Tag Archives: small business

Nevada Economic Sands in the Hour-Glass Economy

Nevada Income When the chatter begins about income inequality after the State of the Union address, remember Nevada is one of the states with the widening gap:

“In four states — Alaska, Michigan, Nevada and Wyoming — average income increased exclusively for the top 1% and declined for the bottom 99%. In another six states, the top 1% accounted for more than two-thirds of all income growth between 1979 and 2007, while the income of the bottom 99% grew at a much slower pace.” [Time]

So what does this mean?  Let’s start with the usual premise, “Capitalism works.”  Or, it should function better than any other economic system devised by man if the transactions for goods and services are accomplished in traditional ways.  If the “rising tide” isn’t lifting all boats, then something is plugging up the works, and plugging up the pipes has some serious consequences.

Shorter Booms.  There is empirical data from the International Monetary Fund showing that periods of economic growth and prosperity are shorter the larger the income inequality gap. [IMF pdf 2014]

Less interest from retail investors.  If people get the notion into their heads that the investment game is rigged in favor of the institutional or professional investors, there is less retail investment.  It took from 1929 to 1954 for the Dow Jones Industrial Average to climb back to September ‘29 levels.  For all intents and purposes that’s a generation of lost investors. [Time]

Greater Personal Indebtedness.  As the top 1% maintain their quality of life using their increase in average annual income, the remaining 99% use credit to make up the gaps to maintain their quality of life. This is great news for those whose job it is to package, securitize, and trade debt (mortgage, auto, credit cards, student loans…), but it is not good news for families who increasingly rely on credit to make it from one year (or one month) to the next.   The New York Federal Reserve report for 2014 tells us:

“Aggregate household debt balances increased slightly in the third quarter of 2014. As of September 30, 2014, total household indebtedness was $11.71 trillion, up by 0.7 percent from its level in the second quarter of 2014, an increase of $78 billion. Overall household debt still remains 7.6 percent below its 2008 Q3 peak of $12.68 trillion.”

We slightly better off than in Q3 2008 – when everything was falling apart, but the debt level still indicates people using credit to maintain the family lifestyle.  Non-housing debt now stands at $3.07 Trillion.

Questionable economic growth.  There is research positing that higher levels of income inequality lead to restrained economic growth, and studies indicating income inequality (depending on whose income is measured and how) may not be the crucial determining factor in economic growth.  What IS reasonably clear is that no sentient person should ignore this phenomena, and caution should be applied to any suggestions that don’t mitigate the issue. [NYT]  Perhaps some of this caution comes from the points made by the San Francisco Federal Reserve’s research which reveals that (1) the American consumer market is polarizing at both ends with erosion in the middle, (2) widening income inequality is most obvious at the local and community level, (3) analysis of the U.S. job market over the past three decades shows a labor market also polarizing into low and high paying employment with fewer opportunities for middle range income employment.

If we drill down to Nevada numbers the picture of widening income inequality shows we’re certainly not immune to the general factors listed above.  Median wages and salaries have declined over the past twenty years, median earnings for the bottom 2/3rds of the work force fell, while median earnings for the top 1/3rd increased.  The median wage for a CEO increased 63% in the decade from 1989 to 1999, up to 107% times the median wages of the average worker.  In 1970 the GINI ratio was .394, as of 2010 it was .469. In the instance of the GINI ratio, the lower the number the better. [CDCLV unlv]  When the number moves up that’s not a good sign.

It looks as though Nevada is securely fixed in what’s being called the “hour-glass economy.”  Or, as the situation was once described nationally:

“It’s not hard to understand what is happening here. The middle class, squeezed by globalization and advances in technology, is sinking backward, while the rich benefit disproportionately from gains in trade and excessively accommodative tax policy. Politically speaking, the obvious prescription would be to raise taxes on the rich and create jobs for the middle class.” [Salon]

There’s more to the squeeze that simply globalization and technology.  The loss of manufacturing jobs, the decline in union membership, and the increasing costs of education and training, should be added to the mixture.  Nor is the polarization going away of its own accord, as INC.com explains:

“Whatever you do, keep in mind that the hourglass economy isn’t going anywhere. “It’s a continuing and growing phenomenon,” McGrath says. “We’re seeing a shift in power toward owners of capital and away from owners of labor. And so many institutions would all have to change at once to reverse this trend.”

We probably don’t need to be quite this pessimistic.  Modifying the “excessively  accommodating tax policy” might be a good place to start.  This isn’t an impossible task if we focus on reality and avoid imprudent and extravagant ideological rhetoric.

