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."

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)

Business Tax Increases

by Caroline Harris

Today I have a commentary on the Capital Business section of the Washington Post:

[I]f Congress does not act, on Jan. 1, Americans will face the biggest tax hike in history. Marginal income tax rates will increase for every taxpayer. The capital gains tax rate will climb 33 percent. Dividend rates for stockholders will jump by as much as 164 percent. The child tax credit will be cut in half and the marriage penalty will return. Small businesses, our job creators and the backbone of our economy, will be among the hardest hit by these tax increases. The top marginal income tax rate will grow to 39.6 percent from 35 percent. Compound that with the loss of certain itemized deductions and personal exemptions, and these small businesses face rates as high as 41.6 percent. And this increase hits our successful small businesses particularly hard -- approximately half of the business income reported on tax returns in 2011 will be subject to the top two marginal rates.

...Already, the American dream is in danger of turning into the American nightmare. Our economy is meandering down the road to recovery but has yet to hit its stride. Nearly one in 10 Americans can't find work. And if you consider those who have given up looking or settled for part-time work, that number jumps to nearly one in five. Things are bad -- and, if taxes increase, they could get much worse.

Congress needs to act now to prevent this tax increase. Extending existing tax rates would, in one bold stroke, boost investor, business and consumer confidence by taking the uncertainty of tax policy off the table. With more of their hard-earned money on hand -- and a better sense of what the future will bring -- businesses and individuals will be able to make the purchases and investments that drive economic growth and create jobs.

The entire piece is here. Read and take action.

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.

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);

Three Real Reasons Companies Aren't Hiring

by Jason Speer

This past Saturday the Washington Post ran a front page story titled "The real reason companies aren't hiring."  I was interviewed for that story resulting in the following paragraphs:

"Congress has been very tough on businesses," said Jason Speer, chief executive of Quality Float Works of Schaumburg, Ill., which makes the industrial equivalent of toilet ball floats, items that sell for up to $1,200 and are used to measure water levels in farm and industrial equipment. The company also makes the metal balls that go on the top of flagpoles. Fundamentally, executives objected to Obama's policies on the grounds they would make the United States a less competitive place to operate in the long run.

But when Speer and other executives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of overtime. So he is weighing whether to hire two or three additional manufacturing workers. None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring.

While it is certainly true that demand for our products is the primary driver for hiring decisions, in the interview conducted with the Washington Post reporter, I specifically listed three legislative efforts also affecting our hiring decisions that were left out of the article:

1. Possible health insurance cost increases due to the health care bill, which could equal one year’s pay for a new employee.
2. The cost of planning for and insurance on the reimposition of the "Death Tax"
3. The 1099 reporting provisions in the health care bill which will increase compliance time and add possible software and accountant costs -- money that could be spent on growth.

Economic uncertainty is a driving factor in business decisions, as are regulatory uncertainty and tax uncertainty. Congress needs to be mindful of all three as they are considering legislation. Given the state of the country right now, our economic growth can’t withstand these political roadblocks.

Jason Speer is the Vice President and General Manger of Quality Float Works, a third and fourth generation family owned small business located in Suburban Chicago.

Small Businesses Sound Off On Tax Hikes

by Brad Peck

From the Wall Street Journal:

Karen Port of St. Louis fears that President Barack Obama's plan to let tax rates rise for top earners will be a double whammy for her hot-tub dealership. Not only would the company—which takes in between $1 million and $3 million annually in gross sales—pay taxes at a higher rate, but the tax increases could leave less money for customers to spend on her high-end products, said Ms. Port, co-owner of Mirage Spa & Recreation, Inc. "It has a deep impact on us," said Ms. Port. "People are going to be stepping back and not wanting to purchase luxury items."

Port is among a dozen small-business owners around the country interviewed by Dow Jones Newswires who said the increase in personal tax rates could hurt their ability to make new investments or hire workers...some business owners—and even some Democratic politicians like Sen. Kent Conrad of North Dakota—are questioning the wisdom of doing so when unemployment remains at a discouraging 9.5%. "I am the guy who is supposed to be responsible for creating the jobs," said Ryan Robinson, co-owner of Irving, Texas-based Signal Metal Industries Inc., a maker of heavy machinery for the steel and mining industries. "When the economy is teetering, and you're worried about having a double dip [recession], is it really smart to not renew those tax cuts?" said Mr. Robinson.

...Some firm owners just want Congress to make up its mind. "It's August, and we still have so much uncertainty. How can I plan on what I want to invest next year?" said Ron Bullock, owner of St. Charles, Ill.-based Bison Gear & Engineering Corp.

