Senator Heller: Any Talking Point In A Storm

Nevadans have a relatively clear choice in the 2012 election between two Senate candidates who are examples of two entirely different political and economic philosophies.   Senator (By Appointment Only™) Dean Heller (R-NV), who has demonstrated a few precious moments of moderation, has more often illustrated the politics of the Senator Jim DeMint (R-SC) brand of ultra-right side of the aisle protection of corporate and financial interests.  His opponent Rep. Shelley Berkley (D-NV1) has more often sided with the interests of middle class working families, consumers, and small business interests.

Our first clue that Double Dean Heller isn’t espousing a critical view of large corporate and financial institutions in America comes from his choice of buzz-words.  He is pleased to tell us that he voted against “taxing small businesses and job creators.” [Heller]

It should be remembered at this point that Senator Heller supports the Republican expansive definition of what constitutes a “small business,” i.e.  The differentiation between small business enterprises as they are commonly known, and small business enterprises as they are generously defined by the Republican Party has been discussed at some length previously; notably HERE, and  here in a 2010 post.   Cutting to the chase, the GOP definition includes K-Street lobby shops, some major law firms, and anyone else who can squeeze into the “small business” tent because they employ fewer than 500 people.

Secondly, Senator Heller’s use of the term “job creators,” is instructive.   There’s nothing particularly original about the term, in fact if we climb in the political time capsule and return to 1993 we’ll find the Republican members of Congress balking at President Bill Clinton’s upper income tax hikes, calling them “job killing.”  “At issue was President Bill Clinton’s $496 billion program of stimulus and upper income tax increases. And what Republicans then decried as disaster ushered in the longest economic expansion in modern American history, a period which produced 23 million new jobs and a balanced budget.” [Perrs]

Not only is there nothing new about the “job creators” term, if the object is to reduce the federal deficit and to create jobs in the United States, then the Clinton tax hikes and economic policies were Job Creating.  Witness the following chart from the Center For American Progress:

This somewhat elderly tried and true graphic shows the marginal tax rates at the bottom — note what’s NOT happening in terms of job growth in the left hand side of the chart.  While there may be several factors in play concerning tax rates and job growth, what cannot be demonstrated is a causal relationship between low marginal income tax rates and increased employment.

Additionally, IF balancing the federal budget is a desirable thing, and Senator Heller touts his votes for various balanced budget legislation, then one obvious way to do that is to follow the recent example of the Clinton Administration and raise the marginal rates on the wealthiest among us — the 0.1% — and seek to replicate the budget balancing accomplishment of the Clinton Administration which left office with a tidy surplus. [FactCheck]

There’s another graphic we should dust off and  haul out of the vaults one more time, because it serves to illustrate the difference between Budget Deficit Hawks and Budget Deficit Chicken Hawks, a Chicken Hawk being one who squawks loudly about “OMG the sky is falling we have a no-good horrible terrible heinous humdinger of a deficit/debt” and then supports the very policies that created the aforementioned debt.

Again, what’s that wide swath of burnt orange comprising the largest portion of contributing factors to the current deficit?  BUSH TAX CUTS.   Who still supports extending the Bush Tax Cuts for the wealthiest Americans?  Senator Dean Heller (R-NV).

The Case of the Small Business Jobs Act

One piece of legislation we can use as a touchstone to measure willingness to support the interests of small businesses is the 2010 Small Business Jobs Act.

On Sept. 27, 2010, President Obama signed into law the Small Business Jobs Act, the most significant piece of small business legislation in over a decade. The new law is providing critical resources to help small businesses continue to drive economic recovery and create jobs. The new law extended the successful SBA enhanced loan provisions while offering billions more in lending support, tax cuts, and other opportunities for entrepreneurs and small business owners. [SBA]

When the bill came up for a vote in the House of Representatives on June 17, 2010 one member of the Nevada Congressional delegation voted in favor of the bill — Rep. Shelley Berkley (D-NV1); Rep. Dean Heller (R-NV2) voted against it. [GovTrack]

The Case of the Economic Development Revitalization Act

Section Seven of the EDR Act in the 112th Congress would have boosted the U.S. economy, with specific attention on public works construction projects and planning:

“Modifies provisions regarding grants for planning and administrative expenses for public works and economic development to authorize funding for: (1) fostering regional collaboration among local jurisdictions and organizations, and (2) facilitating a stakeholder process that assists the community or region in creating an economic development vision that takes into account local and regional assets and global economic change. Requires any overall state economic development planning assisted to be part of a comprehensive planning process that considers the provision of public works to support practices that enhance energy and water efficiency, reduce U.S. dependence on foreign oil, and encourage efficient coordination and leveraging of public and private investments.”

However, this provision and others in the bill which might have boosted the lagging construction sector faced the usual Republican filibuster in the Senate.  When a cloture vote was called on June 21, 2011 Senator Dean Heller (R-NV) voted to sustain the Republican filibuster. [roll call 94]

The vote is interesting given that in February 2011 the situation in the Nevada construction sector was pretty dismal:

About 70,000 of the 180,000 jobs lost in Nevada during the recession were construction related, said Bill Anderson, chief economist of the Nevada Department of Employment, Training & Rehabilitation.

Some of those workers told lawmakers that they are still out of work after being unemployed for two to three years.  [RGJ]

The problem with the opposition logic to public works bills is that if a significant sector is experiencing high unemployment a drag is created on local economies because of lost wages and salaries.  Lower wages or lost wages mean less demand, and less demand further depresses the local economy.  For all the fretting about the perils of inflation, it’s the deflation cycle which puts the greatest strain on economies.  If we’re truly worried about a long and tedious recovery from the Crash of 2008, then one way to speed up the process would be to relieve the drag created by long term unemployment in the construction sector.  This would benefit construction companies and their employees.

The Case of the American Jobs Act

S. 1549, sponsored by Senator Harry Reid (D-NV), another attempt to move Congress off the dime and move on infrastructure needs and construction industry hiring, was introduced in the Senate on September 13, 2011 — and it’s still sitting there — locked in the logjam that has become the legislative process in Washington, D.C.

