Same Wrong Answer

Once again we hear from Washington the same solution they seem to have for any and every economic issue — more debt.

This time the problem that they debt solution is being applied to is small business exports.  In a report just released by the Office of Advocacy of the SBA we are told that if only we could make more debt available to small businesses they would be able to export more products outside the US.  The study says that smaller small businesses are in particular need for more governmental help with credit. Continue reading Same Wrong Answer

Small Business will Take a Hit from HIT

There is a move to repeal a major new tax, called the health insurance tax (HIT), which is a key part of ObamaCare.

From the NFIB:

The tax begins at billion in 2014, rises to .3 billion by 2018 and continues to increase. In effect, the HIT will ultimately pass along billion in costs to businesses and their employees in the first 10 years. This will force the private sector to shed 125,000 to 249,000 jobs between now and 2021, according to an NFIB study, with more than half of those losses falling on small businesses.

Let your representative and senators know that you support the repeal of HIT.  Bills to do so have been introduced in both houses of congress.


Beware of Misdirection When it Comes to Tax Increases

So why are we hearing all the attention being paid to taxing those making over $250,000 in the current debate over how to increase revenues to the government?

We are told that it is part of Pres. Obama’s “Buffett Rule” that increases taxes on a mythical group of super-rich people, many of whom we are being told are more than happy to pay more taxes since they are so wealthy.

We are also told that this is “only” 2% of the tax paying population.  While that is true — well actually they are 1.8% of tax payers to be exact — we are still looking at increasing taxes on over 2.5 million people according to IRS data.

Continue reading Beware of Misdirection When it Comes to Tax Increases

Now What?

I have been relatively quiet about this past election.  Why?  I really did not believe that the outcome would be that different on its impact on small business no matter which of the two parties won.

While there may have been some differences in the pace of policy change and in how it is implemented, both major parties in this country fundamentally believe that an activist approach to the economy is the proper approach.  Both parties talk about “managing” and “fixing” the economy, and “helping” business owners. Continue reading Now What?

Small Business Owners Still in Recession Frame of Mind

September was another month of low expectations and pessimism for the small-business community, with the NFIB Small Business Optimism Index losing 0.1 points and falling to 92.8. The recession-level reading was pulled down by a deterioration in labor market indicators, with job creation plans plunging 6 points, job openings falling one point and more firms reporting decreases in employment than those reporting increases in employment.

The survey shows that key elements that will be needed for small businesses to, once again, help pull us out of a recession are just not improving: Continue reading Small Business Owners Still in Recession Frame of Mind

The New School Year Begins

I still look forward to the beginning of classes each fall.  I am excited to see the new groups of faces in each of my classes.  I am excited to try out the new materials and new pedagogical approaches I worked on over the summer.  I still get a few butterflies in my stomach when I first step in the classroom the first day of classes.

This fall I am teaching two undergraduate classes here at Belmont.

Venture Planning is a class that I teach at least one section every semester.  It is the final course that our entrepreneurship majors, minors, and social entrepreneurship majors all have to take before they graduate.

A couple of years ago I made a fundamental shift to make this more of a business modeling class than a traditional business plan class.  Although I continue to refine and tweak the new approach, the results of the change to business modeling have been remarkable.  The final reports in the class are much stronger and we have more students feeling ready to move ahead with their businesses when they graduate.

Even in the face of what seems to most of them as a permanent recession — it has been the economic reality since this group first entered college in 2008 — this group is excited about the future.

My other class this year is somewhat of a new class for me.  I have taught International Entrepreneurship to students studying abroad, but I never have taught it in a classroom on campus before.

We are not just looking at the nuts and bolts of internationalizing an entrepreneurial venture, although that is where we will end up at the end of the term.  Instead, we are beginning looking at some big questions and issues.

Our first topic is quite fundamental, yet profoundly important in today’s world.  Is market capitalism moral?  Does engaging in capitalism corrupt one’s character?

We will then focus on what drives entrepreneurial activity — or in many cases what inhibits it — around the globe.  We will explore the role of culture and public policy issues such as taxation, regulation and property rights.  We will also look at the role of entrepreneurs in shaping culture through how they conduct themselves in their work.

These are incredibly timely issues given the debate not only here in the U.S., but around the globe.

