the highest in the nation, along with a burdensome corporate income tax. The state also imposes individual and corporate alternative minimum taxes that diminish the benefits of various tax incentives. In addition to these formidable tax woes, legal liability costs, workers' compensation premiums and electricity costs rank among the most onerous.

Such an environment presents real obstacles to business formation, economic growth and job creation. The incentives clearly point to living, working, investing and building businesses elsewhere. In fact, from a policy perspective, any other state in the country would be friendlier.

Unfortunately, several propositions on the ballot this year would make it even tougher to do business in California. Each would expand the size of government and raise costs accordingly:

Proposition 61 calls for the state to borrow $750 million to make grants to children's hospitals. Proposition 63 would spend hundreds of millions of dollars more each year on mental health services. Proposition 67 proposes higher spending on emergency services. Proposition 71 calls for spending $3 billion on embryonic and adult stem-cell research. And Proposition 72 would allow voters to affirm or reject a 2003 law requiring employers with 50 or more employees to provide health insurance or pay a tax to the state.

Some of these ideas might sound nice, like grants to children's hospitals, while others raise serious ethical questions, like human embryonic stem cell research. The economics are unmistakably dismal, though. First, more government involvement in health care will continue to drive up costs. When government - that is, the taxpayer - picks up the tab, no one is concerned about costs, and therefore costs inevitably rise at a quickened pace.

Second, each of these measures will make the state less competitive for business and jobs. The cost of government will rise and, therefore, so will taxes one way or another.

Proposition 63 explicitly calls for an additional 1 percent tax to be levied on incomes over $1 million. Such an additional tax would give California the highest personal-income and capital-gains tax rates in the nation. This would negatively impact the bottom line of many businesses, which as sole proprietorships, partnerships or S corporations, for example, pay the personal income tax. Entrepreneurship and investment would become less profitable. Now, as much as class warriors might enjoy this, economic reality says it would be bad for California.

Proposition 67 would hike the telephone tax. The surcharge would be limited to 50 cents per month for residential lines. Sounds reasonable, right? But, of course, that means businesses are going to get whacked. Again, is this smart economics?

And as for Proposition 72, this ``play or pay'' health care scheme would simply push various businesses into other states or into bankruptcy.

Fortunately, unlike some other California politicians, Gov. Arnold Schwarzenegger seems to understand the costs facing the business community. He not only vetoed a minimum-wage increase in September that would have hurt small businesses and reduced available jobs for young, inexperienced workers, but also has announced his opposition to four of these health care propositions that would damage the state's competitive position.

Sometimes people think our economy is all about a conflict between labor and capital. In reality, though, we are increasingly a nation of investors and entrepreneurs. It also must be understood that labor is powerless without capital. That is, people need places to work and tools to use at work.

California voters need to show that they are serious about improving the state's climate for small business and entrepreneurship by rejecting these propositions, which, if passed, would damage economic opportunity for all in the Golden State.