One More Roadblock for Small Business
Today the U.S. Senate is back at work, and one of their early agenda items is to work on the bill just passed by the House last week dealing with “carried interest.” This is pretty much a Wall Street term for some of their profits, and “carried interest” has always been taxed at the capital gains tax rate. The bill just passed by the House raises that tax rate from 15% today to about 35% on this profit.
Since this increased tax rate would apply to some Wall Street profits—who wouldn’t want to stick it to Wall Street? Unfortunately, this bill also includes Venture Capitalists in the mix. This means that “carried interest” (a portion of the profits taken from an IPO or merger) would be taxed at the higher rate, instead of at the capital gains rate.
If the bill becomes law, every Venture Capitalist will be taking a harder look at every potential investment, and will likely only invest in the most promising “cream-of-the-crop” deals. When factoring in additional expenses from higher taxes, VCs are not going to make any deals other than sure things.
Why should they? There are other places VCs can invest their fund money, e.g., hedge funds. Yes, hedge funds would also be taxed at the higher rate, but they also promise faster returns with less risk than founding businesses. Of course, hedge funds do not create new businesses or jobs.
I don’t know, maybe higher taxes on “carried interest” would be a fair and equitable thing—it has been discussed for many years in Washington. But could it be implemented at a worse possible time than right now?
The very politicians who proclaim that small business is the primary avenue to economic recovery for the U.S., turn right around and pass a bill that makes it harder for new businesses to start up and create new jobs. Venture-backed startups added over 13,000 new jobs in the first quarter of this year—why damage that kind of progress now?
VCs have lobbied to have their industry exempted from the bill, but of course the House members turned a deaf ear…and we’ll have to wait and see what the Senate does.
So, if anyone out there is working on an upcoming new business that will require venture capital funding—you had better get busy and let your Senator know that this new bill could make it much more difficult for you to start your new business. You may also want to let your Congressman know that they have likely jeopardized your chances at venture capital.
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Consumer Spending Rises
I see where consumer spending rose more than forecasted last month. Apparently those who still have jobs, or income, believe the recession is over and it’s time to spend again. It is likely that much of this enthusiasm is based on the results of the stock market—which shows a near total recovery.
The stock market certainly could have been a good indicator 50 years ago—when 95% of public stock was owned by individual stockholders. Sadly, today about 75% of the stock in public companies is held by large institutional investors. These are the people who play the stock market like “high-rollers” play in Vegas…they don’t invest according to what is; they invest according to what they “feel” might happen.
On the other hand, maybe they know something we lay people don’t…but I doubt that is of much comfort to the 30 million unemployed and underemployed in the U.S.
Maybe I’ll believe the recession is over when they start putting the bulk of the unemployed back to work—at jobs other than flipping burgers or taking the Census.
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Shakespeare and Politics
Ken Adelman, VP of Movers and Shakespeares, recently posted an article on Huffington Post using quotations from Shakespeare to emphasize his points. They were quite apropos, so I thought I would include a few of them here.
Regarding the unreadable size of the healthcare reform bill, with amendments, Ken had this to say: “Both the legislation and its process reflect Macbeth’s quip: ‘Confusion hath made his masterpiece.’” Apparently this is truer than we imagined, since I just read that the insurance companies have already found a loophole where they won’t have to insure children with pre-existing conditions until 2014, instead of September 2010.
Ken (and the Bard) goes on to say, “…the bill itself became a collection of ‘paper bullets of the mind,’ as Benedict says in Much Ado About Nothing.”
The media filled the airwaves with political chatter while the bill was in Congress, and even after passage, such that many of us became inured to what was being said. These words seem to express what we were feeling: “Zounds! We were never so bethumped with words” (King John).
The many incendiary TV and talk radio shows have left me, and many other independents, feeling: “You cram these words into mine ears, against the stomach of my senses” (The Tempest).
Thanks to Ken Adelman, of Movers and Shakespeares, for these pithy quotations.
Small Business Squashed…Again!
Well, I see the Supreme Court handed big corporations the golden spoon of political clout by striking down major parts of the McCain/Feingold campaign reform legislation. Now, big money has direct control over who does and who does not get elected.
Remember, it is all about the money, and since it takes millions of dollars to get elected to major office, it is obvious who will be controlling our government. And where does that leave Small Business?…guess!
With lobbyists from K-Street orchestrating the performances of Congress, and big business paying for the players, there is not much left for individuals and small businesses to say.
Sadly, the term “We the People” has become nothing more than fodder for political rhetoric to sooth the anger of the uninformed.
Business Funds for Veterans
Sadly, veteran owned businesses are at an all-time low. Fifteen years ago veterans owned around 20 percent of all small businesses, but today that number has dwindled to about 12 percent. Consequently, the U.S. Congress, through the SBA, has approved several programs to help veterans become entrepreneurs.
Here are three of the most popular:
- Patriot Express Pilot Loan—This program is for all veterans and active-duty military people, including their spouses. However, this is a SBA “guaranteed” loan, which means the loan is made through a bank—thus requiring that you have a good credit history. Vets can borrow up to $500,000 with 85 percent of their loan guaranteed by the SBA. And since it is an “Express” loan, you will know within one day if you are approved. For more information, call your local SBA office or visit http://www.sba.gov/vets
- Military Reservist Economic Injury Disaster Loan—This special loan is for the small business that has a key employee, or the owner, called up for active duty. The concept is to loan the business additional operating money to help it either get through the period of absence, or recover from the temporary loss of a key individual. You have a year after the return of the key employee to apply for the loan, or you can apply immediately upon the notice of call-up (a good idea if it is the business owner). For more information, call your local SBA office or visit http://www.sba.gov/vets
- Veterans Transition Franchise Initiative—This is not a loan program; it is a government-sponsored program that gives ten to 20 percent off franchise fees at almost 400 different franchising companies. This program works well for the vet who either has the additional money, or can raise it, to cover the remainder of the franchise fee, plus any operating capital requirements, and who prefers to work within the structured franchise model. For more information, visit http://www.vetfran.com
These are special programs set up to help veterans returning from active duty, or while on active duty, so don’t hesitate to take advantage of them if entrepreneurship is in your future.
China to Require Web Site Registration
China recently released regulations requiring the registration of all web sites before they can be seen in China. Beijing already blocks many sites thus creating a government “blacklist.” Not content with this form of censorship, the new system will create a “whitelist” of registered sites that will be available for viewing in China. So, if you want people in China to be able to view your web site, you will have to register it with the Chinese government—assuming they accept your site for registration.
Will these regulations actually be enforced? No one really knows, but government officials certainly have the will and the capability to do so. Right after the rioting in Xinjiang last July, they cut that region off from the outside world—including blocking both email and the Internet. This embargo is still in effect today.
Technically, it is simple to accomplish in China, because the central government controls China’s communications with the rest of the world and they can impose a Xinjiang-like shutdown on the whole of China by flipping a few switches.
Some speculate that President Hu Jintao’s long-running crackdown on human rights may include his intention to take China completely off the Internet.
Time will tell, but this makes the squabbles we have with our U.S. government pale in comparison. Kinda’ makes one glad not to live in China, doesn’t it?
NOTE: This information is a synopsis of a recent article in Forbes magazine, written by Gordon G. Chang
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