To the Main Street Rocky Mount Telegram:

The down economy is no time to be placing any more expenses on businesses, local small business owners said Tuesday. Russ Barnes, an owner of Wildwood Lamp Co. on Paul Street in downtown Rocky Mount, said doing away with the tax break would be a mistake. “Taxes are just another expense,” he said. “Like a utility bill, it is an expense any business has to pay. And as expenses go up, businesses are going to be less successful, less profitable, making it more difficult to grow the business and hire more workers.” Barnes said this is the worst time to be taking money out of business owners’ pockets. “People don’t understand, if you want a job from these people, you need to help them be successful,” Barnes said.

Gus Tulloss, the owner of Gus H. Tulloss Insurance, also wants the tax cuts to stay. “Tax incentives are very helpful,” Tulloss said. “I would not like to see them go away. I am not for increasing taxes or taking away tax credits.” Tulloss, who said he did not want to comment whether he fell into the higher-income bracket, said successful businesses should not be penalized. “If you are making that kind of money, more power to you,” he said. “They are out there risking everything to do that.”

Todd Warren, an owner of Chico’s Mexican Restaurant in Rocky Mount, said Congress should not even consider repealing tax breaks until the country’s economy rebounds. “You should keep the tax cuts until the recession is done,” he said.

Tommy Benson, the owner of Night Life Bar & Grill in Rocky Mount and Benson Amusement Co., said repealing the tax breaks would hurt the economy. “I think (the tax cuts) should be permanent,” Benson said. “How are you going to create jobs when you are hurting and overtaxing the people that create jobs? That’s where jobs come from. They don’t come from government.” He said jobs are created when small business owners have a little extra money and decide to expand. “If the government takes that money away from them, they won’t have the money to expand and grow, and therefore, those (new) jobs won’t ever be created,” Benson said. “It’s the truth.”

Mary Wells, the owner of Koretizing One Hour Cleaners, said she wished her business fell into the higher-income bracket. But even though it doesn’t, she supports the tax breaks for that category of businesses. “I think everyone who has worked and made money is entitled to it,” she said.

David Combs, the owner of Century 21 The Combs Co., supports extending the tax for the higher-income bracket. He said some real estate firms that were in this category have fallen out of it due to the down economy. But imposing the higher taxes takes away an incentive to get there again, he said. “I think small businesses, unfortunately, sometimes get penalized, and if they start paying higher taxes, obviously they may be cutting back on hiring more employees and find other ways to shelter income rather than hiring employees,” he said.

CPAs on HCRs 1099 Reporting Mandate

by Brad Peck

At WebCPA Roger Russell looks at the 1099 reporting mandate in the health care bill, and the American Institute of Certified Public Accountants take on it:

On almost anyone’s benefit-burden scale, the burdens far outweigh the benefits...The AICPA was among the numerous organization responding to the requirements, saying it would be especially burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC return, and calling for outright repeal of the measure. Moreover, the AICPA said, information provided by the forms will not be particularly helpful in collecting any unpaid taxes because it will be difficult to reconcile payments reported on the forms with the income reported by the vendor.

“This expansion of information reporting may prove to be so burdensome to small businesses that we believe it will significantly contribute to the hurdles to growth and formation that businesses face,” the AICPA stated. “When businesses start tax compliance planning for 2012, Section 9006 [of the Patient Protection and Affordable Care Act, the health care legislation that introduced the mandate] will impose a significant increase in costs on business with respect to the accumulation of relevant information and the preparation and mailing of Forms1099-MISC.”

In addition, many corporations operate on a fiscal year basis rather than on a calendar year, the Institute noted. “Receipt of Forms 1099-MISC by these fiscal year corporations would not provide useful information as the corporations would be receiving calendar year information, triggering a burdensome income reconciliation procedure for the taxpayer that would be necessary to interpret the data,” said the AICPA.

...This week, the U. S. Chamber of Commerce sent its own letter to Congress calling for repeal. The letter included 1,100 signatures from local chambers of commerce, associations, and businesses of all sizes. The letter pointed out that the requirement would increase accounting costs, and expose businesses to costly and unjustified audits. Moreover, it said the mandate could alter marketplace behavior to the detriment of small businesses and startups. Customers might consolidate their purchases by using several large vendors with broad geographic presence and more diverse product lines instead of a number of small vendors.

You can read and sign on to our 1099 repeal letter here to help spare small businesses this costly and ineffective expense.

Small Firms - Big Job Losses

by Brad Peck

From the Wall Street Journal this afternoon:

Most of the job losses at the end of last year took place at the smallest firms, underscoring how small businesses are lagging in the recovery.Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs...Many economists believe the recession had ended by the fourth quarter of 2009, and the job market has slowly begun to improve. But small businesses have lagged, in part because access to credit is still tight.

See our proposals for providing more capital for small and mid-sized businesses to grow the economy and create, not lose, jobs.