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September 16, 2010

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Nice to see the comments and exchange of thoughts on economic problems confronting the country. Last week in defending their policies the Obama administration defined America's small businesses as those companies employing less than 500 people. So let's at least redefine what that means:

Big Businesses number 15,200 and employ 16,600,000 workers which is .17 of one percent the nation's businesses and 16.4% of the nation's workforce.

Small businesses number: 8,804,600 and employ 89,981,500 workers which is 99.83 percent of America's businesses and 85.6 % of it's workers.

No matter what you believe about America these statistics dramatically show that we are a country of free enterprises in which a major portion of our people work every day to employ a high majority of their fellow Americans in their ventures. Big business long seen as representative of the American economic machine no longer drive the economy. For example if 15,000 businesses (Big) layoff 500 workers each in a recession then 7,500,000 workers are
out of work. If 8,800,000 businesses layoff 3 workers each then 25 million workers are out of work. I'm a small business with about 40 employees. In the past 2 years I have laid off about 19 workers.

One person commented that the Federal Governemnt employs far more workers than small business. That is not true: the Federal Government employs around 2,800,000 workers compared to 89,000,000 by small businesses. No contest.

So let the arguments begin. I believe that to stimulate the economy the government should do everything it can to stimulate the environemnt in which small businesses are created, incubated and grow. This means less regulation, more freedom to compete without rules governing what the company must offer it's employees, less restrictions/taxation on capital for start up operations, etc. It is important for the owners of small businesses to be able to reinvest their capital to grow their companies and that means recognizing this commitment. Taxing small business owners "as fat cats" at a rate higher than large businesses (36% versus 39.5%) is unwise. And, it is unlikely that Obama is correct when he says that the tax increase on those making above $250,000 will not dramatically effect the economy. It will have an immediate effect on Jnauary first when an owner making $400,000 is asked to payout another $14,500 in taxes and their withholding jumps. If only 1 out of ten of those owners decide to layoff an employee to cover the cost then 880,000 jobs will be lost next year. And you can be sure that no one will hire anyone becasue of this increase.

The argument over taxes always seems to come around to increasing/decreasing taxes as if they don't increase and decrease on their own. The reason they are percentages is so that they can reflect the economic times. And that is exactly why it is so important to get the economy expanding once again. If government taxes are 2 Trillion dollars and the economy is 13 trillion dollars then on average government taxes are 15% of the economy. If the economy is stimulated to grow to 15 Trillion Dollars then tax revenues grow to 2.3 Trillion dollars without a tax rate increase.

There are currently 15 Million Americans out of work. At $250 a week that is $195 Billion dollars in increased costs to the taxpayers a year to pay their unemployment benefits (theoretically). If we put 8.8 Million of these people to work, which is 1 per small business, then we not only save $114 billion in costs but we gain around $56 Billion dollars a year in payroll tax revenue and perhaps another $35 Billion in Federal tax revenue a year. So the hiring of one person per small business in America could change the deficit by as much as $200 billion dollars a year.
Why argue about the tax credit extensions? Try it for two years and see if it helps stimulate small business. If not try something else. The elasticity of percentage tax rates is something that has gotten us into this mess. Too often politiicans increase rates in economic downturns because they spend 100% of their revenues in the good times. When they do this the higher tax rates dampen the economic resurgence and make it more difficult to get out of the downward cycle. The original federal tax rate, I believe, was 1% and opponents argued it would eventually rise to an alarming 5%. Welcome to the future as we debate 36% versus 39.5%.

Take a look at what a small business owner sees:

Payroll taxes paid by our 40 people: $239,000
Payroll Taxes paid by the company: $239,000
Medical Insurance Paid by the company: $770,000
Sales taxes paid by the company: $ 33,000
Sales Taxes paid by the customer: $125,000
Property taxes paid by the company: $ 6,800
Estimated Federal and State taxes
withheld from company employees pay: $1,072,400

This shows the multiplier effect of a small business on the welfare of the Community at large from the success of a 40 person small business with $6 million sales. Nearly $2,500,000 back to the government and to support the healthcare of the employees. Getting the 8.8 Million small businesses expanding again is of significant importance to the turn around of this country. Adding to their burden in terms of tax increases, energy increases, medical benefit increases or red tape will simply cost America more jobs and therefore more revenue. So when Obama said to Joe the plumber that he wanted to spread the wealth around he must have thought people wanted welfare more than they wanted jobs. Taking it from Joe the plmber and giving it out in welfare may sound good but small businesses do abetter job of taking care of our workers than the government will ever do. Jobs and benefits are better than welfare and unemployemnt benefits. Take one more look at those payroll tax numbers and you'll see who really pays for the Social Security of America's seniors: the workers AND the Small business owners together. 50/50 .

