Small Business To Be Hit…Again!
A short time ago, Federal Reserve Chairman, Ben Bernanke said the job market was gradually improving. Since then, unemployment has increased, causing Bernanke to admit he was “stumped” (my word–Bernanke’s words were: “We don’t have a precise read…”).
It is obvious that no one in Washington has a “precise read,” because the politicians are once again looking to the small business community to pony up more taxes to pay for a bloated federal budget.
The following video clip is of a short discussion between Treasury Secretary Tim Geitner, and Representative Renee Ellmers (R-N.C.), which should cause every small business owner in America to be concerned:
(email subscribers view video on my blog)
So, why shouldn’t we increase taxes on small businesses making over $250,000 per year? That’s a lot of money to most of us. Well, other than the fact that the U.S. already has the highest corporate tax rate in the world (even higher than socialist France) here are a couple of things to consider:
- The combined federal and state corporate income tax rate averages very closely to 40 percent of corporate profit. That means that a small business owner making $250,000 for the year pays about $100,000 of their profit to federal and state governments. Of the remaining $150,000, the small business owner must pay on the principal of any loans the company has. Basically, interest is deductible–principal is not. That is why, in many cases, small business owners take home less money than many of their employees–yet they pay more taxes. And if Geitner has his way, they will pay even more.
- The second thing to consider, is where is the money going to come from to grow a small business and make more jobs? Since the banks are not loaning to small businesses, the only place the money can come from today is out of profits, that is; the reinvestment of profits. That means that of the remains from the example above, a certain portion must be reinvested back into the business before any new jobs can be created. In many cases, this means that a small business owner showing $250,000 in corporate profits on their tax return may actually be living below the poverty level…before additional taxes.
Yes, it really makes sense to increase taxes on small business owners making $250,000 in corporate profits. In other words take away the money they may normally use to create new jobs. I just love the way politicians think.
You may note that Geitner said that they had no alternative to raising taxes, because otherwise “…you have to shrink the overall size of government programs.” Duh! Regarding Geitner’s statement, here are a couple of interesting statistics:
- Federal spending has climbed from $2.89 Trillion in 2008, to $3.82 Trillion this year–almost a Trillion dollar increase.
- For those concerned about federal funds for education, please note that although the amounts have steadily increased since the Clinton years, federal funding still only accounts for 8.2 percent of overall spending on education. The other 91.8 percent is provided by state and local government.
So, once again, the politicians are trying to kill the goose that lays the golden job opportunities. With little access to capital, crippling government regulations, the looming cost of the new healthcare law, and now a new small business taxation plan taking shape, is it any wonder that small businesses are not charging full-speed ahead with expansion plans and the creation of new jobs.
On the other hand, there is very little in the mainstream media about small business activism. Is this a case where the small business community is going to just sit back and hope that things will eventually improve by themselves?
What about you?
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Small Business Regulations
Consider This!
$1.1 Trillion! That is the annual cost to Americans for businesses to comply with mandated government business regulations, according to the Office of Advocacy of the Small Business Administration. This is more cost per household than the cost of health insurance. Think about it.
Moreover, smaller businesses bear the brunt of these government regulations and pay 45% more per employee to comply with mandated regulations, than big businesses do.
Bear in mind that these numbers are before the new regulations coming out of Congress take effect, e.g. new health care insurance. So this cost will only continue to rise.
And we wonder why small business is not hiring people, and pulling us out of the recession like it has in the past.
Of course you do know, that businesses MUST pass ALL of these costs for government regulation on to the consumers of the goods and services they provide, in order to stay in business?
Question: Isn’t this a hidden tax on every consumer, just to pay for bureaucratic bloated programs dictated by the government?
Putting Tax Cuts in Terms Everyone Can Understand
Some time ago I ran across the following post from Mark Gwilliam (see below), and I just had to post it here in its entirety. This might be a little tongue-in-cheek?
“Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the
arrangement, until one day, the owner threw them a curve. “Since you
are all such good customers,” he said, “I’m going to reduce the cost
of your daily beer by $20.”Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so
the first four men were unaffected. They would still drink for free.
But what about the other six men – the paying customers? How could
they divide the $20 windfall so that everyone would get his ‘fair
share?’
They realized that $20 divided by six is $3.33. But if they subtracted
that from everybody’s share, then the fifth man and the sixth man
would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s
bill by roughly the same [ratio] amount, and he proceeded to work out the
amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four
continued to drink for free. But once outside the restaurant, the men
began to compare their savings.