Tax policy should be pinned to the Golden Mean, or Aristotle’s old maxim of doing the greatest good for the greatest number.  This requires a realistic definition of a Small Business.  The Small Business Administration has a set of size standards by industry sector; in this set of standards the number 500 stands out as qualifying in many sectors as a “small business,” and a fund, trust and financial vehicle with an average of $32.5 million in average annual receipts qualifies as a “small business.” 

And in the real world, there are approximately 28 million small businesses, and over 22 million are self employed with no additional payroll or employees. 52% of all small businesses are home-based, and there are 22.5 million “nonemployer” firms in 2011 – a figure which increased by 2% from 2010.  19.4 million nonemployer firms are sole proprietorships, 1.6 million are partnerships, and 1.4 million are corporations. The fastest growing sector in 2011 included auto repair shops, beauty salons, and dry cleaners. Nonemployer firms had average revenues of $44,000.  [Forbes]

The new Senate Finance Committee Chairman Orrin Hatch (R-UT) presents a tidy illustration of what’s been problematic about tax reform (“he’s all for it”) and the definition of a small business.

“This plan that we’ll hear about tonight appears to be more about redistribution, with added complexity, and class warfare, directed at job-creating small businesses, than about tax reform, which is unfortunate, because we’re going to need real leadership from the White House —not just liberal talking points — if tax reform is going to be successful,” Hatch said.” [TheHill]

Lets assume that Nevada, like its 49 other cohorts, is in the hour-glass economic phase, and like in all the other states those repair shops, dry cleaners, salons, etc. do create more jobs than the Big Boys.  So, in this context here are problems with the analysis from the Senate Finance Committee Chair.

1. In this context, “redistribution” is not a dirty word.  Given the polarization of the labor market, any effort which yields more income for the middle income earners will help smooth out the Low/High graph, and put more disposable income into the hands of those more likely to spend it.  Likewise, any effort which places more income into the middle income earner’s pocket will increase the possibility that the person will be less inclined to resort to personal debt to finance his or her quality of life – like going to the auto repair shop or the dry-cleaners.

2. “Added complexity” isn’t something most small business owners in Nevada have ever advocated, nor have their cohorts in other states. Those tax breaks, tax loopholes, tax havens, and tax avoidance schemes are the province of those who can afford to hire a battery of high priced accountants and tax attorneys whose task it is to find ways to alleviate, mitigate, or otherwise avoid paying corporate taxes. Advocating tax breaks for those earning less than, say, $250,000 or less isn’t adding all that much complexity to the system – it’s merely adding a break which may come at the expense of the corporations who are truly gaming the system.

3. “Class warfare,” is a term hauled out when a person carrying water for the top 1% thinks the other 99% might get something – for example that truly small business owner taking in the national average of  $44,000 per year in receipts, or the median household in Nevada in which the income is $52,800. [Census]

4.Directed at the job-creating small businesses,” is aimed in the wrong direction.  The job-creating small businesses are the ones taking in that average $44,000 – they are not the hedge funds and private equity firms, which at tops may employ 200 people after they are well established, nor are they those same private equity managers who excel  in carving up firms and outsourcing the jobs.  It’s true, those very real small businesses described above are the source of job creation.  It’s not true that private equity firms, hedge funds, and lobby shops play a huge role in that employment.

Before Nevada gets squeezed much further into the hour-glass shaped economy, it would be well if we acknowledged the position we are in, dropped the ideological and vague rhetoric protecting the interests of the top 0.1%, and advocated for the REAL small business owners in the state.

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Filed under Economy, Nevada economy, tax revenue, Taxation

GOP Excuses, Excuses, Excuses: How the GOP Fights Tax Cuts for Middle America

GOP Excuses Radio

There’s an old saw, “Those who are good at making excuses usually aren’t much good at anything else,” and the GOP is offering up a vivid example of this truth.

No sooner does the President’s plan to cut taxes for middle class Americans and raise taxes for the top 1% of income earners come out – notice we’re not using the expression “wage or salary earners” – than the GOP cranks up the Whine Machine with all the old excuses.

Hoary Old Excuse Number One: It will hurt small business.  This topic has been covered before, when DB provided some myths, facts, and figures about Small Businesses in the good old U.S. of A.

“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.”

