The ChamberPost

Business Economists on Taxes

by Brad Peck

Quick hit from CNN Money on a National Association of Business Economists survey:

"One area where there was broad agreement in the survey was the question of tax cuts. A majority of economists said that none of the existing tax cuts on individual income, dividends and capital gains should be allowed to expire."

Government - More, Less, or Good?

by Brad Peck

When the U.S. Chamber opposes a suggested law or regulation the immediate reaction from its supporters is that we oppose the effort's declared intent. In most cases this is not true, our opposition stems from our informed belief that the suggested law or regulation is not an effective way to achieve the declared intent. On the other side when the U.S. Chamber supports spending or taxes in certain areas we get accused of being hypocrites for not supporting spending or fees in every single instance. However there is no hypocrisy involved again just an insistence of effectiveness and broad perspective.

Though I doubt he agrees with the U.S. Chamber on the relative effectiveness of most laws or regulations, Matthew Yglesias had a good post up recently on why the questions of more versus less cannot be the only debate:

Debates about the overall size and costliness of the public are inevitable and healthy. But what’s not healthy is to have a politics that’s completely dominated by this question to the exclusion of all others. There’s a huge difference between dollars spent on useful infrastructure and dollars spent on pointless boondoggles. There’s a big difference between dollars spent on schools that help kids learn and schools that don’t. There’s a big difference between paying the salary of a barber cartel enforcer and paying the salary of a regulator who’s preventing deadly oil spills. This stuff matters enormously, but if our overall political conversation insists on ignoring it we’re bound to get it wrong.

Small Businesses and the Whims of Government

by Brad Peck

Snips from two great letters today in the Wall Street Journal:

...as a small businessman I would like to ask all pundits, academics and politicians to please shut up and visit a small business and see firsthand what the problems are. Taxes are oppressive and strangling the U.S. economy. Tax credits and other tax gimmicks can't have the dynamic impact of an across-the-board tax reduction. Irrational government spending goes hand in hand with the need for more and more taxation. Government regulation is at the point of insanity.

There is a complete misunderstanding of just how small business actually functions. No small business "creates" jobs simply because it can get a loan at a low rate. Small businesses simply fill positions as needed if it contributes to the development and greater profit of the enterprise...If the government really wants a turnaround in the economy, it will find no better solution than lowering taxes and getting off the backs of all businessmen. (Paul C. Ryan - Norwood, Mass. )

The fact is that this economy remains paralyzed in the face of a government that is passing laws with economic ramifications it can't even begin to comprehend. That the whim of the government and not the workings of the free market should be the hinge on which the economy turns should frighten every American. (James E. Naso - Parma Heights, Ohio)

Export Controls for the 21st Century

by Brad Peck

National Security Adviser Gen. James Jones (ret.) writes in the Wall Street Journal:

This week, President Barack Obama will announce a major step forward in the administration's efforts to fundamentally reform the nation's export-control system so that we strengthen our national security and enhance the competitiveness of U.S. manufacturing and technology. Export controls constitute the regulations we have to restrict the export of certain products and technology for national security and other reasons. The changes that we are making—in what we control, how we control it, how we enforce those controls, and how we manage our controls—will help strengthen national security by focusing on controlling the most critical technologies, preserving the technological edge that U.S. forces enjoy on the battlefield, and strengthening our economic competitiveness.

...The foundation of our new system will ultimately include a single control list that distinguishes in tiers between the most sensitive items and technologies and everything else; a single licensing policy to be applied across all agencies; a center to better coordinate the many agencies involved in export-control enforcement; and a single IT system to make sure decisions are fully informed.The development of a single, tiered, positive control list will allow us to closely and efficiently scrutinize the export of our most sensitive items and more effectively deny exports to those who mean to do us harm.

These reforms constitute much-needed, common-sense change in the way we do business. They will focus our resources on the threats that matter most and help us work more effectively with our allies in the field—all of which bolsters our national security.

Bolster national security and create jobs, as a January study by the Milken Institute and the National Association of Manufacturers found that "modernizing U.S. export controls could increase exports in high-value areas. By 2019, these policy adjustments could enhance real GDP by $64.2 billion (0.4 percent), create 160,000 manufacturing jobs, and heighten total employment by 340,000." More on reforming the current bureaucratically labyrinthine system here.

Priority 1 - Allow Small Businesses to Prosper

by Brad Peck

Investor's Business Daily writes:

It is smaller businesses, and especially new entrepreneurial businesses, that drive each new business cycle. And the government — including the politicians who set tax policy — should recognize what these innovative companies do in their first 10 or 15 years. The SBA defines a small business as one with fewer than 500 people. And yes, when Sam Walton started Wal-Mart and Bill Gates started Microsoft, each had maybe 30 or 40 employees. A year later they had maybe 75, the next year 120, then 320, then 501. From that point on, they were no longer considered small businesses. But over the next 10 to 15 years, one of them created more than 1 million jobs and the other 500,000.