When a portion of the bill was brought forward to provide funds to hire teachers and first responders on October 20, 2011, Senator Heller voted against it.  [TPG]   Senator Heller castigated the bill as “another stimulus,” and pointed to the “failure” of the initial ARRA to put a dent in Nevada’s unemployment rate.  Senator Heller was at some pains to posit a direct correlation between a bevy of legislation and the increase in Nevada unemployment rate.  [YouTubeVideo] If anyone is looking for a classic presentation of post hoc ergo propter hoc this would be it.

That the ARRA failed is an article of faith among Republicans, and that’s all it is because the numbers don’t support the contention.

From the Congressional Budget Office: What did the Stimulus Bills do?

They raised real (inflation-adjusted) gross domestic product by between 1.1 percent and 3.1 percent,  Lowered the unemployment rate by between 0.6 percentage points and 1.8 percentage points, Increased the number of people employed by between 1.2 million and 3.3 million, and Increased the number of full-time-equivalent (FTE) jobs by 1.6 million to 4.6 million compared with what would have occurred otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers).

The Congressional Budget Office wasn’t the only source of optimism, “The End of the Great Recession,” authored by Mark Zandi (Moody’s) and Alan S. Blinder, Princeton University, (pdf)  noted what Senator Heller failed to acknowledge — that without the ARRA (Stimulus) and other federal interventions the Recession could have been far worse.  The Federal Reserve Bank of San Francisco (pdf) also weighed in making an astute observation that economic multipliers may have differing impact on national and regional numbers, but the effect was essentially the same — ARRA saved jobs.

Both Ways?

Our first clue that Senator Heller is repeating Party talking points rather than offering substantive proposals for economic growth was the “jobs creator – small business” rhetoric.  It sounds ever so much nicer to speak of those in the top 0.1% of American income earners as “job creators” than to describe them as hedge fund managers, financial sector executives, and merger & acquisition specialists.

Our second clue is that Senator Heller seems impervious to hard data on the source of our current federal deficit and debt, and the lack of a causal connection between marginal income tax rates and actual economic growth.

The third clue is that Senator Heller has voted against or refused to support bills that would relieve unemployment in the public sector (teachers, police, firefighters) and to create jobs in the hard pressed Nevada construction sector.

The fourth clue is that Senator Heller relies on the post hoc ergo propter hoc   fallacy to justify his opposition to any legislation which might serve to enhance “economic multipliers” or to save or create jobs.  Again, he espouses the GOP Article of Faith (All Stimulus Measures Were Failures — which the Republicans were announcing before the laws took full effect) rather than look to the actual numbers.

Doubling down on talking points doth not an economic vision make.

GOP Phil. E. Buster blocks pro-business bill

Senator Harry Reid (D-NV) made this comment on the Republican blockage of the Small Business Jobs and Relief Act:

“The legislation Republicans blocked was a common-sense proposal that provided small businesses with two tax cuts designed to create jobs. Under our proposal, small businesses would have received a 10 percent tax cut on the amount by which they increase their payrolls this calendar year. And to help them expand, small businesses would have been allowed to write off 100 percent of the cost of any major equipment or software they purchase.

“Unfortunately, Republicans played their usual games of obstruction and opposition. There was simply no reason to oppose this bill on the merits, so Republicans manufactured reasons to kill it out of thin air. Republicans claimed they wanted amendment votes, but refused to take ‘yes’ for an answer when I offered them votes on those very amendments.”

The bill was designed to help truly small businesses, those under the $500K cap to hire employees and purchase business assets and equipment.*

And, the Republicans successfully filibustered the bill. The motion to invoke cloture on S. 2237 went down on a 53-44 vote. [roll call 177]

This is what the Senate GOP rejected:

“Small Business Jobs and Tax Relief Act – Amends the Internal Revenue Code to allow certain employers a tax credit for 10% of the excess (if any) of: (1) the wages and compensation paid to their employees in 2012; over (2) the amount of such wages paid in 2011, up to a maximum amount of $5 million. Extends for one year the 100% bonus depreciation allowance for business assets. Increases the amount of alternative minimum tax (AMT) credits that corporate taxpayers may elect to accelerate in a taxable year in lieu of claiming bonus depreciation.”  [CRS]

Thus, if a business hired more employees in 2012 than they had in 2011 they’d be eligible for a 10% tax credit for the wages and compensation paid; AND, any business asset purchased could be written off in a single year.

A person doesn’t need to be an accountant to figure out that the last part is an exceptionally good deal.  Every computer, filing cabinet, vehicle, any economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value, [Def] can be “written off.”

The first part of the picnic basket isn’t as stimulative as this second piece.  As has been expounded repeatedly herein, staffing and employment levels aren’t tied to tax incentives — it makes absolutely no business sense to hire employees one doesn’t need just to get a tax break.   Businesses hire people when current staffing levels are insufficient to meet demand or to provide an acceptable level of customer service.

However, if a business wants to get a real break — upgrade the computers your staff has been complaining about — you can write them off in a single year.  Purchase the new back-hoe, an additional truck, a new fork lift, get your construction company a new skip loader or trencher — depreciate it in a single year.    Need new shelving, workstations, desks, storage units, or new computer hardware for the business?  Buy’em and get the 100% bonus depreciation!   What does this do?

Allowing businesses to avail themselves of the 100% depreciation bonus could very easily spur DEMAND.  Increased demand means increased orders, and increased orders may very well mean a need for increased staffing.

And the Senate Republicans filibustered the bill.  WHY?

“Reid acted as the two parties could not agree exactly how to go about using the bill to vote on whether to extend the Bush tax cuts. [...] Republicans favor extending the tax cuts, first enacted in 2001, for all income levels. President Obama has proposed extending them only for income less than $250,000, and using the higher tax revenue collected from higher incomes to help close the deficit.”  [WaPo]

Translation: The Senate Republican leadership blocked the small business bill because they wanted to protect the Bush Tax Cuts for millionaires and billionaires.