The GOP played this game before, H.R. 9 back in 2012 gave a $46 billion loophole to the 1%, all in the name of “small business.’   Who would be the primary beneficiary of the GOP largess?  Try Hedge Funds and Lobby Shops.  Both have small numbers of employees, thus earning the categorization of “small business” from the Republicans, BUT small hedge funds are those with less than $100 million assets under management, medium sized ones range from $100 million and $999 million, and then there are the big ones – the ones with funds from $1 billion to $5 billion. [BusInsider]  Since when is a firm with $500 million worth of assets under management the same thing as the 76% of American businesses which have annual incomes below $200,000?  Only in Republican mythology would Mom’s Diner be in the same category as Mighty Mountain Megamoney Capital Management.

Hoary Old Excuse Number Two: “You’ll Be Next.”  Fear-mongering is one of the things Republicans do best. If we raise taxes on the incomes of the Top 1%, the “tax and spend” Democrats will come after you next.  Not. So. Fast. Remember the second part of President Obama’s proposal is a tax CUT for those who are among the vast 99% of the American public not basking in the upper reaches of income levels.  How does one explain ‘they’re coming after you’ when YOU (at least those of us in the 99% range) are to be the beneficiaries of a tax CUT?

Hoary Old Excuse Number Three:  Here they go again, “Are you going to actually grow the economy and jobs, are entrepreneurs going to be better off, are small businessmen going to be better off, with more taxes and more government? No!” he (Rep. Chaffetz R-UT) told CNN’s “State of the Union” show.”  [Reuters] This little mish-mash has all the basic GOP  elements tucked into a nice sound bite. The premise is that the economy won’t grow if taxes are increasedWrong. Under good old fashioned garden variety Capitalism, the economy grows as people make transactions in the REAL economy.  They manufacture things, provide services, transport things, sell things, buy things, and generally do so with cash or credit instruments.  The notion that more taxation at upper income levels will decrease investment pre-supposes that (1) all investment is located in or targeted to the REAL economy, and (2) all upper income investors will necessarily invest less in REAL economic prospects at larger taxation levels even though the investments may be high quality.  Both of these ideas are downright silly.

There is a whopping difference between investment in shares of common stock issued by General Widget and Gadget Inc. and investment in Mount St. Helen’s Volcanic Macro Hedge Fund.  One is capitalism, the other is gambling.   If you aren’t sure about this take a gander at what happened to the formerly very real Mount Everest Hedge Fund.  The fund bet the ranch on the Swiss Franc’s dropping – it didn’t.   This brings us to GOP conflation number four.

Hoary Old Excuse Number FourWe are punishing success! Nonsense. We tax income.  If we look at the top 1% there is a range of professions included, but focusing on the source of household income the scene is a bit different:

“We find that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and can account for 70 percent of the increase in the share of national income going to the top 0.1 percent of the income distribution between 1979 and 2005,” [WaPo, WilliamsEdu pdf]

A person who is a successful carpenter, steelworker, teacher, firefighter, grocery store owner, salon/beauty shop owner, hardware store owner makes his or her income by working.  Those top earners? Securities, business equity, and investments.  At the risk of being a bit crude about it, we now tax the incomes of those who actually manufacture screwdrivers, transport screwdrivers, and sell screwdrivers at a higher rate than we tax those who assemble funds to leverage the hostile takeover of the screwdriver manufacturing company, sell off the assets of the screwdriver company to pay off the incurred debt, and then toddle off to their next financial adventure.   This shouldn’t be about “punishment” perhaps it ought to be about REWARDS – as in, how do we reward WORK. 

Win big in the local casino and you’ll probably have between 25% and 28% kept back for Uncle Sam, [turbo] but gamble in a hedge fund that bets on the British Pound and the capital gains tax is 15%.  Are we rewarding work or speculation?

No one minds rewarding success, but rewarding speculation is another matter entirely.

However, those enthralled with the now thoroughly debunked Trickle Down rationalization for the aggrandizement of the top 0.1% will still cling to their talking points.  It’s high time we stopped listening.

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Filed under Economy, Taxation

Heller and the ALEC by the back door minimum wage issue

Heller 2Yesterday’s post concerned Senator Dean Heller’s (R-NV) decision to support the Republican filibuster of an increase in the federal minimum wage, focusing primarily on the economic effects and the number of Nevada workers who might be immediately affected.  However, there was a second element to Senator Heller’s objection to the measure — that the states should be the ones to raise the minimum wage levels in their jurisdictions.   As if they would?

What might prevent a state from opting to increase the minimum wage?  ALEC.

The American Legislative Exchange Council is actively working toward the goal of enacting legislation reducing minimum wages and overtime pay, or stopping localities from doing the same:

“Since 2011, politicians backed by the American Legislative Exchange Council, which has hit the headlines for previous campaigns on voting rights and gun laws, have introduced 67 different laws in 25 different states on the issue.

