Public Policy, Economics and Entrepreneurship: May 2010 Archives

Dan Danner, CEO of the NFIB, had an op-ed piece in the Wall Street Journal yesterday that clearly summarizes all of the negative aspects for small business owners with the Obamacare system.

Danner clearly summarizes the problems with the much ballyhooed tax credit:

"The credit, which is only available for a maximum of six years, puts small business owners through a series of complicated "tests" to determine if they qualify and how much they will receive. Fewer than one-third of small businesses even pass the first three (of four) tests to qualify: have 25 employees or less, provide health insurance, and pay 50% of the cost of that insurance."

And even if a small employer does pass this gauntlet of tests and paperwork, the credit is only temporary.

And let's not forget who is going to pay for this massive government program -- small business owners.

"One of these new taxes is a so-called health insurance fee. It's a massive $8 billion tax (that escalates to $14.3 billion by 2018) on insurance companies based on their market share. This tax will be paid almost exclusively by small businesses and individuals because the law specifically excludes self-insured plans, the plans that most big businesses and labor unions offer, from having to pay the tax.

Like any corporate tax or fee, the real cost will get passed along to the consumer -- in this case, small employers.  Such fees and taxes are duplicitous.  The insurance companies and government officials all know who will really pay these new taxes, and yet the public is fed the ruse that the "fat cat" insurance is going to have to pay this time.

I gave my luncheon speech on the future of small business to the Nashville chapter of NAWBO (National Association of Women Business Owners) yesterday.  They were rightly outraged at what little voice small business owners actually have in setting public policy in America today.  They see that run away taxation and burdensome regulation, as is at the core of the Obamacare, is devastating to small businesses at a time when they are already threatened by a prolonged recession.

I am not one who typically endorses particular groups, but the NFIB is one of the few voices that is consistently fighting for small business owners.  I would urge small business owners in the US to join the NFIB to help them in their efforts to fight the good fight for small business.

Those of us following the public policy issues associated with small business and entrepreneurship are having a hard time keeping up these days.

There is a change coming in 2012, that could drown small business under a sea of paper work.  It involves a huge expansion in the requirements to file 1099 forms.  Historically, 1099 forms were used by the IRS to capture income paid to freelance workers and other independent contractors.  But not anymore.  Now 1099's will need to be filed for hundreds and even thousands of transactions entered into by small businesses.

And where did this change come from?  The massive healthcare bill that nobody had time to read before it passed.

So what changes?  From CNN-Money:

Until now, payments to corporations have been exempt from 1099 rules, as have payments for the purchase of goods.

Starting in 2012, that changes. All business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. That means obtaining the taxpayer ID number of the individual or corporation you're making the payment to -- even if it's a giant retailer like Staples or Best Buy -- at the time of the transaction, or else facing IRS penalties.

In essence, the 1099-Misc is having its role changed from a form for tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

The blogsphere is buzzing with this news.  For example,  Gary North is calling it "The 1099 Tsunami" and Mike Adams labels is as "1099 tax form tyranny."

To me it is yet one more example of a shift in our public policy to an anti-capitalistic and anti-entrepreneurship form of government.  Stay tuned for many more stories like this over the coming months....

(Thanks to Andy Tabar for passing this along).

The economic recovery that some had been predicting over the past months may not be right around the corner, after all. While there are some indications of a strengthening economy, many experts are becoming more cautious about both the timing and the rate of the recovery.

And there is a growing chorus of those who believe that we may actually see a second downturn as part of this recession.

Recent surveys find that small- business owners also are not confident that good times will be returning anytime soon.

SurePayroll's Small Business Scorecard for April found that optimism among small-business owners has shown some improvement during 2010. However, the authors caution that, "while some good things are happening, until more small businesses start hiring full-time workers -- and those workers spend with confidence due to perceived job security -- it is not time to declare a full recovery."

Two specific results from the latest survey of small-business owners taken by the National Federation of Independent Business, a small-business lobby, found that the mood among entrepreneurs remains cautious.

First, job measures in the NFIB survey were very weak, which indicates that there is little hope of an employment recovery coming from America's small business owners anytime soon. This is not good news as small businesses typically lead national recoveries by creating new jobs one by one.

Second, the survey found that small-business owners have very little intention of making capital investments in their businesses anytime soon. Plans to make capital expenditures over the next few months were unchanged and remained near the 35-year record low.

Only 4 percent of business owners characterized the current period as a good time to expand facilities.

I actually see this result as good news. Entrepreneurs are recognizing the need to be cautious right now. This economic crisis is far from over, so prudence is a virtue.

My advice to business owners is to remain conservative in spending, especially with fixed overhead. They should continue to build cash reserves and avoid taking on new debt whenever possible.

A strong financial position will help ensure a strong market position when the economy moves into a sustained recovery.
Top troubles: cash flow, sales

Author Barry Moltz recently conducted a survey of entrepreneurs to find out what struggles they face.

As expected during a recession, the biggest struggles Moltz identified from his survey were with cash flow (36.3 percent) and weak or declining sales (32.5 percent).

One of his more interesting findings was that even with so many small-business owners struggling to stay in business, only 8.5 percent said that they have lost their passion for being an entrepreneur. While the economy continues to show no clear signs of a recovery, entrepreneurs remain resilient.

This offers the hope that when better times do return, entrepreneurs will be ready to lead the way into a period of economic growth.

(This post was my column in today's Tennessean).

The latest survey of small business owners taken by the NFIB is out and the results show the mood of entrepreneurs has not gotten any worse.

The NFIB Index of Small Business Optimism gained 3.8 points in April, rising to 90.6 and ending seven straight quarters of under 90 readings. 

Two statistics show that small business owners do not trust a recovery is really underway.

First, job measures barely moved.  Eleven percent (seasonally adjusted) reported unfilled job openings, up two points but historically still very weak.  Over the next three months, 7 percent plan to reduce employment (unchanged) and 14 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net-negative 1 percent of owners planning to create new jobs. This result shows little hope of a jobs recovery coming from small business owners anytime soon.

Second, capital expenditure plans were flat.  The frequency of reported capital outlays over the past six months rose one point to 46 percent of all firms in April, which keeps it only two points above the 35-year record low reached most recently in December 2009. 

Of those making expenditures, 32 percent reported spending on new equipment (up two points), 15 percent acquired vehicles (down one point), and 10 percent improved or expanded facilities (up two points). Four percent acquired new buildings or land for expansion (unchanged), and 10 percent spent money for new fixtures and furniture (up one point).  
                                       
Plans to make capital expenditures over the next few months were unchanged at 19 percent, 3 points above the 35-year record low.

Only four percent characterized the current period as a good time to expand facilities.

In a way I see these results as good news.  These entrepreneurs recognize the need to be cautious right now.  This economic crisis is far from over, so prudence is a virtue that all entrepreneurs should strive for.