small business

Are You Better Off?

National Republicans are nearly weeping with excitement at the flubbed response of Maryland's Democrat Governor Martin O’Malley to the question Sunday on Face the Nation: “Are people better off than they were four years ago?” It has become the new mantra of Mitt Romney's campaign; a question uttered by Ronald Reagan more than three decades ago, and it has forced Democrats to go on the defensive. It could very well be a question that remains constant for the remainder of the election, as most Americans likely don’t feel better off than when Barack Obama was elected four years ago. I’ve seen it asked by many conservative Facebook friends recently, and it is certainly a fair question to ask. It’s just that it’s the wrong question to ask.

Primarily, the implication is that if you’re not better off, well it’s the government’s fault (see President Obama) and by default, if you want to be better off, it’s the government’s job to make sure you are. And, if you aren’t better off four years from now? Well, whose fault is it then?

Except conservative principles that Republicans theoretically believe and want to apply don’t guarantee anyone that they’ll be better off in the future. Not by a long shot. Conservative principles guarantee only that we’ll have more freedom to pursue life, liberty and happiness, but along the way, you might just lose a few times, and that's okay.

For example, let’s say that a new President and a new Congress are elected, government regulations are repealed to get out of the way and you decide to act on that amazing business idea that you’ve come up with. Once free of government bureaucracy, you leave your safe and secure current job and venture into the world of small business self-employment.

And you flop.

The possibility exists that you will not be better off than you are now, in a purely material and fiscal sense. Will that be the President’s fault? Government's? An unfair marketplace? Amazon.com's?

Or, perhaps, your idea is just a bad one. It’s called risk, and the free market (the real free market) and conservative principles allow you to take that risk, and fail. Miserably.

Better off? Nope.

More free? Absolutely!

And that, my friends, is what this election should be about. It’s the question all of us should be asking.

Even Democrat Governor Martin O'Malley admits we are not better off than we were fours years ago. We're not as free, either.

A Funny Thing Happened On The Way To Small Business Tax Relief!

A funny thing happened Friday afternoon on the way to some much needed tax relief for small and family-run businesses: HB 1437, patroned by Delegate Mark Cole (R-88, Spottsylvania), which would grant localities the power to keep or discontinue the dreaded BPOL Tax, was recommitted to the Senate Finance Committee from the Senate floor even though that committee earlier in the week passed in unanimously!

Now, we need your help. Please contact senators, on the Finance Committee, and ask for their vote tomorrow morning to report this bill back to the Senate floor!

Here's what happened: Early last week the bill passed out of the Finance Committee unanimously and went to the full Senate in the "uncontested bloc." That’s where bills without dissenting committee votes go and almost always are passed, without controversy, in a group. However, on the bloc's "third read" Friday — the vote which would've sent HB 1437 to Governor Bob McDonnell — Senator Charles Colgan (D-29, Manassas), who chairs the Finance Committee, pulled it out of the bloc and his motion to "recommit" the bill to his committee did not meet opposition.

We're not sure why this bill was sent back to the Finance Committee, where no interest groups spoke in opposition it. It passed the House 94-5, but we've seen in the past that big, bipartisan margins in the House mean nothing in the Senate.

The BPOL Tax was established to fund the War of 1812. Not only has it outlived that purpose by 199 years, it is inherently unfair, taxing Virginia businesses on gross receipts rather than profit. That means companies that lose money still pay a tax! It punishes many small, family-run businesses that run on tight profit margins. In this down economy, government should do all it can to encourage job growth. The BPOL Tax kills jobs and stunts the growth of small businesses — which create 75 percent of all jobs in America.

This bill is entirely permissive. Localities, as unfair as it is, may still keep the BPOL tax if this bill becomes law. However, it allows them to tax businesses at the Virginia Taxable Income rate instead, which is entirely fair. Plus, this bill would return more decision-making authority to government closest to the people. Denying localities the option to end this tax after 199 years is indefensible. This option would give localities an edge in attracting new businesses and encourage the start up of new locally-owned businesses as well. 

State government should do all it can to help businesses thrive. Instead, we hear stories all the time, such as the small business owner in Norfolk who lost $70,000 last year, covered the loss with his savings, and still had to pay $4,000 in the BPOL Tax! Is that how we create jobs in Virginia?

The Feds Only Regulate Big Business, Right?

Wrong. Way wrong. According to Andrew Langer, president of the Institute for Liberty, who spoke today at the Tuesday Morning Group, the federal government's regulatory burden on small business equals $7,700 per employee. For a small, family-owned company, with 10 employees, that's a $770,000 annual gorilla on its back. This is small business, the engine that creates about two-thirds of all American jobs. That figure doesn't include state and local regulations, either. Get the picture as to why we need smaller government?