So, a 100% depreciation bonus for manufacturers, construction companies, accountancy firms, restaurants, drilling companies, retailers, grocery stores, furniture outlets, bakeries, bowling alleys, beauty and barber shops, landscape enterprises, law offices, doctor’s offices, automobile repair garages, photography studios, veterinary clinics, waste disposal companies, … was lost because the Senate GOP was focused on protecting the Bush Tax Cuts for millionaires and billionaires.  In a word? SAD.

—–

See also: “Fact Sheet: Small Business Jobs and Tax Relief Act,” Senate Democrats, March 26, 2012. Cohn, “Tax Cut Legislation Blocked in Senate,” Accounting Today, July 13, 2012. REMI, “Study on S. 2237, Regional Economic Models, Inc.

Previous posts on small business:  H.R. 5297, Small Business Jobs and Credit Act DB July 17, 2010.   Finally someone says it — Demand in the Job Creator, DB December 2, 2011. GOP A Thousand Times No, DB July 30, 2010.   Breaking the Closed Loop, DB April 29, 2011.   Republican Mythology – Small Business Facts and Fantasies, DB May 3, 2012. What’s a Small Business, DB July 16, 2012.  *Original post did not include the $500,000 cap.

What’s A Small Business?

Small businesses are defined in the eyes of the beholder.  A small business seen through the eyes of a large commercial bank any enterprise with less than $20 million revenue is “small.”   The FDIC defines a “small business loan” as one for $1 million or less. The Small Business Administration uses the FDIC definition for its reporting.   [HuffPo]  Programs for small business lending in the Treasury Department are based on different criteria.

The Treasury Department identifies criteria for a small business in two programs.  The one-shot State Small Business Credit Initiative provides for loans not exceeding $5 million to businesses with less than 500 employees. [Treasury pdf] The second program is the Small Business Lending Fund, ” Enacted into law as part of the Small Business Jobs Act of 2010 (the Jobs Act), the Small Business Lending Fund (SBLF) is a dedicated investment fund that encourages lending to small businesses by providing capital to qualified community banks¹ and community development loan funds (CDLFs) with assets of less than $10 billion. ” [Treasury]

This is the point at which the IRS definitions can be inserted because for the purposes of implementing the Small Business Jobs Act of 2010 the IRS defines a small business as including a corporation which is not publicly traded, and the owner must have  $50,000,000 or less in average annual gross receipts over the three preceding tax years. [IRS] Those who would like to plow further into these weeds should see IRS publication 334. (pdf)

Just to make matters more complicated the Small Business Administration splits out its definition of a small business into sectors.  The agency makes its determinations based on the average number of employees over the previous 12 months, or on the sales volume averaged from the previous 3 years.   A manufacturing firm can have as many as 1500 employees depending on the product, and wholesaling operations from 100 to 500.   Services are based on revenue, the maximum ranging from receipts of $2.5 to $21.5 million depending on the service; the maximum range for retailing is $5 million to $21 million; construction company receipts are a maximum of $13.5 to $17 depending on the type of construction, special trade construction receipts ‘max out’ at $7 million.  An agricultural small business may be eligible if its receipts are under $500,000 to $9 million depending on the product.

What’s the point?  One point is that both political parties are overly fond of helping Small Business — and no one appears to have determined what that means.

As demonstrated in the opening section of this post, the definition of a small business can easily range from the Bechtel Corporation company to Barney’s Barber Shop.

What matters is how policies are shaped to assist economic growth, and how they define small business operations in terms of economic expansion.   The popular notion of a small business as exemplified by Barney’s Barber Shop, Charlie’s Catering, or Delilah’s Home Designs, is  perfectly acceptable if the policy objective is to promote local economic growth.

If our objective is to encourage the manufacturing of solar panels in the United States of America, then a “small” manufacturing business employing 450 meets the criteria for receiving assistance in lines of credit and in terms of tax breaks for a small business.

If the objective is to encourage financial transactions hedging risk and other financial manipulations, then a 499 person hedge fund can be classified as a small business.

What we have not had to date is a serious public discussion of What small business enterprises we want to encourage.

If our purpose is to promote economic growth in the manufacturing sector, then our public discourse should include proposals for the development of innovative products and technologies.  Merely propounding, for example, that the Trans Pacific Partnership will help small manufacturers find export opportunities isn’t enough.  We’ll need to talk about how to promote small business sales opportunities without having the outcome hijacked by multi-national corporate behemoths who are more interested in facilitating the flow of capital than they are about whether New Tech Innovations, Inc. can find buyers.

If our purpose is to promote small contractors and sub-contractors in their sector of the economy, then we need to ask if we are encouraging such infrastructure projects as will be of interest to and are attainable for those small contractors and subcontractors.  If there is still a surplus of unsold inventory in the single family housing sector, then why promote this kind of contracting when there is a need for affordable multi-family commercial properties?   Perhaps we should be asking questions like: What will be the economic  impact be of the (Fill in the Blank) project for our local contractors and subcontractors? Instead of obsessing on the project costs?

If our purpose is to promote the efforts of retailers, then do our tax policies and other public pronouncements, benefit small family owned enterprises, or can those enterprises benefit only as a segment of a sector dominated by big box corporations?   Worse still, are we creating a system in which the big box operations are given artificial advantages as they compete with smaller family owned enterprises?  Are we supporting the customers of those grocery, clothing, and other purveyors with “automatic stabilizers’  (food stamps, unemployment insurance benefits) during periods of economic volatility or contraction?

Singing the praises of Mom and Pop companies while promoting policies which give global corporations a leg up, is neither honest nor helpful.  Lauding the efforts of small business owners in 4th of July stump speech rhetoric isn’t productive unless it is backed up with proposals to encourage investment in new economic endeavors, and solicit assistance for local business activities.

We can dream that during this campaign season of specific plans to address equally specific needs in our local economies.   Small business owners are the first to feel the volatility in an economy. They are the first to feel it and too often are the last to recover from it.  They deserve more than to be told “It will all trickle back down on them…someday,” because they may have to make payroll tomorrow.