The proposed laws are generally aimed at reducing minimum wage levels, weakening overtime protection or stopping the local creation of minimum wage laws in cities or states. Using language similar to “model bill” templates drafted by Alec, they were put forward by local politicians who are almost always Republican and affiliated with the powerful conservative group.” [TRS] (emphasis added)

Eleven of those bits of “model legislation” eventually became law, including in New Hampshire, Arizona, and Idaho.  For state legislators not inclined to do their own drafting, ALEC has conveniently provided a piece of fill-in-the-blank model legislation (pdf) for them.  In fact, according to the National Employment Law Project, ALEC is steadfastly opposed to  (1) minimum wage laws, (2) living wage legislation, (3) minimum wage laws for starting workers, (4) increases in overtime pay.  There is model legislation to preempt state efforts in all these areas. [NELP pdf]

However Jeffersonian Senator Heller may wish to sound about “state’s rights,” the design should be reasonably clear — conservative forces backed by deep pocketed corporate sponsors want to eliminate minimum wage legislation, prevent living wage bills, and preempt state and local efforts to enact protections for working people.  So, from the bully pulpit inside the Beltway, Senator Heller is free to pontificate about the desirability of state leadership in this economic realm BUT the practical effect is to toss the issue back into the state legislatures wherein ALEC can work its magic.

Nothing would please the Austerians more than to play the divide and conquer game — happily believing that lower labor costs will entice enterprises into low wage regions.   If, for example, Nevada were to eliminate its minimum wage, then in combination with other states with such draconian statutes, that would create pressure on other states to do likewise in order to be ‘competitive.’  We know this to be a pie in the sky solution because factors like transportation, infrastructure, work force experience and training, and resource availability are essential in the business location formula.  However, it does create the mixture necessary for a race to the bottom in wages and benefits. Just the sort of thing to make corporate revenues whistle and sing to the analysts.

The second problem with this plan is that while labor costs may be a major factor in manufacturing, they are not as crucial in other economic sectors.  We’ve looked at two types of retail operations before (restaurant and grocery); the important element for these small businesses is speed of service.  Long waits and long lines do not profitability make.   The more labor intensive the enterprise the more labor costs will be a factor, and this is illustrated by looking at the labor costs as a percentage of revenue for sole proprietorships, those little businesses the GOP purports to champion.)

The percentage for food service and bars is 36.74%, for agriculture 37.60%, for construction 53.64%, for health care 77.74%, for manufacturing 38.15%, for retailing 19.40%.  [BizStats]  We can drill down into the retail sector and find that the percentages are 20.43% for clothing stores, 13.66% for food and beverage establishments, and 6.48% for gas stations.   Indeed, for all those little sole proprietorship Mom and Pop stores to whom the Republicans appeal for support — the highest percentage never goes above 35%. [BizStats]

If we draw back and look at a large picture of productivity and worker compensation there’s not much to support Senator Heller’s apparent inclination to race to the bottom there either.

Labor productivity, as defined by output per hour, increased in 63% of the 52 service related and mining industries according to a BLS Study (pdf) using 2011 figures.  “Unit labor costs fell in 11 of 47 service providing industries Unit labor costs declined more frequently in industries where productivity rose, as productivity gains offset movements in hourly compensation.” [BLS pdf]

If productivity is increasing and unit labor costs are decreasing, then why would Senator Heller and his allies in ALEC want to eliminate minimum wage laws and prevent living wage legislation?

Let’s hazard the guess that the impetus to get even more productivity (more work per hour) at even less cost has everything in the world to do with Wall Street and not a heck of a lot to do with Main Street.

Nothing so delights the financial markets as the prospect of creating more “shareholder value” by reducing the inputs — reduced costs for materials, reduced costs for fixed assets, reduced costs for depreciation, reduced costs for employee (read: worker not CEO) compensation.  As the lady once said of the turtles:  It’s earnings reports, earnings reports, earnings reports, all the way down to the bottom.  [CarnegieScience]

And there we have it. It’s workers — racing all the way to the bottom, with no federal minimum wage to underpin their economic security — it’s American workers being told that if their counterparts in China are willing to work for $1.74 per hour then they are being “overpaid” here.  And — with Senator Heller’s state’s rights excuse greasing the downward ramp.

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Filed under Economy, Heller, Politics

Very Basic Business

First Law Personnel Management

For those who’ve been reading this blog for more than a week or so, the admonition above is redundant.  For this I apologize, however since the discussion is trending toward increasing the federal minimum wage level it’s time for yet another repetition.