Yes, many small companies "crash and burn," as Marcus puts it (though we fail to see how raising taxes on them makes that less the case). But those that do succeed turn out to be America's real "engines of job creation." Creating the conditions that allow them to prosper should be the nation's top domestic priority. Instead, this White House and Congress seem hell-bent on increasing their costs and weighing them down with all sorts of new mandates.

Why I'm Not Hiring

by Brad Peck

A business owner explains:

It's simple: uncertainty...To be clear, business owners can handle risk — it's a very big part of what we do. But we're not idiots...Here's the thing — entrepreneurs like calculated risks, risks that we think are likely to yield profits for us. Very few successful entrepreneurs will gamble with their companies, betting the whole enterprise on a lark. We want to be comfortable with most of the variables before we take a leap. That's how we built our companies, and that's what we need in order to continue to grow them.

And there's the rub. We won't jump back into the hiring pool until we know that we won't be blindsided by new taxes, that the new taxes won't push us into a double dip, and that new regulation won't swamp us with needless paperwork. So if Congress and policymakers are serious about getting the economy back on the right track, my advice to them is to get out of the way. Stop regulating and pushing agendas, and let us build. It's what we do, and we're champing at the bit to do it.

Five Months Later - Taxes and Health Care Reform

by Brad Peck

Keith Hennessey looks at the CBO's annual summer baseline update:

On page 6 (page 24 of the PDF) is a box titled “The Effects of Major Health Care Legislation on CBO’s Baseline.”  It provides an important new data point that was absent when the legislation was being debated...Unlike with other major legislation, CBO’s scoring of the health laws blended spending increases and tax cuts into a single measure of deficit effects...Only now does CBO tell us in a parenthetical:

Taking into account all of the provisions related to health care and revenues, the two pieces of legislation were estimated to increase mandatory outlays by $401 billion and raise revenues by $525 billion.

...Deficits matter.  So do spending and revenues.  If they remain in place, these laws will make government spending $401 B larger this decade.  By reducing the budget deficit through tax increases, these bills will shift some of the fiscal burden from the future to the present.  By increasing government spending, these bills will increase the cost of government on the private sector that pays for it.  That latter point is an important piece of information that Congress should have had when they voted. I am generally a fan of CBO, and please don’t group me with the bashers who say they did everything wrong.  This, however, was a failure.

Lack of Business Confidence Weighs on Growth

by Brad Peck

Yesterday I posted Intel chief executive Paul Otellini thoughts on the economy, here is Jim Tisch, chief executive officer of Loews Corp. talking to Bloomberg News:

"The thing that business people don’t like is uncertainty," Tisch said in an interview at Bloomberg’s New York headquarters yesterday. "Part of the problem is that business has very little confidence in what’s been going on and very little visibility." Tisch said he expects the economy to grow at a rate of around 2 percent annually, while the average estimate of 69 economists surveyed by Bloomberg News is for 3 percent growth. While Tisch called himself a realistic optimist, that level of growth isn’t enough to reduce the unemployment rate, now at 9.5 percent, he said. Nor does he see the U.S.’s near-zero interest rates as a catalyst for expansion because corporations and individuals aren’t borrowing money, instead using any cash on hand to pay down debt.

A Flummoxed and Hostile Government != Jobs

by Brad Peck

From CNET:

Intel chief executive Paul Otellini offered a depressing set of observations about the economy and the Obama administration Monday evening, coupled with a dark commentary on the future of the technology industry if nothing changes...Unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

The U.S. legal environment has become so hostile to business, Otellini said, that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth." Not long ago, Otellini said, "our research centers were without peer. No country was more attractive for start-up capital... We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

...Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working." Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus -- but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.

"They're in a 'Do' loop right now trying to figure out what the answer is," Otellini said. As a result, he said, "every business in America has a list of more variables than I've ever seen in my career." If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions "the wrong way, people will not invest in the United States. They'll invest elsewhere."

Take factories. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States," Otellini said. The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose. (Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but anti-business laws: "The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways.")

Let's make this functional:

do {

replace_leaders(ineffectives);

real_reform = policy_check();

} while (!real_reform);

The Subtle Tax Knife

by Brad Peck

A simple question gets complicated:

What's the tax on a bagel? It depends how you slice it—or in the case of New York, if you slice it.State tax officials, under orders from cash-strapped Albany to ramp up their audit and compliance efforts, have begun to enforce one of the more obscure distinctions within the state's sales tax law. In New York, the sale of whole bagels isn't subject to sales tax. But the tax does apply to "sliced or prepared bagels (with cream cheese or other toppings)," according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it's never been touched by a knife, it's also taxed.

...Kenneth Greene, the owner of 33 Bruegger's Bagel franchises throughout New York, says the state demanded that he start charging taxes on all bagels, except for those that remain intact and are consumed off premises, and forced him to pay a "significant" sum in taxes that the state estimated he owed.

And then the unkindest cut of all:

...One source of confusion is that the rule isn't spelled out in the tax code. And while sliced bagels are subject to sales tax, a sliced loaf of bread at a bakery isn't, according to tax officials. A spokesman for the tax department said the state "will provide additional guidance via our Web site and publications in the near future."

In other words, you don't know what the rules are, we don't know what the rules are, but until we figure it out just pay.