Student Loan Rates Will Double So GOP Can Protect Top 0.5%?

The deadline’s looming and this is what we get from Senator Dean Heller (R-NV):  “Instead of compromising, the Democrats want to raise taxes on small business at a time when we need jobs,” Nevada Sen. Dean Heller said of the Democrats’ plan last month, calling their insistence on their bill “further proof that Washington is broken.”  [LVSun](emphasis added) Note the “small business” insertion.  It’s required in all GOP utterances about taxation.

What’s on the table?  “Take the student loans debate. In the past month, Senate Democrats lost a vote on their bill to offset the $6 billion cost of keeping student loan interest rates at 3.4 percent by closing a tax loophole on hedge funds. Senate Republicans lost a vote on their bill to offset it by stripping money from a health care prevention fund.” [LVSun] (emphasis added)

Now, go back and substitute “hedge funds” for “small business” and you will have the drift of the Republican argument.  It is better to allow student loans rates to double to 6.8% than it is to close a tax loophole on hedge funds.

This raises some questions about the core message of the Republicans, Senator Heller included.

#1.  What is a Small Business?  “… what Congressional Republicans Define as “Small Businesses” are Predominately Millionaires and Billionaires, Corporate Law Partners, Hedge Fund Managers. Congressional Republicans define as small businesses any individual who receives “small business income”.” [Wh]  OK, so what is “Small Business Income?

Back in August 2011 the OTA attempted to define what constitutes a small business for tax purposes (pdf).   The OTA suggests that previous definitions are overly generous:

“Although “small business owners” are often the subject of tax policy debate, a consensus does not exist regarding the specific attributes that distinguish small businesses from other firms. Previously, the Office of Tax Analysis had counted a small business owner as any individual who receives flow-through income from a sole proprietorship, partnership, S corporation, farming operation or miscellaneous rental activity. This overly broad definition was used because, for the majority of flow-through business income (partnerships and S corporations), it was not possible to trace income from the business entity to the respective owner(s). Due to newly accessible tax data, this technical constraint has been overcome.” [OTA pdf]  (emphasis added)

Notice that the old definition classified a small business person as ANYONE receiving flow through income from just about anywhere.  Major money makers took full advantage of this rather loose categorization.

Over half of the 400 Highest Earners in the United States Would Be “Small Businesses”: According to IRS data, in 2009, among the 400 taxpayers with the highest adjusted gross income – group that averages over $200 million each in taxable income – at least 237 would have qualified as “small businesses” under this definition. [Wh]

How nice for them, because these “small business persons” are NOT necessarily the butcher, the baker, the candlestick maker, the auto parts dealer, the retail grocery owner, the furniture store owner, the beauty shop proprietor, the catering service, the garage owner, or the corner bodega shop keeper.

If we count absolutely ANYONE who gets income from S corporations, proprietorships, and partnerships, then each and every member of a law firm’s partnership is categorized as a small business person, including the lobby shops in Washington, D.C.  Each and every partner in a hedge fund is categorized as a small business person. Each and every individual getting passive investment income is a small business person.

The definition of a small business is problematic, but even suggestions that accounting treatments be changed brings howls of “tax increases” to “job creators” from the Republican side of the aisle.  During the last big debate on student loan rate reductions:

“…the Republicans would not accept the Senate Democrats’ proposal to pay for a one-year extension by changing a law that allows some wealthy taxpayers to avoid paying Social Security and Medicare taxes by classifying their pay as dividends, not cash income.”  [NYT]

This is nice work if you can get it.  You are a “small business” if ANY of your income passes through from passive investments, hedge funds, law firms, and lobby shops.  AND for the wealthiest among us you get to avoid paying payroll taxes by classifying earnings as dividends and not cash income.

#2.  Exactly what “small businesses” would have be affected by S. 2343? Here’s the loophole the Democratic leadership was trying to close:

Amends the Internal Revenue Code and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to require certain shareholders of a subchapter S corporation engaged as a partner in a professional service business to include income or loss attributable to such business in their net earnings from self-employment for employment tax purposes.

Restricts such tax treatment to shareholders whose modified adjusted gross income exceeds a specified amount that varies based on their tax filing status.

Defines a “professional service business” as any trade or business providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.  [Thomas]

The loophole would be closed for anyone earning over at least $250,000 AGI from a proprietorship, S corporation, or partnership.  [Thomas]

To get an idea of just how few people would be discomfited by this change in accounting treatment, note that the average annual earnings for a  medical practice is about $158,000.  Average mean annual earnings range from about $154,000 to $199,860.  [BLS]

The Bureau of Labor Statistics reports that the average earnings for members of the legal profession range from $75,350 annually for lawyers working with insurance carriers  to $199,850 for lawyers in the energy sector.  Architects and engineers may expect to see a range of annual earnings from about $73,000 annually up to approximately $105,000. [BLS] Salaries for accountants range from $40,000 to about $110,000 annually. [BLS] For all the brouhaha about over-paid athletes, most professionals can expect to earn about $79,830 annually. [BLS]  The annual mean earnings for farm and ranch operations comes in at approximately $70,000 [BLS]

So, what small businesses are  Senator Heller and his Republican cohorts so diligently protecting?    The average sports agent is taking in about $92,500.  The average personal financial adviser earns $90,900.  The average chief executive officer earns about $176,550.  [BLS] The majority of those people engaged in the specific occupational fields set forth in the terms of S. 2343 would not be affected at all by the changing accounting treatment.

When it all boils out, what’s left is the notion that the top 0.5% must be assuaged, even if the sons and daughters of most health care professionals, most lawyers, most architects, engineers, and accountants, most sports agents, and most management consultants pay double the current rate on their Stafford Student loans.

Thus, to the farmer, the rancher, the architect, the lawyer, the physician, the accountant, the agent, the engineer, the broker, the financial adviser, and the management consultant…. and to the artist, baker, clothing shop owner, computer specialist, landscape company proprietor, right on to the veterinarian and the zoologist…. Senator Heller’s message is clear.