“I only got a dollar out of the $20,”declared the sixth man. He
pointed to the tenth man,” but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get $10 back
when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get
anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine
sat down and had beers without him. But when it came time to pay the
bill, they discovered something important. They didn’t have enough
money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how
our tax system works. The people who pay the highest taxes get the
most benefit from a tax reduction. Tax them too much, attack them for
being wealthy, and they just may not show up anymore. In fact, they
might start drinking overseas where the atmosphere is somewhat
friendlier.
FOR THOSE WHO UNDERSTAND, NO EXPLANATION IS NEEDED.
FOR THOSE WHO DO NOT UNDERSTAND, NO EXPLANATION IS POSSIBLE.
An excerpt from: David R. Kamerschen, Ph.D. Professor of Economics University of Georgia”
Mark Gwilliam is the founder and Managing Director of the Business Advisory Services Group a professional services organisation that provides accounting; tax; corporate governance & risk management; business consulting and secretarial services throughout New Zealand and Australia. Mark’s blog is very informative for all small businesses, and can be found here.
For Want of a Nail…Redux
Back in October, I posted an article titled “For Want of a Nail…” where I described a bad customer experience I had at a nearby coffee shop. I described the poor management of the business, and intimated that the business would not survive under its current management.
Well, guess what! Last month I drove by the coffee shop and saw a large banner over the door that read “Reopening Soon–Under New Management.” Since then, I have stopped in a couple of times and have been pleasantly surprised by the eager greeting, the good coffee, the great service, the offer to set up a frequent coffee card, and the visibility of the manager. All the things that drove me away before have been eliminated and replaced with an attitude of wanting to make me a loyal and happy customer.
Any small business that relies on repeat business to be successful, needs to concentrate on building a loyal following…or “Tribe” as Seth Godin would call it. Now, I predict that as long as the present manager continues doing the things he is currently doing, this business will do well. I am now one of their tribe.
How are you doing with building your “Tribe?”
Confusion in Lending
I think it is safe to say that anytime the government gets involved in anything to do with business–confusion reigns supreme. The President made it clear in one of his recent addresses (review here) that he wanted banks to start lending, especially to small businesses.
However, yesterday, I read a column from the Associated Press that covered Congressional hearings on the conflict and confusion being experienced by banks. Here are some summarized excerpts from the article:
Regulators at a House hearing Wednesday heard complaints from small business owners, and others, who haven’t missed any payments, but are getting their credit lines deeply cut or yanked away… “There is actually a growing anger from these people,” said Rep Spencer Bachus of Alabama”… “The reduction or denial of credit to credit-worthy customers is occurring every day across America in about every town,” he said.
“The current bank regulatory climate is causing many community banks to unnecessarily restrict their lending activities,” said Michael Menzies, Chairman of the Independent Community Bankers or America. “Actions of bank field examiners are often unnecessarily putting constraints on community bank lending,” he said.
“Banks have to lend money to make money,” Timothy Long, senior deputy comptroller in the Office of the Comptroller of the Currency, told the hearing…Scott Polakoff, acting director of the Office of Thrift Supervision, said “…there is an element of truth in the bankers complaints [that examiners have been ordered to ‘crack down'].”
Bank examiners work for the Federal Deposit Insurance Corporation and the Treasury Department. Don’t tell me this is another boondoggle by Tim Geithner!
Will the political drama never end, so businesses can all get back to work and bring our economy back on track?
Small Business–Hammered Again!
Well, our all-knowing Congress appears to be doing it again—hunting mice with a cannon.
Somehow, I missed all the prior controversy over a new law about to take effect: the Consumer Product Safety Improvement Act (CPSIA). But then, the mainstream media has barely mentioned it.
It seems that this act threatens to drive out of business tens of thousands of small makers of children’s products (not just toys—it appears that zippers and snaps are now considered “lethal”). Moreover, any thrift shop that sells secondhand children’s products (including clothes) will be put at risk for liability.
I am still trying to get up to speed on the elements of this new law, but attorneys are referring to February 10, 2009 as “bankruptcy day”—the day the new law takes effect. Apparently, that is when all manufacturers must “freeze” inventories of children’s products, and components of children’s products, until they can be modified (or destroyed) to comply with CPSIA. Many small businesses in this industry will not be able to afford such a drastic requirement. This could impact as many as 50,000 small businesses…not to mention the impact on retail stores and thrift shops.
It seems like Congress, in its infinite wisdom, will be putting people out of work faster than their stimulus plan can create new jobs. But then, I guess most members of Congress believe it is their duty to protect us from ourselves.
For more information on CPSIA, check out CPSIA Chronicles, February 6.
FLASH: There has been a partial and ineffective reprieve (check out the Chronicles). What’s going on in Washington makes the Keystone Cops look organized.
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