Forget for a moment all the blather that passes for Business News in the broadcast media.  What the High Flyers are doing on Wall Street makes precious little difference to most of the businesses in these United States.   The Census Bureau tells us that as of 2008 there were 22,614,000 non-farm sole proprietorship businesses in this country, along with 3,146,000 partnerships; compared to 5,847,000 corporations.   Granted that the big money is gathered toward the big corporations, but in terms of sheer numbers of enterprises, 81.5% of the companies doing business in this country are sole proprietorships or partnerships.  [Census 745]

These are precisely the kinds of enterprises which are acutely tuned to DEMAND.   What do most people cut back when times get tight?  If the business in question is a restaurant or movie theater — expect times to get more restrictive, because one of the first things slashed are entertainment expenses.  When wages aren’t keeping up with inflation the economic fall out can be witnessed in a wide range of small business operations from accounting and tax preparation to dog grooming, to dry cleaning, and on to window replacement and home contracting services.

Focusing down on the restaurant business, the profit margins are exceedingly tight.   Low tab operations can expect a margin of about 3%, mid-range tabs yield about 3.5%, but the high end establishments may be functioning on as little as 1.8%.  Those restaurants classified as “limited” service may make as much as 6%.  [HoustonChron]

The Complaint Department

It’s entirely too simplistic to argue that because the profit margin of the hypothetical Pandemic Pizzeria is a tenuous 2% that it cannot “afford” to pay its employees a higher minimum wage.  This complaint works IF and only IF no one else’s wages are increasing at the same time.  After all, it’s the wages of the other people which create the demand for the pizza, no restaurant would ever make a profit selling only to its own staff.

Another overly simplistic complaint is that raising the minimum wage will “cost jobs.”  Stop and think for a moment — don’t most firms, especially small businesses, already follow the first law of personnel management?  I’ve yet to eat in a family owned restaurant in which I didn’t have to be patient for a few minutes before the wait staff could get to me.   The most common expression I’ve heard is, ” Be with you in just a second.”  Thus, I’d conclude that there is no one working there who isn’t engaged in cooking or delivering the food; meaning there are no extraneous staff members.   Now think, what do we do when the wait time isn’t a matter of a few minutes of menu reading — when the wait time is more than 30 minutes?

The prized “speed of service” goal in our hypothetical casual pizzeria is 10 minutes. [FSW] The “sos” time will be longer in a full service establishment, and shorter in a “smoothie shop.”  Slower service (usually a function of being short staffed) cuts two ways: There is a higher probability of lost repeat customers; and, slower table turnover — cutting further into the profit margin.   This concept applies to other kinds of firms as well:

“It might seem obvious to people that raising wages will cause companies to hire fewer people. But not when you think it through. Well-run companies employ the right number of people to handle the demand for the goods or services they produce. They don’t just have extra people sitting around reading the newspaper, who they will lay off if they have to pay a couple of dollars more an hour.

Picture a store with only one cashier and 20 people in line. Pretty soon people get impatient and leave. A sensible manager is going to put the right number of cashiers at the checkout lanes to handle the number of customers in the store.”  [Alternet]

In short, what these examples are attempting to illustrate is the obvious:  Those companies which have hired the right number of people to staff their operations determine the correctness of that number in terms of customer or client service — the foundation of creating a demand for their products and services.  Bottom Line: A well run firm will hire the number of people it needs to meet customer demand at an acceptable level of customer service.

Therefore, we ought to be extremely cautious when reading “studies” of the reactions of business owners who quickly proclaim that increasing the minimum wage would “cause them to not hire people.”  If I ask the question: Do you think you would cut back on hiring if the minimum wage were increased?”  Don’t we all believe that the instant answer would be “Yes?”

However, there’s a difference between the Instant Impression Answer and the hard reality of running a small business, and the difference is — how does the business owner manage customer service?

If the small grocery owner decides its acceptable for customers to be lined up 10 deep at the registers, what happens to his or her trade?  If a restaurant owner presumes that people will sit 30 minutes before an order is taken, what happens to his or her traffic?  If one small contractor can get a bathroom renovated in one week while another with fewer employees can only guess the job will require two weeks or more, who gets the contract?

These aren’t questions which are answered by looking at the wages and benefits of the employees, they can only be addressed as functions of how much demand can the firm create and sustain.

Class dismissed.

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Filed under Economy, Politics

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.

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Filed under 2012 election, Berkley, Economy, Heller, Nevada politics, Politics, public employees

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.

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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.

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Filed under conservatism, corporate taxes, Economy, employment, Filibusters, McConnell, Politics, Reid, Taxation

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.

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Filed under banking, corporate taxes, Economy, employment, financial regulation