It is more important that the ultra-rich be protected than it is for your son or daughter to find an affordable student loan.

Oh, wait, the Republican did offer another solution — just drop the preventative health care funding from the Affordable Care Act.   Stripping funding for cancer screenings, anti-obesity programs, and health care awareness for youngsters didn’t seem very popular, so now the GOP has come back with “tweaks” to the FY 13 budget for offsets.   These would include requiring federal employees to contribute 1.2% more to their own retirement funds, a revision of Medicaid taxes, auditing Social Security overpayments, and changing the timeline for the accrual of student loan interest.    The Republican wrote to the President, Senator Tom Harkin (D-IA) responded: “…if Republicans were really serious about negotiating a plan to pay for the bill, they would be meeting with Democrats on the Hill, not writing letters to the president.”  [USN]  Harkin also added that there was no way the Tweaks added up to a real solution.

And, what’s really interesting –  is that in the past there was Republican support for closing the very loophole the Democrats are now suggesting. [USN]  How do we spell O b s t r u c t i o n i s m?

“You may never know what results come of your action, but if you do nothing there will be no result.”  Gandhi.

Coffee and the Papers

Breaking News: Yucca Mountain is still dead. [Las Vegas Sun] The Clark County, NV Republicans are still in disarray. [KTVN] [Las Vegas Sun] [WaPo] [KOLO] and [LVRJ]  The Ron Paul supporters are seeking “genuine conservatives.” [LVRJ]  And, do click over to NVProgressive for a description of what’s happening in NV-04.

Hearts and Flowers:  If you can read the President’s remarks at the graduation ceremony for Joplin High School graduates without tearing up just a bit, check your empathy chip and replace if necessary.

Breaking the News:  The typical CEO in the United States was paid $9.6 million in 2011, that’s up 6% from 2010.  Or, to put it another way, the CEO’s were paid what it would take the typical American worker 3,489 years to earn.  [RGJ]  Not to get all attacky on the capitalists or anything, but the worker’s earnings aren’t keeping up with worker’s productivity:

“Manufacturing sector productivity rose 5.9 percent in the first quarter of  2012, as output grew 10.8 percent and hours worked increased 4.6 percent.  The increases in productivity and output were the largest since the second  quarter of 2010. Over the last four quarters, manufacturing sector productivity increased 2.5 percent. Unit labor costs in manufacturing fell  4.2 percent in the first quarter of 2012 and decreased 1.3 percent from the same quarter a year ago.” [BLS]

Productivity is a nicer way to say “working harder and longer to make more stuff” and in this case for the same pay or less for doing so.  In this case “unit labor costs” (wages and benefits) declined while production numbers increased.  Declining “unit labor costs” usually mean declining spending power; declining spending power usually means decreasing demand.

Meanwhile in Xenophobia:  Noted citizen of Xenophobia, Representative Steve King (R-IA), drew criticism for equating immigrants to dogs during a recent town hall meeting. [Politico] This might help to explain why President Obama holds a 61% to 27% advantage with Hispanic/Latino heritage voters?  [The Hill]

The Romney Plan student loan plan “By The Bankers and For The Bankers:”  Here’s the former MA Governor: “Reverse President Obama’s nationalization of the student loan market and welcome private sector participation in providing information, financing, and the education itself.”  Here’s a critique.   And here’s a problem for the defenders of free market capitalism:

One of the nicer features of free market capitalism is the notion that he who takes the risk shall be he who gets the rewards.  That’s why some loans have higher interest rates than others.  The greater the risk taken the more interest should be earned to compensate for taking that risk.  However, the old Bush new Romney version stands that principle on its head.

Under the Bush/Romney plan the banks got a subsidy for making student loans, and then the federal government (using taxpayer funds) guaranteed the loans, so that the Banks earned the interest without actually taking any risk!  What the Obama Administration did was remove the Middlemen.  Since the taxpayers (government) were the ones taking the risks, the taxpayers (government) should be the ones earning the interest.  Interesting how the bankers are now bellowing about losing their “privatized earnings” on the “socialized risks?”  And by the way, there’s no “nationalizing” involved, private banks still make student loans and are perfectly free to do so — they just can’t expect taxpayers to subsidize them and guarantee their collection of interest earnings.

There’s more over at the Nevada Rural Democratic Caucus blog.

Dispatches from the War on Women:  “Five female Democratic senators pressed for legislation Wednesday aimed at closing the wage gap between men and women. The Paycheck Fairness Act would bring up to date the Equal Pay Act, which was signed into law by President Lyndon Johnson nearly 50 years ago.” [Politico] What you should know about the Paycheck Fairness Act here.   Senate Majority Leader Harry Reid (D-NV) will bring the measure up for a cloture vote (Yes, the Republicans are filibustering it) during the week of June 4, 2012.

Dispatches on the Despicable:  One so-called charity on behalf of American veterans has already been revealed as fraudulent. [HuffPo] Worse still, almost half of the 39 veterans charities received failing grades from the American Institute of Philanthropy. [HuffPo] The AIP has a web site Charity Watch which will assist donors who want to make certain their contributions are not misused or squandered. The organization advises donors to beware of organizations which use as much as 80% of their donations for more fundraising. [CW] Charity Navigator also has a ratings guide for organizations.

About that Federal Spending Mythology: Two handy charts –

Bloggy Mountain Breakdown:   H/T to The Sin City Siren for the link to this nifty graphic of the War On Women.   Have you been checking in on The Nevada View lately.  (highly recommended)   If you missed this piece on small businesses and the battle with the Big Box stores at Blue Lyon, click over there now.

Heller Logic: The Art of the Glittering Silly Syllogism

Senator Dean Heller’s (R-NV) commentary on the failure of S. 2343 (The Student Loan Interest Rate Bill) to break through a Republican filibuster:

“Instead of compromising, the Democrats want to raise taxes on small business at a time when we need jobs,” said Nevada Sen. Dean Heller, who voted against the measure. “They brought this vote to the floor knowing that it wouldn’t pass.” [LVSun]

In order to buy this a person needs to suspend most activities which normally take place in the cerebral cortex.  What did we say about “small businesses” yesterday?   Heller’s argument depends on a silly syllogism:

(1.)  Small Businesses can be S corporations.  (2.) S. 2343 raises self employment taxes on S corporations.  (3.) Therefore S. 2343 raises taxes on small businesses.