We will be exploring these issues not from a political viewpoint, but at a policy and cultural level examining what empirical research tells us about each of these issues.

I am so glad to be back in the classroom again this fall.  I guess someday this may no longer be the case — I may no longer feel the magic of that first day of classes each year.  I have seen this day come for many a colleague over the years.

And when that day comes I know it will be time to walk away from the whiteboard and hang up the shingle for my bait shop!

Dog Days Continue

The economy continues to languish while the politicians blame each other and business owners continue to wait for signs that things are really going to improve.

The big word for many entrepreneurs is uncertainty.  It is not only uncertainty about when a true recovery will begin, but also uncertainty about things such as tax rates, regulation, and global economic instability.

While the Intuit Small Business Index shows continued weak improvement, other surveys show business owners to be more cautious.

The latest report from the NFIB is more of the same.

“July looked a lot like June in terms of job growth—namely, it was negative”. said chief economist for the NFIB William C. Dunkelberg. “On balance, July looks like a repeat of June, few jobs and no change in the unemployment rate. So far, it has turned out to be a cruel summer of dashed hopes for meaningful job creation.”

SurePayroll’s Small Business Scorecard shows that month-over-month, hiring remains flat and the average paycheck is down.

“Small business owners are optimistic by nature and they know that if you have a good idea you can take advantage of the lower costs in this economy and be successful,” said SurePayroll CEO and President Michael Alter. “Still, we need more incentives for investors to back startups and less tax burdens on small businesses.”

Minnesota Angel Tax Credits Selling Out

Lee Schafer of the Minneapolis Star Tribune called me the other day to see if I had any information on the effectiveness of angel investment tax credits for a story he was writing.

I told him that all that the tax credit programs do is speed up or slow down investments (to take advantage of their timing).  There is no evidence that they increase angel investment whatsoever. They are not the job creator politicians claim when enacting these programs.  (See my arguments in my editorial at the WSJ).

In his investigation of the program in Minnesota he found strong support among politicians for the program, but very little support from entrepreneurs.

Plymouth-based start-up MetaModix Inc. raised about $1 million earlier in 2012, and its investors got about $254,000 in credits. Co-founder and CEO Kedar Belhe said “most of my investors did not look at it as a requirement, they looked at it as a bonus.” He said any real investor commits to a deal only after first carefully considering the odds of losing everything vs. winning big.

One stated that because the Minnesota program was about to run out, he would have to wait until additional credits were approved to fund raise, since angels will sit on their hands until credits become available.  They will invest, but will wait until they can qualify for another check from the government.

Angel investment tax credit are yet another misguided program that may be based on good intentions, but that has none of the desired impact on business formation or on job creation.  We just can’t afford ineffective programs like angel tax credits during a time when we don’t have the luxury to give away tax revenues.

Schafer puts it this way:

The Minnesota program is a straightforward, get-a-check-from-the-taxpayers subsidy for purely private business activity, so it’s remarkable that the allocation has lasted this deep into the year. It’s remarkable as well that angel credits have such broad bipartisan support when the economic case remains mostly unproven.

If we are going to use the tax code to help entrepreneurs, just cut taxes and let the market do what it does best.

High Tax Rates Stifle Entrepreneurship

New research released today by the NFIB suggests that allowing tax relief on the top individual rates to expire will hurt job creation and the economy.

The report, published by Ernst & Young and authored by Dr. Robert Carroll and Gerald Prante, estimated the effects of the policy advocated by President Obama and some Members of Congress to allow the top tax rates paid by small-business owners to rise sharply starting January 1, 2013. It finds that over time the economy would be 1.3 percent smaller and there would be 710,000 fewer jobs. More than 72 percent of S corporation income is earned by the half-million S corporation owners who pay the top two rates.

Increasing individual rates directly impacts small businesses organized as S corporations, partnerships, LLCs and sole proprietors, also known as “pass-through” businesses. NFIB research shows around 75 percent of all small businesses are organized in such a manner.

Together with the new 3.8 percent tax on investment income introduced in the health care reform law, the study finds that the top tax rate on pass-through business income would skyrocket from 35 to nearly 45 percent.

Other studies suggest that such a 10% marginal tax rate increase will decrease start-up activity by 15-20%.