I've been thinking about the various proposals President Barack Obama has for 'helping' small business - and how, again, his words and actions are contradictory.
He is proposing a tax credit for hiring new employees, paying more to existing employees or purchasing equipment.
That's not necessarily a bad thing, though I oppose tax credits (an after-the-fact process of returning a small portion of what the government has taken from you in the first place) when an overall reduction in tax rates is so much more effective.
But the tax credit is only for a new hire, and doesn't apply to employees brought back after being laid off - nor does it continue to exist all the years that a company keeps that employee. The decision to hire another employee is never based upon a potential tax credit. It's based upon the need for that person and the sales to support the salary on a long-term basis.
He's also proposing to use TARP funds for bank loans to small businesses. You remember TARP? It's the temporary fund that was supposed to help bail out the banks deemed too big to fail, but that was also used to bail out the auto companies???? It's the fund that Obama says won't ever recoup all its loans and needs to charge ALL banks a 'recovery fee.' It's becoming a permanent source of funding for whatever spending Obama wants to do.
The bank loans he's talking about, though, are only through 'community' banks - banks that really don't need an infusion of cash to loan out. And Obama hasn't documented that there's even a need for such loans to small businesses - but determining a need for 'help' isn't relevant to how good the program sounds to the masses.
The main issue he's trying to address with this loan package is a direct result of the tighter restrictions government has placed on lending and capitalization of banks. The issues relating to sub-prime loans and the failures of many with government-back mortgages resulted in Congress 'doing something' to solve problems resulting from the last time they 'did something.' Tighter regulatory controls on the assets banks have to keep mean they have been more restrictive with the qualifications for loans. Small community banks think that if Obama's loan program will absolve them from loss on the riskier borrowers, then they might take advantage of it and lend to people they've previously denied.
What? Yes, loaning to people who have been determined to be too much of a risk for a 'regular' loan. Isn't that what got us into this economic mess in the first place? Is there really a need to loan to people/businesses that are that risky?
But there's a problem - and a contradiction - with what the President says.
At the same time he's planning small tax credits and loans for certain behavior, he's talking about raising tax rates on 'the rich.' Many small business owners, because of the way they've structured their companies, fall into the 'rich' designation because they report their business earnings as part of their personal income tax reports. This means they're taxed at the personal, not corporate, rate. Of course, for most, they're paying taxes on paper earnings they never actually see in terms of dollars in their wallets.
I don't want this to be a post focused on the tax code - a 60,044-page/25-volume monstrosity that no one, not even the government enforcers, actually understands. But it's important to note that because of the tax code and the complicated nature of it and corporation structures, many businesses go this route and end up being designated as 'rich' as a result.
For these types of business owners, a one-time, limited, tax credit is not enough to overcome the uncertainty of future, permanent taxes.
The politicians in the federal government are constantly talking about the need to raise taxes. The Associate Press reports that Obama's budget raises taxes on businesses. Various reports indicate that increased tax rates, health care 'reform' and the expiration of the Bush tax cuts of 2001 will mean more money paid to the federal government, detracting from anticipated profits businesses are earning.
On the state and local level, the discussion is much the same: government needs more money to continue its spending patterns (or to expand them in the guise of 'helping' the economy) and someone has to pay. In December, Ohio decided to 'delay' a phased-in tax cut that took effect in January of last year. In Toledo, there's discussion of raising the payroll income tax. That's more money coming OUT of the earnings and spendable income of individuals and business owners.
Unlike government and politicians, business owners have to plan for such things. When there is uncertainty about future costs, they will be cautious in their spending, choosing to save for future obligations rather than incur additional expenses while awaiting clarification.
And they're certainly not going to borrow money for anything if they think future earnings will be negatively impacted by higher taxes, limiting their ability to actually repay the loan.
They've also seen the complicated and arbitrary rules associated with such loans when the politicians get to decide the terms, many of them retroactive in enforcement. Will these small business owners be subject to earnings and pay limitations if they accept this government money?
Uncertainty is the killer.
So while Obama is proposing various programs to provide what he considers to be 'help,' he and his fellow Democrats in Congress are planning various actions that will definitely 'hurt' small business.
I'll concede that perhaps, despite how 'smart' people seem to think he is, our President might not have a clue.
Obama has never run a business. He's never been responsible for meeting a payroll, making decisions about hiring/firing or purchasing equipment for an operation. He's never had to develop a business plan and weigh various costs against potential income. He's never had to budget for today's operations while ensuring protection against tomorrow's decline or anticipating future growth.
He's never had to experience the decision-making process that all business owners have to face. So why should we expect that any policies relating to small business - or any business, for that matter - have any basis in reality?
We shouldn't ... but he's the President and if he doesn't have the personal experience, he's supposed to surround himself with people who do so he doesn't continually contradict himself by saying one thing and doing another.