Once more, here’s why this is a Silly Syllogism:  The bill raised self-employment taxes on TWO types of S corporations — NOT all of them, only ones categorized as “professional business services.”   The bill didn’t even raise self-employment taxes on many of the professional business service S corporations because those self-employment taxes would apply IF and ONLY if the S corporation/partnership had at least $200,000 in annual modified adjusted gross income.

So, to what is Senator Heller objecting? “Democrats want to offset the cost of that change by getting rid of a tax loophole that lets certain corporations avoid paying Medicare and Social Security taxes.” [LVSun]  (emphasis added)  Therefore, it’s reasonably apparent that Senator Heller opposes getting rid of the ‘professional business service’ loophole for SOME configurations of S corporations.

Conflating the self-employment taxes paid by furniture dealers, lighting contractors, service station owners, and other small businesses listed yesterday, with “professional business services” like Washington, D.C. lobby shops, industrial-sized law firms, and Wall Street hedge funds isn’t precisely “protecting small businesses” … especially if the owners of small service and retail businesses which are NOT hauling in over $200,000 in modified adjusted gross income have kids in college.  Conflation is a handy rhetorical tool, but it usually doesn’t serve to make family budgets stretch to meet educational expenses for the offspring.

Heller: “They want to raise taxes on small business at a time when we need jobs.”  No, “they” want to close a tax loophole which allows highly profitable S corporations to avoid self-employment taxes which most other small business owners pay.  By valiantly protecting the interests of hedge funds, large lobby shops, and big law firms, Senator Heller has placed himself firmly among the ultra-right wing champions of the Financialists.

Not surprisingly, there was a time when Republicans thought this loophole was icky — when former presidential candidate Sen. John Edwards used it to create a sub-chapter S corporation for his law firm, and avoided some $591,000 in payments to Medicare/Social Security by paying himself a $360,000 annual salary instead of reporting the $26.9 million he made in four years.  [NYT] Ah, but that was then, and now the Republicans have enthusiastically embraced the loophole for their friends in corner offices of lobby shops, law partnerships, and hedge fund firms.  Meanwhile, there are two other points to be made about Heller’s newly discovered love of loopholes for the 1%.

First, there’s that “They brought this vote to the floor knowing that it wouldn’t pass,” argument.  Why wouldn’t S. 2343 pass?  It got 52 votes in the Senate — that’s a majority when the base number is 100.  No, it didn’t even get to a floor vote because the Republicans were filibustering it.  Unfortunately, the corporate media has been slow to report the Filibuster Follies of the 112th Congress, because the artificial 60 vote threshold just to bring a measure to the floor for an up or down vote has become common place.   Senate Republicans have filibustered just about every major piece of legislation. There’s a word for that: Obstructionism.  It really doesn’t do to attack the opposition for bringing legislation to the floor when it’s the GOP which is preventing floor votes on major bills.

Secondly,  there’s that “Instead of compromising,…” portion of Heller’s commentary.    Compromise with what?  The Republican version of the bill seeks to divert funds from preventative health care programs, while the Democratic version seeks to close the S corporation loophole.   One observation is obvious, when the versions are so completely different any compromise is, well, compromised.  Another reasonable observation is that in order to secure passage Democrats would have to accede to Republican demands — while offering no guarantee that the measure would achieve enough votes to break a filibuster.

A third observation is also possible, that it is more important to Republicans like Senator Heller to protect self-employment tax loopholes for the 1% than it is to secure funding for Nevada’s public health programs:

“Since 2010, Nevada has received $7.5 million in grants from the Prevention and Public Health Fund created by the Affordable Care Act. This new fund was created to support effective policies in Nevada, its communities, and nationwide so that all Americans can lead longer, more productive lives.”  [HHS]

That funding which House Speaker John Boehner was pleased to call a “slush fund,” has been of use in Nevada.  Some examples: The state has received $583,000 for “Community Transformation Grants, which empower communities to use evidence-based interventions to prevent heart attacks, strokes, cancer, and other conditions by reducing tobacco use, preventing obesity, and reducing health disparities. These dollars also help support a chronic disease prevention grant program and strengthen evidence-based employer wellness programs.”  We’ve also received $3,863,000 for anti-smoking programs, “This funding supports anti-tobacco education campaigns, telephone-based tobacco cessation services, and outreach programs that are proven to reduce tobacco use and those focused on vulnerable populations, consistent with the HHS Tobacco Control Strategic Action Plan.”   [HHS]   [More here]

But, hey, why would Nevada need smoking cessation funding assistance?  Maybe because we’re an island of dark green in a region of lighter shades?

However, by Senator Heller’s lights it’s evidently more vital to protect those who use the S Corporation Loophole to avoid paying into Medicare and Social Security than it is to help Nevada “kick the habit” and promote anti-obesity efforts to make our children healthier?

Republican Mythology: Small Business Facts and Fantasies

Nothing is more predictable than the insertion of the Great GOP Myth that Republicans protect the interests of SMALL businesses into any political campaign.  First, let’s deal with some small business FACTS.

As of 2007 there were 27,757,676 firms in this country.   21,708,021 of these were non-payroll companies.   6,049,655 were firms with payrolls.   The firms operated 29,413,039 establishments.   The firms with payrolls operated 7,705,018 establishments.  [Census]

As of 2008 there were 21,351,320 non-employer firms in the United States, and another 5,930,132 firms which had people on payrolls.  [Census]   If we make a pie chart of establishments and employment numbers it looks like this:

The pie chart makes it obvious that most of the business establishments in this country employ from 0-4 employees.    It also makes it perfectly clear that any legislation which exempts companies with fewer than 500 employees from taxation or otherwise gives them a break will affect a preponderance of the business establishments in this nation.  So far so good for the GOP mythology.  However, if we stop at this point and simply characterize American small business solely in employment and establishment figures  we’re leaving out an important part of the overall picture.   Business revenues or receipts.

