Archive for the 'Presidential policies' Category

Making tax reform fair for small businesses

General Motors Corp and Georgia’s Motors, Inc. are alike in many ways. Both go to market representing themselves to the world as corporations, legally formed entities standing on their own, capable of entering into contracts and being responsible for themselves and their activity. But while both corporations are required to report business activity for the previous year on a tax return to the IRS, only one actually pays taxes.

In addition to filing a return, General Motors Corp, structured as a “C Corp,” the apex legal business entity, is the one that pays federal taxes at the business rate, currently one of the highest in the world. Georgia’s Motors, Inc. was formed as a Subchapter S corporation, aka “S Corp,” one of the pass-through entities established by law to make being incorporated easier for small firms. Any taxable income reported on its return passes through pro rata to the shareholders, to be added to their personal return and taxed at each one’s individual rate. In our story, Georgia Smith is the founder and sole shareholder of Georgia’s Motors, Inc., one of millions of American small businesses.

Lately, the term “pass through entity” has been used more frequently in news reports about the tax reform proposed by the Trump administration. The increased frequency is because a significant reduction in the business tax rate is being proposed which could put GM’s corporate rate below Georgia’s personal rate, unfairly causing her to pay more per dollar of business income than GM.

The good news is the Trump tax reform drafters recognized this inequity to pass-through entities like Georgia’s. As currently proposed, shareholders of Sub S Corps and other pass-throughs, like a Limited Liability Company (LLC), would still accrue the income of their businesses. But what’s new is that business income would be taxed separately, at the newly reduced, single rate paid on all business income, rather than at the personal rate of the shareholders.

These proposed tax reforms are very important for small businesses because of how their taxable income manifests. Let’s say Georgia’s Motors, Inc., produces $100,000 in business income, which passes through and is applied to Georgia’s personal return. Because of how that income is accounted for, it can create a taxable event typically associated with investments, called “phantom income.” This is when the loss of an investment results in taxable income, but produces no cash to pay the associated tax.

When you hear a small business owner tell you they had a very profitable year, but had to borrow money to pay their taxes, they just described what is tantamount to phantom income. But unlike true phantom income, that $100,000 hasn’t been lost. It actually exists, but in the form of inventory, accounts receivable, equity, etc., but maybe not in enough cash to pay the tax bill when due. And it could get worse: That business income added to Georgia’s personal income could push her into the next higher rate bracket.

By allowing small business owners of pass-through entities to pay a lower business tax rate, in a separate calculation from their personal income, they will have more working capital to invest, and be less likely to experience phantom income.

The small business sector is very excited about the prospects of tax reform, both at the personal and business level, as long as pass-through entities are treated the same as big corporations.

Write this on a rock … Unleash the animal spirits of America’s small businesses with tax reform that includes lower rates applied to all business income.

When small business gets organized, the world will change for the better

The election is over and we have a new president-elect. When I polled my online audience in October about who they would vote for in the upcoming contest, two-thirds of our respondents said Trump, while 13% chose Clinton. After the election, when I went to the same online network to ask how they felt about the election results, six-of-ten were “thrilled,” 29% allowed they were “glad it didn’t go the other way,” with only 8% saying they were unhappy with how it turned out.
When you understand that there are approximately 100 million American voters directly impacted by a small business, responses to our polling, as well as others with which I’m familiar, make me believe small business voters contributed to Mr. Trump winning 30 states. Consequently, small business owners will be justified in watching Trump’s actions to see if he is as much of a payroll-making, job-creating kinsman as they apparently think he is.
But the small business sector has to do more than just hold someone else accountable - we have to hold ourselves accountable. We need to participate in the public policy debate and contribute to the results. Otherwise, we’ll be relegated to taking what we’re given by policy makers who can presume that we don’t care.
Engagement in public policy should be a small business priority for two reasons:  politicians and bureaucrats. These are the people with the power to levy taxes and impose regulations, both of which can negatively impact your business. The first element of this priority is to identify local, state and federal elected representatives, and make a plan to contact each one this year. Every year these individuals pass laws that spawn regulations and mandates that have an impact on your business. Unfortunately, too often that impact is negative.
It’s dangerously naïve to expect policy makers to intuitively act in the best interest of small business.  Not that they intend to hurt us, but there are at least two reasons why small businesses often draw the short straw:
  1. Too many politicians have never made a payroll, and consequently know little or nothing about the challenges small business owners face.
  2. Our message gets pushed aside by that of more organized and better-funded interest groups (read: unions and corporate America).

