Written by Audrie Zettick on March 19, 2009
Business titans (or at least those with titanic salaries) stood elbow to elbow with President Barack Obama in January, part of the lobbying of the American public aimed at convincing us that indeed, business is behind his efforts to stimulate the economy. More recently, the President spoke to the Business Roundtable, another bastion of high-level, Fortune 500 CEOs.
But it’s the elbow grease of American small business that’s not only kept this economy humming in the past, but kept us true to our traditions of self-determination and independence. What qualifies as a small business differs depending upon what industry you are in and who is doing the defining. (Example: the SBA considers a telecommunications reseller with up to 1500 employees a “small” business although generally the top break is at 500 employees). What I am talking about is the meat and potatoes of small business–the more than 60% of businesses with zero to four employees.
Failure to see things from a small business perspective is a bipartisan issue. My own family’s experience speaks volumes. Through Democrat and Republican administrations, we couldn’t fully deduct health care premiums, had to spend time figuring out how to adjust books for new tax tweaks and spent much more than we’d like on CPAs (a worthy profession, but really, I’d rather keep the cost down). And don’t get me started on the voluminous paperwork and phone calls when (not if) we get a notice from the government indicating a payment error–which to date has always been an error on their part.
The past month, I’ve been phasing out our family promotional products business. We’ve been in business since 1965–thriving much of that time. But since my mother’s death 5 years ago, we’d been in a “holding” mode as I helped my 81-year-old dad from a distance (unlike when I was fully committed to the business in the 1980s). I SHOULD be focused on helping our new owner “work” our client accounts, since payment for the sale is based on a monthly percentage of the sales from our existing clients. Instead, I’m focused on administration. I have an MBA. How hard could that be?
The list of taxes I’m dealing with is daunting. Federal Withholding, Medicare, Social Security, Pennsylvania Withholding, Pennsylvania Sales Tax, Federal Unemployment and PA Workers Compensation, and local nuisance taxes (that require quarterly filing, even if we don’t owe a dime). And we only had one employee at the time of the sale. Like many small business owners, over the years we’ve found that complying with various local, state, federal tax and regulatory issues takes up more of our time than we’d like, keeping us from expanding our businesses.
I’m ever hopeful that the Obama Administration might do right by small business. This week he DID get the attention of some small business owners by proposing to use $15 million in TARP money to get credit flowing for small business. It’s a worthy objective. In layman’s terms, Obama’s recent initiative uses funds to buy SBA-backed loans and get them off the banks’ books, allowing banks to lend again. However, the stimulus package already has increased SBA-backing of the loans themselves to 90% from 75%–making me wary considering the recent track record on other programs (wasn’t the initial bailout sold to us with the intent to get bad mortgages off the books of financial institutions and didn’t we get into this economic mess because of mortage lending to risky borrowers?).
Most of us who own small businesses don’t apply for SBA-backed loans and don’t intentionally try to lose money. The average small business owner isn’t going to apply even for the basic SBA loan, which requires all owners of 20% or more of the business to personally guarantee the loan. SBA loans are structured to spread the risk around (as they should be), with SBA working through local commercial institutions, and the borrower, lending institution and the SBA–in theory–all assuming risk (although this has altered under TARP). In this economy, it’s understandable–and responsible–if both the lenders and the borrowers batten down the hatches, so to speak.
Whether we are a stay-at-home mom with an online business or the local plumber, we are more concerned with the financial balancing act: investing our proceeds into the business versus keeping enough self-employment tax funds in our checking account to pay our quarterly taxes. After all, we get the pleasure of withholding (and then forwarding) the federal taxes deducted (like all employees) but paying the matching portion of these same taxes as the “employer.”
Perhaps President Obama should have invited some of these folks below into his inner circle on small business.
“My business doubled last year. I think we would all be better off if the government gave us our taxes back and let us invest the money as we saw fit in our own businesses. I’m creating prosperity for myself and others everyday…the federal government is just getting in the way of progress.” Augustine 25
“Wouldn’t it be better just to cut their tax burden? By burden I mean both the taxes paid and the complexity dealing with tax code. When you need a lawyer and an accountant just to make sure you’re following the law, the law is too complex.” Dan
I hear you, brothers.
Written by Audrie Zettick on November 17, 2008
I’m not a big advocate of slippery-slope syndrome. You know, thinking that every action or policy leads one down a road of incremental steps, until you inevitably end up with some undesireable outcome. With some exceptions, I don’t look for that slope behind every vote, executive order or policy proposal. Perhaps it’s because I’ve a healthy respect for less government and assume people see the world the way I do.
I initially saw the bailout as one of those rare circumstances where government intervention was warranted because one sector of the economy threatened to take down the whole. Silly me (nerf bat to head). The $700 billion bailout is a slope with a big incline and we’re careening toward the bottom fast. Or, more accurately (mixing my metaphors)–the bottom of the trough.
We’ve done government bailouts before and the economy and country lived successfully through them. The savings and loan crisis (good background here and here) of the 1990s and the Chrysler bailout (see Heritage Foundation here) come to mind. But as some policymakers point to the (debatable) success of these past efforts, the “gimme” syndrome is upon us, and everyone’s lining up for some of the goodies –unions, automakers (and their supply chain), wall street, even main street. We’re all shopping at Bailouts R Us.
I couldn’t agree with Michael Barrett more.
“Small businesses still cannot get money, people are still getting laid off, and most of the people in our government still have their heads up their butts refusing to acknowledge that the real problem is trying to bailout these companies and banks in the first place. How can a capitalist system work if the government keeps trying to monkey it all up?”
We got into this complicated mess for many complicated reasons, not the least of which is that the federal government injected its policies into the mortgage business via Fannie and Freddie, revised Community Reinvestment Act guidelines that resulted in banks lowering lending standards but passing the risk to others, and HUD directed Fannie and Freddie to make loans to those with below median incomes for their areas of residence.
Attempts at bailing out AIG are already backfiring, as more funds are needed (they are now also feeding at the $700 billion trough) and its become apparent to some (especially the AIG stakeholders) that private investment might now be a better rescue alternative. TARP money may be used to bailout Detroit’s bloated union pension obligation.
Buying Off Main Street –
Main Street’s trough is ready to be filled: enticing us to go more in debt on car purchases by allowing write-off of interest, sales tax (see B. Mikulski proposal) and allowing certain mortgage holders to negotiate for lower mortgage payments IF they fall behind by a couple of months payments (FDIC proposal here). (Don’t get me started with the law of unintended consequences on that last one). And let’s not forget the proposed Economic Stimulus Package, Round Two.
Collectively, we all need a bib from chowing down on the slop of tax dollars. But our kids are going be doing the mopping up.