Small Business vs. Congress
How many new business entrepreneurs are aware that “The Restoring American Financial Stability Act of 2010″ that was passed by the Senate in May, contained legislation that would virtually cripple Angel investments? As the bill stood just before passage, it would have required a 120-day regulatory (federal) review of Angel deals, double the net worth standard for Angel certification, increase the income standard from $200,000 to $450,000 per year for certification, and demand more red tape and regulatory review at the state level.
Were you aware of any this going on in the Senate?
It doesn’t take a great deal of analysis to realize that this legislation would have wiped out a large segment of available new business startup money. (An Angel cannot invest in your business without certification as a qualified investor.) Washington acts (regardless of the rhetoric) as though America no longer needs any small business startups.
Fortunately, Senator Kit Bond (R-Mo) came forward in time to write and force passage of an amendment that “postponed” most of the Angel Investor legislation for four years. One of the regulations that remains is the elimination of the inclusion of an investor’s home in the $1 million dollar net worth calculation required to be certified as an Angel Investor.
Another bullet dodged (just) by small business. It is obvious the people on Wall Street control the folks in Congress, and few of either of them has much regard for the small business entrepreneur.
It is up to each and every small businessperson to stay vigilant and be aware of what is happening in Washington…and then make our voices heard. No one else will do it for us.
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It’s Got to Stop
Steve Wynn is the most active and successful real estate and Casino operator in Las Vegas. He is concerned about the direction Washington is headed in and how it will affect businesses across the country. Part of his personal solution is to redirect his interests (and money) outside the U.S. Watch an interview he did with CNBC a few weeks ago…if you’re a business person you will find it interesting:
Is Wynn full of it…or is he right when he says “It’s got to stop.”
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Term Limits
I recently ran across a short mention of something we have heard little about in the mainstream media lately–term limits. A bill was introduced a while back by Senator Jim DeMint (R-S.C.) that would reduce term limits. This is something that must be done before there will ever be any real change or progress coming out of Washington.
Senator DeMint’s amendment would limit House members to three terms and senators to two terms. Every lawmaker then could serve no longer than six years in Congress.
“Americans know real change in Washington will never happen until we end the era of permanent politicians,” said DeMint in a statement. “As long as members have the chance to spend their lives in Washington, their interests will always skew toward…amassing their own power.”
Two thirds of the House and Senate as well as three quarters of the states would need to vote for DeMint’s amendment for it to become a part of the Constitution.
Does anyone think this amendment will ever be taken seriously in the foreseeable future?
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The Largest Tax Hikes in History
If you have noticed your grocery bill and general living expenses increasing in recent months—brace yourself. In six months we are going to experience the largest tax hikes in history. Unless Congress makes some pretty large changes in current laws.
Note: Small businesses should pay particular attention.
What Are These Tax Hikes?
Following is a condensed version of a recent article written by Ryan Ellis, Tax Policy Director of Americans For Tax Reform, a centrist organization founded in 1985.
(Condensed version)
In just six months, the largest tax hikes in the history of America will take effect and hit families and small businesses in three great waves on January 1, 2011:
First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011 and as a result:
- Income tax rates will rise. The top income tax rate for small businesses will rise from 35 to 39.6 percent. The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.
- Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1,000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.
- The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1, 2011, there is a 55 percent top death tax rate on estates over $1 million. [All family owned businesses, especially agricultural businesses, need to plan now for this eventuality—bf.]
- Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.
Second Wave: Health Reform Costs
There are over twenty new or higher taxes in the new healthcare laws. Several will go into effect on January 1, 2011. Here is one of the most onerous:
- The “Special Needs Kids Tax” This provision of healthcare reform imposes a cap on flexible spending accounts (FSAs) of $2,500 (Currently, there is no federal government limit). This new cap will be particularly cruel to parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education…which can easily exceed $14,000 per year. Under current tax rules, FSA dollars can be used to pay for this type of special needs education.
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. The major items include:
- The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.
- Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment today. In January of 2011, all of it will have to be “depreciated.”
- Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.
- Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
- Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.
Well, there you are. Unless businesses and individuals alike intervene with their elected representatives, this is what we have to look forward to. So, business owners and individual taxpayers, what do you say, …isn’t it time to let our elected officials know how we feel and what we want them to do in Congress?
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New Business Financing
A reader recently called my attention to a small business loan program offered through Sam’s Club. Sam’s Club is not a lender, but they are working through Superior Financial Group, the largest Small Business Administration (SBA) lender in the U.S. (number of loans).
Superior Financial Group makes small business loans that are guaranteed through the SBA. They loan amounts from $5,000 to $25,000, with interest rates as low as 4.25% over the Wall Street Journal published prime rate. The current interest rate starts at 7.50% and increases slightly with smaller loan amounts.
To qualify for this lending program, you need to meet the following criteria:
- Your business can be either a startup or already operating, but it must have a business checking account and a good credit standing. A nice feature of these programs is that no collateral is required.
- You also must have a good personal credit standing.
- You must be a member of Sam’s Club (to receive the low interest rate and loan fee discount).
- You must need a minimum of $5,000, and a maximum of $25,000 for operating capital for your business.
- You must be a “for profit” business.
To investigate this loan program further, go to the Sam’s Club web site and click on “Services”, then on SBA Small Business Loans. Follow the instructions and apply online, or by phone. The lender will process your request quickly and you will hear back within a day or two. Good luck!
The SBA guarantees these small loans through the Patriot Express and Community Express (“Community Reinvestment Act”) programs. You can learn more about these, and other, SBA loan programs through this special report.
In the event an SBA loan does not work out for you, there are other small business financing options—check out this report on Creative Business Financing. There are many ways to finance a business…it just takes creativity and perseverance.
In fact, if you have enough passion and perseverance, you could even Bootstrap your business. Be aware however, that this method only works for the highly determined person who can discipline themselves through the process. Here is a report on a typical scenario for Bootstrapping.
I would be interested in hearing from anyone who has obtained a business loan other than through a bank.
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