Small businesses have to find a way to get more involved, either through our own direct efforts, or indirectly through organizations that advocate for us. Excellent ways to do this is to first find out what’s being debated and weigh in based on your position with a letter, phone call, or even a visit. Next, learn about the voting record of your Congressional delegation on laws that affect small business. Then write a letter to them and/or attend local meetings they conduct, to congratulate them if they have a supportive voting record, or express your disappointment if they don’t, and encourage them to do better.

Yes, I know you probably don’t have time to get directly involved in public policy or politics. But here’s good news: There are a number of advocacy groups that track key small business policy issues and defend and advocate for Main Street businesses at all government levels. Here’s a short list I recommend:
  • Local and industry: You should always be a member of your local Chamber of Commerce and your industry’s trade group. Both have policy advocacy efforts.
  • National and state: Small Business & Entrepreneurship Council, (sbecouncil.org); National Federation of Independent Business, (nfib.com); Competitive Enterprise Institute (cei.org); National Taxpayers Union (ntu.org). There are others, and you can’t go wrong supporting more than one. Your support, especially financial, contributes to their voice at the policy table.
Regardless of your party affiliation or how you voted, as the Trump administration works with a GOP majority Congress over the next two years, many issues will be debated that impact your business. Find a way - directly or indirectly - to make your voice heard.
The choice is yours: Participate in small business policy-making, or take what you’re given by those who can rightly assume that you don’t care.
Write this on a rock … At 100 million strong, if small business stakeholders were organized, the world would change - for the better.

Online Poll: How do you feel about the future of America?

The Question: As you contemplate Independence Day, how do you feel about the future of America?

8% - America’s best days are still ahead.
6% - America’s best days are behind us.
83% - America’s in trouble, but we can still turn it around.
3% - Never mind America, the whole world is going to hell!

Jim’s Comments: As you will see in the results of our recent online poll above, more than eight of ten of our respondents have serious concerns about America’s condition and future, with only 8% who’re optimistic about how things are. By comparison, the national average reported by Real Clear Politics — which homogenizes seven large polls — reports two-thirds of Americans think we’re “on the wrong track.” Perhaps the reason our folks rank their concerns a little higher than other polls is because we’re responsible for making payroll every week or two, which, under the current regulatory and economic conditions, is getting more and more difficult.

The last time I saw this level of concern among Americans was almost 40 years ago, during the Carter Administration. In fact, President Jimmy gave the name to the general national feeling that was pervasive during the last half of his one and only term. In a television address, he actually said there seemed to be a kind of “malaise” in the country. He was right.

Jimmy Carter is a good man, but was a poor leader. Granted, he inherited some challenging issues, but he wasn’t a problem solver and didn’t inspire confidence. Does that sound familiar? Replace the name at the beginning of that sentence with Barack Obama and everything to follow fits, with one exception: Obama has had two terms to make a difference. Sadly, if you converted the polling numbers for our national condition under this president’s watch to letters they would spell: malaise.

And my criticism isn’t political — I worship at the throne of results. Two things cause Americans to have a positive outlook: feeling secure and feeling successful. Unfortunately, looking at the facts — and the polls — in front of our eyes, these two areas are not positive.

Here are four simple traits that I would like to see in our next president, and I don’t care which party the possessor of these comes from:

  • Proven leader who hates mediocrity
  • Passionate about America’s greatness
  • Politically incorrect about defending America
  • Believes economy can grow at more than 2%

    What does your list look like? If you’d like to tell me, leave a comment.

  • Mr. President, a recovery is not an expansion

    Dear President Obama:

    For as long as there have been organized economies there have been economic cycles, of which there are essentially three elements:

    • Beginning at the bottom, a recession (sometimes, but rarely, a depression). Historically, sir, recessions are short – often measured in months.
    • In the middle is a recovery, which has the task of healing the defects that caused the downturn while reversing negative growth. Depending on the severity of the recession, recoveries take a little longer, from months to a year or so.
    • And finally, the tide that floats all boats, the expansion. Expansions can last for years, as they did under two of your predecessors, Reagan and Clinton.

    In America, we expect a recovery to be a means to an end, not a way of life. Alas, that isn’t your standard, because perpetual recovery has been our economic fate since you took office, four months before the Great Recession ended in June 2009.