Let’s put those back into the picture.

Here’s the point at which not all tax breaks are created equally.  Most firms in the U.S. are bringing in less than $500,000 in receipts annually.  Formulas based on the number of employees alone will necessarily benefit those establishments which may hire fewer than 500 persons, BUT which may also be generating receipts well over the common $500,000 threshold for receipts.   Consider the lobby shops for example.

Patton Boggs LLC leads the pack with retainers of $47,710,000 for 2011, Akin Gump pulled in $37,930,000, Podesta Group $27,300,000, and Van Scoyoc $24,830,000.  [OpenSecrets] Some 110+ lobbyists may be employed, plus support personnel, but the major lobby shops will still be classified as “small” business if the number of employees is the sole definition of what it means to be a small business.   We can get another illustration by looking at hedge fund employment.

Hedge funds tend to hire based on AUM (assets under management) figures and as of 2008 there tended to be 1 employee for every $54 million under management.   The Hedge Fund Review (2008) described employment and staffing as follows:

Employee numbers more than doubles to 36 on average when the management company reaches the $1-$5 billion rage. Efficiency increases on average 47% to $84 million per employee.

“The biggest leap in organisational size occurs when AUM grows to $5-$11 billion. Employee numbers tends to triple to 120 while managing on average $82 million per employee. The report concluded there was no one reason for this change, unless it could be attributed to the fact that most companies managing these amounts tend to be platforms or multi-strategy funds. A full 90% of funds surveyed in the $5-$11 billion range were platform or multi-strategy compared with 55% of the $1-$5 billion funds.”

Again, if the number of employees is the exclusive definition for what constitutes a small business then the “average” hedge fund fits the categorization, and as of October 2003 there were approximately 6,000 to 7,000 hedge funds operating in the United States. [SEC] The old radio show disclaimer may be modified and applied here, “any resemblance between a small retail business and a hedge fund is purely coincidental.”

And yet… The Republicans continue to claim that to allow the Bush Tax Cuts to expire for those earning more than $200,000 annually would “hurt” small business.”  Not really.  Only about 3% of “small business” operations would be affected. [Politifact] [Gavel]

And yet… The Republican controlled House of Representatives was pleased to pass a “small business” bill (H.R. 9) with a $46 billion loophole for the 1%.

“Under Rep. Cantor’s bill, in general, all businesses with fewer than 500 employees are eligible for the tax deduction on their active domestic income.  The term “small business” evokes images of mom-and-pop stores or startups hoping to expand, but in fact a very wide range of enterprises owned by extremely wealthy people have fewer than 500 employees. These businesses and their owners would reap a giant windfall from the Cantor bill.
An exchange during the House committee’s consideration of the bill between Rep. Xavier Becerra (D-CA) and Thomas Barthold, who heads Congress’s nonpartisan Joint Committee on Taxation, underscored that Rep. Cantor’s tax cut could potentially provide large windfalls to the owners of a host of enterprises that are a far cry from the image Cantor tries to evoke of the struggling small-business owner.”  [CAP]

Again, this is what happens when the number of employees is the sole factor in defining a “small business.”  76% of the businesses in the United States have annual incomes below $200,000 but this group would see only 16% of the benefits of H.R. 9.  55% of small business employers have incomes of less than $100,000, but that group will secure only 6% of the bill’s benefits.  [CAP]  The Republicans offered no “payfor” to cover the costs of H.R. 9.

And yet… the presumptive GOP candidate for the presidency is offering an economic plan that “can’t be scored” and to date can’t seem to be specified.  The Tax Policy Center explains: “Because Gov. Romney has not specified how he would increase the tax base, it is impossible to determine how the plan would affect federal tax revenues or the distribution of the tax burden. “  At one point the former Governor suggested that he might close the loophole on mortgages for vacations homes for those in the upper income brackets, but (as has been a rather common practice for the Romney excursion into presidential politics) he quickly walked that suggestion backward.  [TP] [WSJ] [TO]

To date the Romney Campaign has relied upon generalities — Glittering and Otherwise — to attract voters.  “Gee, Mr. Romney wasn’t making a policy statement about eliminating the vacation home mortgage deduction, he was just tossing out an idea,” from an economic plan that “can’t be scored.”

The “plan” assumes that lowering taxes will mean faster economic growth, although the statistics demonstrate the reverse.   [AngryBear] [Kimel: Angry Bear] [Lynch: EPI] “The claim that the plan’s large tax cuts would be financed in significant part by greater economic growth is one that proponents of tax cuts often make, but that Congress’ official scorekeeper of tax proposals — the Joint Congressional Committee on Taxation (JCT) — and most other mainstream analysts do not accept. The claim is also inconsistent with the historical evidence.”  [CBPP]

The “plan” assumes that lowering taxes for the ultra-rich won’t have a significant impact on federal revenues, even though it is obvious that lowering tax rates create lower revenues.   There is evidence to the contrary:

“…a close reading of the document from the Romney campaign about the plan, as well as Governor Romney’s February 23 op-ed in the Wall Street Journal and statements by Romney campaign advisor Glenn Hubbard, suggest that the plan is not, in fact, intended to be revenue neutral. Neither the campaign document nor the Romney op-ed actually says it is. Instead, both state: “Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits.” In other words, along with scaling back unspecified tax expenditures, the plan relies in substantial part on “dynamic scoring” — an assumption that tax cuts will boost economic growth and, in turn, federal tax revenues — and very deep budget cuts to avoid expanding the deficit.”  [CBPP](emphasis added)

This all sounds perilously close to the Wall Street penchant for adopting the precepts of the “mark to mythology” school of accounting.