It also seems to me that once a business owner's personal net income exceeds $250,000, then he is no longer a small business owner.

Oops!! Third line: I do hold W largely responsible.

These comments (suggestions) are a really good start. My problem with the Reps is that, with the exception of Ryan, almost none are ready for "the talk". We have overspent. We have been told the everyone can have everything - just charge it. And I do hope W largely responsible. Blaming Obama when almost all the damage was done by W makes no sense.

Points I agree with:
-All income should be taxed for Social Security
-Medicare should be need tested
-Make it harder to get Medicaid
-Definitely need a serious plan to stop buying oil in the middle east, but would need to see just how clean coal can be.

Points disagree or less sure of:
-Loans for small business would be good if directed at a specific operational plan such as buying new equipment.
-SS at 70 would be a problem. Many in their 60s can't work like they did when younger. They struggle on to 62 or 65. 70 is too far. There are other reasons, but that is a personal one (I am 67)
-Defense needs a serious cut. Do we really need 11 aircraft carrier task groups to fight terrorists? Yes, we are still building aircraft carriers. We are still fighting WWII. How many tanks do we need? When cuts are proposed congressmen scream because it may mean cuts to the plants in their district - got to get past this.

Other:
-Why do Reps insist that top earners (over 250K) get their tax break. That would cost $700 billion over 10 years. I thought the deficit mattered. We have already spent the money we borrowed. It is time to pay it back. Those who benefited most must help the most.
-Supply-side economics is BS. Studies have shown that the biggest effect of the Bush tax cuts was to raise debt. Tax cuts do NOT pay for themselves.
-Taxes will have to go up. Even with the most aggressive spending cuts to Medicare, Medicaid, defense, etc. that are politically possible there is still not enough money to close the gap. It is time to pay down our national credit card.

For the record I am a former small business owner, belong to no political party, and consider myself to be a slightly left of center moderate. I also believe that Obama is the only grown-up on the political stage and history will show him to have been a great President for these difficult times.

Hi Harrycat,

I've been following the comments and checking the facts and I suggest that you carefully read what Paul Ryan has to say. He is very thoughtful, fiscally conservative and does have a solid plan. From what I also hear, he is honest and ethical. You asked for a Rep who will honestly talk to you, try him. From my vantage point as a small business owner (consulting company), his policies would help the small business and allow them to hire yet not add to the national debt. All of my years of doing financial analysis for companies tell me that the US will end up much like Greece if we don't elect fiscal conservatives and really attempt to get the debt under control. It certainly will not happen overnight and there will be difficult times while we try to get back to solvency. Not unlike personal finances when they get out of control.

Lisa in St. Louis

Heard from the two Bill's about what they will do. Now it's your turn to say what you would do. I'll start the ball rolling. Small business employees a lot of people (government employs more) Don't raise their taxes. Then they can hire. In fact, don't raise anyone's taxes. Let them keep their money and use it how they want. Make loans available to them so they can hire. I've had to lay off my two helpers because people are too afraid to remodel or build and I am a plumber. Would like to get the guys back and my business back to where it was. Stop the government from spending. Re-do the health care bill - check Paul Ryan, he's smarter than me and has good ideas. Change Social Security to 70 and have all income taxed under social security ... not just the first $100,000+ All of it. Have people who have more money spend more for medicare coverage. Make it very hard to go on Medicaid. I live in Ohio ... we have coal. Use cleaner coal until all of these other things are worked out. Wind and sun just won't do it for everyone right now. Get away from buying oil in the Middle East. Drill here or in Canada. They like us. We need to cut up our credit cards and live with what we have. The big cost that the government has that I don't want to cut is defense again the terrorists. They scare me. Other than that we should hunker down and convince the government to stop spending money.

Well, OK. I am completely ready to discuss our indiscriminate spending of the Bush years and how to get back to sanity. Tax cuts for the most wealthy, two unfinished wars, unfunded Medicare drug plan, etc. I am one who is willing (anxious?) for a real discussion of how to get our of this mess and willing to take a hit to get it done. Who is the Rep who will talk to us honestly? Beck, Palin, Gingrich?

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