    Recently, in a speech in Elkhart, Indiana, you said this: “By almost every economic measure, America is better off than when I came here at the beginning of my presidency.” Those of us who have made payroll every month of your tenure see things differently, as, apparently, does your own Department of Labor. Two days after the Elkhart speech, the Bureau of Labor Statistics reported a measly 38,000 jobs were created in May – the worst jobs month in six years. And labor participation – the number of Americans who work – has languished under your watch at rates not seen since the last president who manufactured malaise, President Carter. You can’t have an expansion, sir, if people aren’t working.

    Let’s review your economic performance, Mr. President, by the numbers. First, we’ll cut you some slack and throw out your first year in office, 2009. The recession ended halfway through, but ’09 was a horrible year you didn’t create, going almost 3 percent negative. But the next six years, through 2015, the economy averaged a pitiful 2.15% GDP growth. Those are not expansion numbers, sir, and they’re the worst for any president since World War II. Any economist will tell you an expansion is annual growth averaging at least 3%. By the way, 2016 is not trending any better than the past six.

    It’s a misnomer to refer to a president as “handling of the economy,” because there are really only two ways you factor directly into its performance: 1) helping by getting government out of the way of job creators; and 2) hurting by putting government in the way. Mr. President, you’ve set a record for the latter as an unprecedented assaulter on job creators. Your weapons are:

    • Anti-business rhetoric – “You didn’t build that” and referring to successful people as “fortunate” who need to pay their “fair share”;
    • Anti-business laws – both the specter and the reality of Obamacare, plus Dodd-Frank, to name the big two;
    • Anti-business regulations, guidance and executive orders from your EPA, NLRB, Labor and FCC.

    All of these are unprecedented for any president in their tone, scope, and damage. Not to mention the palpable fear and uncertainty that manifested among job creators.

    Here’s more evidence: The NFIB Index of Small Business Optimism, the gold standard for such research, reports the longest stretch of pessimism in the Index’s 43 years during your presidency. This from the sector that creates over half of the jobs and half of the U.S. economy. In my own polling of small business owners, only 9% think you have “been good for the economy,” while more than two-thirds think your policies have been “an economic nightmare.”

    Referring to the economy in the Elkhart speech, you said, “We can make it even stronger.” Who are “we,” Mr. President? The Oval Office door will soon hit you in the backside for the last time. With all due respect, sir, if “we” make “it” stronger, that will happen after you leave.

    Write this on a rock … Out here on Main Street, Mr. President, we’re not going to miss you when you’re gone.

    Poll results: Which of the frontrunners would you vote for?

    The Question:
    It’s the week before the Iowa caucuses. Which of the frontrunner of the two parties would you vote for?

    4% - Hillary Clinton
    7% - Bernie Sanders
    44% - Donald Trump
    25% - Ted Cruz
    20% - If these are my choices, I won’t vote.

    Jim’s Comments:
    So, there you have it. The Small Business Advocate Iowa Straw Poll results.

    First, you have to notice that small business owners are heavily weighted toward the GOP. When asked why, they typically say, “Because I make payroll twice a month.”

    Second, the two troublemakers, Bernie and The Donald, are the frontrunners in their parties. Surely this who-woulda-thunk-it scenario will be the stuff of books and civics lessons for years to come.

    Finally, for those of you who support the Democrat O’Malley, or Bush, Rubio or any of the other Republicans, please forgive me for leaving them out of the survey. We just didn’t have room other than to offer the “anyone else” option at the end. Even so, with only 20% choosing this line, it looks like the choices were offered were justified, as they align pretty well with the national polls.

    I’m looking forward to our edition next week where we’ll compare our numbers with the actuals of the caucuses. Stay tuned.

    And thanks for your abiding support of our poll each week. Check out our new one below.
    Poll: Do you think your business is prepared to be relevant and competitive into the next decade?

    Poll Results: What grade would you give President Obama?

    The Question:
    From the standpoint of the impact on your business, what grade would you give President Obama for his time in office?

    5% - A
    6% - B
    6% - C
    9% - D
    74% - F

    Jim’s Comments:
    As you can see, President Obama is a failure to three-fourths of our small business audience. It’s been clear from day one that the president has been ambivalent to the Main Street economy atbest, and against us at worst. In seven years in office, the only policy he’s proposed that looks anything like pro-business is the Trans-Pacific Partnership trade deal he cut last year.

    On the other side of the coin, the anti-business stuff is a long list, which I’m going to innumerate in an article in the near future. Stay tuned. Thanks for participating.

    And thanks for your abiding support of our poll each week. Check out our new one on how you would vote today, click here.

    To listen to more about these poll results, click on the link below.

    Small business owners have give Obama a grade




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