The irony is that many big businesses don't mind regulation. It locks in many advantages it has over competitors. That's why Philip Morris lobbied for the recent bill that empowers the FDA to regulate tobacco (see New York Times). Large companies have the wherewithal, lawyers, accountants and savvy to maneuver around and take advantage of the avenues and loopholes the regs provide.

But you poor small business owner saps . . . good luck. More is on the way (see Entrepreneur's Daily Dose blog).

Economics Even The Chinese Communists Understand

There is a lot of talk about the economy these days by candidates, commentators, journalists, financial professionals and anyone else with a camera, microphone or Web page. These issues are important for families who are stressed with providing for their children and even their older parents. One complaint people have is that many types of jobs once prevalent in America now are done overseas. This is true and it makes the corporations that move those jobs overseas easy targets for demagogues who do not understand economics or the purpose of a business enterprise, which is to make a profit (creating jobs is byproduct of profit, not the other way around). The big target lends to the easy caricature of certain companies as villains, and demagogues always look for villains to prey upon the fears of people who are uncertain about their futures. So, how to slay the villain? In a political/economic sense, it's to hit them with higher taxes — that'll teach'em. Besides, "paying taxes" is the new "patriotism," according to Joe Biden, and you better learn that now (See YouTube video here). Nothing could be more misguided and nothing could be a more serious threat to the economic well being of the country and American families looking to improve their lives. Understanding why it's misguided is something we all understand at heart, though it gets lost in the anxiety of troubled times and easy to strike out at undeserved blame and believe in false solutions.

Everyone knows (or should remember) that corporations don't pay taxes — they simply pass the costs they incur through taxes to the price of their goods and services — which we pay at the pump, the store, the restaurant (see this short list of prices affected by taxes). It's that simple. So companies look at taxes as an expense, just as they look at energy, machinery, maintenance, supplies, etc., as expenses. If it can lower expenses  by moving a factory near a supplier, companies do it. We see it all the time. So doesn't it make sense that if their tax expenses are greater here, than say in Ireland which has a low, flat tax, they will move where they can cut costs? Raise the corporate tax all you want to get even with those evil businesses and not only will you lose more jobs, you create more inflation by jacking up the prices they inevitably will charge. So we get hit from both sides.

How to solve the conundrum? Simply lower the corporate tax rate. You know the U.S. corporate tax rate must be high if it is more profitable for some companies to move operations overseas rather than have the convenience of domestic operations and transportation, etc. Exactly how high is the U.S. corporate tax rate? It is the second highest of the 30-member Organization for Economic Cooperation and Development at 39.3 percent (see list here). Only Japan is higher. Communist China, which is not an OECD member, has a 25 percent rate (see here). Furthermore, see how our individual states stack up against the OECD. It's none too pretty.

This is basic economics and it is a direct reflection on the travesty of public education that more people do not understand these simple, basic concepts, which leaves them open to persuasion by the play to emotional demagougery by liberal politicians. In 1972, George McGovern ran on a similar platform to Barack Obama's: Raise taxes on the rich and corporations and give everyone else a paltry redistributionist check of a few hundred dollars. He lost 49 states to Richard Nixon. Just losing to Richard Nixon was an accomplishment. To get comprehensively dismantled by Nixon shows how out of touch McGovern was (and there was an unpopular war, then, too, that people wanted over). That Obama's almost cloned economic plan has not made him a laughing stock is remarkable. Has America's economic IQ disintegrated that fast? (See short, but instructive blog post from the Cato Institute, here.)

Obama showed his utter lack of economic IQ in the second debate when he responded to John McCain's (see here) charge that his plan to tax people who make more than $250,000 would kill small businesses by saying, "there are only a few small businesses" that make that much. Really? Many small businesses are incorporated so that the owner's income is the business' gross income. That's why expensing deductions and low taxes are essential for this sector of the economy which produces 70 percent of American jobs. Obama's retort was one of a man who's never worked in the for-profit world. If a small business isn't grossing $250,000, it's not in business at all — at least, not in the hiring/job creation part of business (i.e., it's a self-employed, individual contractor or consultant). 

In fact, according to Americans for Tax Reform, three out of every four businesses in the top 5 percent tax bracket is a small business. There are 26 million small businesses that employ 116 million Americans and hundreds of thousands of those businesses — sole proprietorships, partnerships, S-corporations and family farms — who pay taxes at the individual or joint-filing rates would get hammered under his "tax the richest  5 percent" plan. Forget their employees. The families of the family-owned businesses, who are paying for college, a car payment, a mortgage, etc., would face real devastation. (National Review adds more light to the conversation, here.)

We've all heard the expression we get the government we deserve. When it comes to the economy — and therefore opportunity and financial security for families — it comes down to this: When the Chinese communists undertand tax policy better than Americans, we deserve the economy we get.