Meanwhile back in the real world…

What we probably ought to be requiring of any economic plan set before the American voting public this campaign season are some basic concepts such as:

1. Any economic plan involving government expenditures and tax proposals should at least be revenue neutral.   And, that’s real revenue, not conveniently redefined revenues, which beset the Hubbard analysis.  [Goolsbee][TP]

2. Any economic plan should  reduce the federal deficit.

3. Any tax reform plan should reduce corporate incentives for overseas investment, and encourage domestic investment.

4. Any tax reform plan should not exacerbate the already alarming level of income inequality, and should be based on progressive taxation within the classic definition of the term.   It’s fine if the rich get richer, but if this is accomplished by diminishing the resources of the Middle Class then our consumer based economy is in serious trouble.

5. No plan should plan should reduce our capacity to care for our children, our elderly, our veterans, or our infrastructure.

Small business owners throughout the nation need a well maintained and improved physical infrastructure, assistance educating and caring for their children, security for their parents and grandparents, revenues generated from the capacity of their customers to pay for their goods and services, assistance with complex matters like dealing in foreign markets, and a level playing field with competitors.

They could probably do with a bit less highly generalized ideological gibberish about “no more taxes,” and “less is more.”   They could certainly do with an economic plan that isn’t “pie-in-the-sky-mark-to-mythology” generalities that are here today and walked back tomorrow.   Speaking specifically to Governor Romney’s plan — if it can’t be scored, then how is it to be trusted?

Additional Reading:  See “Six Tests for Corporate Tax Reform,” CBPP 2/24/12.   “Statistics about Small Businesses,” Census. “Did Hubbard Mean To Raise That? Austan Goolsbee, 4/25/12. “Taxes and Economic Growth,” Crawford, Angry Bear, 5/2/2012. “Over There: Euro Zone Unemployment rises to 10.7%, Calculated Risk, 5/2/2012. “Tax Cuts and Job Growth: They’re Just Not That Into Each Other,” Bernstein, 5/1/12.

Small Business Problems In 3 Charts

It doesn’t take too much cogitating to figure out what problems are facing small business owners in the U.S.

For the full report click here.

Finally, someone says it: Demand Is The Job Creator

After 30 years of supply side hoaxterism, and a steady drum-beat of support for economic policies which serve the interests of large corporations, literally at the expense of small business and working Americans — a venture capitalist says it:

” I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate. ” [Hanauer]

Conservatives have tried, and largely succeeded, to tell the American public that in spite of hard evidence to the contrary The Stimulus Failed.  They’ve tried, and largely succeeded in convincing the minimally or only ideologically informed that no spending programs will produce permanent economically successful results.  What they’ve failed to grasp, and what is so succinctly stated by Hanauer is that NO business or enterprise is permanent.

A lack of demand is associated with several of the common factors for small business failure.*   Small businesses don’t fail because of “government regulations,” or because of “the Bank;” they fail because their numbers don’t add up.  The number one reason for small business failure: “There is not enough demand for the product or service at a price that will produce a profit for the company.”  [NYT]   This covers a host of other issues:  Did the start-up try to compete with a company that can operate with economies of scale?  Did the business open up in a declining market?  Did the business over-expand?

Even a cursory review of the typical lists of reasons for start-up and small business failure will yield evidence that the owner failed to initially understand demand levels, failed to physically locate in areas of high demand, or became overly optimistic about the overall level of demand and over-expanded the operations.  Failure to do proper budgeting and accounting within the firm means that there was no accurate way to determine if the demand was sufficient to keep the company floating above the profit line.   These elements return us to the starting point: The business failed because there wasn’t enough demand to produce a profit for the company.

Missing The Point

Conservatives speak as though every job created in the private sector is “real” or “permanent,” when the uncomfortable FACT is:

“Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more. Census data report that 69 percent of new employer establishments born to new firms in 2000 survived at least 2 years, and 51 percent survived 5 or more years.” [SBA] (pdf)

The Tax Relief Coalition (read: US Chamber of Commerce, NFIB, National Association of Manufacturers, National Association of Wholesalers & Distributors, Associated General Contractors, and International Foodservice Distributors Association) opposed the American Jobs Act because:

“America’s job creators… are critical to the effort to rebuild our economy and create the jobs necessary to put our unemployed back to work. Unfortunately, the Senate is expected to take up yet another bill that, if enacted, would seriously impair our ability to accomplish that goal.” (Tax Relief Coalition, Letter To Congress, 11/30/11) [Republicans] (emphasis in original)

The serious impairment?  A 0.5% tax on top level incomes, which the Republicans in the Senate deemed “punitive.”  Senate Republicans sustained their filibuster of S. 1917, the Middle Class Tax Cut Act, extending the payroll tax reductions for working Americans on December 1, 2011. [roll call 219] The bill contained a tax surcharge on millionaires and billionaires, the “job creators” our venture capitalist cited as not creating any jobs.  Only 20 Senators could be found to support Senator Dean Heller’s unfortunate “hit everyone but the millionaires and billionaires” proposal, S. 1931 to extend the tax cuts.  [roll call 220]

As long as conservatives continue to oppose any measures which would increase demand (i.e. put money in the pockets of those most likely to spend it), and so long as they continue to put the interests of the upper 1% before the interests of the remaining 99%, the economy will be variously described as “moderate,” or “sluggish,” or “slow.”  [FED Beige Book]

Reality Check

Small businesses are, indeed, crucial to the American economy:

“Small firms:
• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay 43 percent of total U.S. private payroll.
• Have generated 65 percent of net new jobs over the past 17 years.
• Create more than half of the nonfarm private GDP.
• Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others).”  [SBA]

However, 30% of the new starts will be gone in two years,  50% will be gone in five years, and only 25% will be around for fifteen years or more.  Those left by the wayside will not have found “enough demand for the product or service at a price that will produce a profit for the company.”

Notes and references: * Jay Goltz, “Top Ten Reasons Small Businesses Fail,” NYT, January 5, 2011.  Robert Longley, “SBA: Why Small Businesses Fail,” USGinfo.  Patricia Shaefer, “Why Small Businesses Fail: Top Seven Reasons,” BusKnowHow.  Melinda Emerson, “Reasons Businesses Fail: 5 Reasons why,” Small Business Trends, April 5, 2010.