small business

Tax Cuts HURT Small and Medium Businesses

Dave Johnson — Mon, 08 Feb 2010 18:29:06 -0500

Much of the public believes that tax cuts "create jobs." A recent Rasmussen poll found that 59% of voters believe cutting taxes is better than increasing government spending as a job-creation tool. This proves that repeating a slogan over and over can effect what people believe.

But here is some news: Corporate taxes are on profits. So a tax cut means that the more profitable companies -- the Wal-Marts, Exxons, and other giants -- benefit. They pay back less to the government for their use of the roads, schools, courts, police, fire & military protection and all the other services that helped them get so big and powerful. So the giant monopolistic corporations that are chewing up small businesses, destroying local and regional retailers, take those tax cuts and use them to turn themselves into even better small-business-destroying machines.

For example, giants like Wal-Mart are destroying local and regional retailers. But it is the Wal-Marts, not the local and regional retailers that are the beneficiaries of tax cuts. They already have every advantage in the world and tax cuts are just more ammunition helping them destroy the small and medium businesses that are the job engine of our economy. This is why the "usual suspects," the politicians who get their campaign funds from the giant companies and work with lobbyists for the largest corporations and the right-wing talk show hosts who always advocate what the largest companies want are the ones who always advocate corporate tax cuts as the solution to everything.

Meanwhile, since smaller businesses that are struggling don't pay taxes, the tax cuts do nothing for them. They're already being walloped by these giants, then walloped by the government giving their competitors even more advantage with these tax cuts, and then they get the infrastructure they depend on cut out from under them. When taxes are cut the infrastructure that supports building new businesses is weakened. The services these companies need are cut back. The schools get worse, the government services are cut back.

If you ask the managers of a small or medium business, they will tell you they want customers, not tax cuts. Customers cause companies to hire people, not tax cuts. All the tax cuts in the world won't "create" a job, if there aren't enough customers coming through the door or ordering products because there is nothing for the new employee to do. And if there are more customers and orders the company will hire people whether they get a tax cut or not. (A job-creating tax credit for small businesses like President Obama is proposing is a different story, and will incentivize hiring.)

So remember, businesses need customers not tax cuts.

Small Business, Big Manufacturing And Job Creation -- The Banks Aren't Lending

Dave Johnson — Wed, 20 Jan 2010 14:45:50 -0500

Banks still aren't lending where its needed, and it's getting worse, not better, for small businesses - the nation's jobs engine. Why did we bail out the big banks, again? Perhaps our government should just loan directly to the job creators instead of the job killers.

A CNN report this week: Banks pull another $1 billion from small business lending,

The nation's biggest banks cut their collective small business lending balance by another $1 billion in November, according to a Treasury report released late Friday. The drop marked the seventh straight month of declines.

... 10 of the 22 banks have cut their small business balances every single month since April. That list includes firms such as JPMorgan ... that are now posting monster profits. ... JP Morgan said its compensation expenses rose 18% during the year to $26.9 billion, much of which will be distributed as bonuses.

This chart from CNN's story shows the problem:

Small businesses are the jobs engine of our economy, but not if they can't get the credit they need to keep going. According to the Small Business Administration office of advocacy, small firms:

Have generated 60 to 80 percent of net new jobs annually over the last decade.

Recently President Obama cited the figure of small businesses creating 65% of all new jobs. And, confirming that, Again from the SBA,

Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.
Continuing firms accounted for 68 percent of net new jobs, and the other 32 percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 2007).

But not if the banks won't lend to them.

This isn't just a problem for small businesses. It is also a problem for very large businesses. In a November post titled, $140 Billion For Bonuses, Zero For America’s Future I described how US Steel can't get financing to complete the Clairton coke battery plant and concluded,

Wall Street and the financial economy are supposed to be to supporting the real economy by playing the role of middleman, connecting sources of money with companies needing that money to allocate capital where it is needed. ... That is their essential role in the economy.

But ... instead of playing a background role supporting the real economy Wall Street has been dominating the economy, influencing the government and running quick-buck schemes, creating bubbles, speculating up prices on commodities and generally running wild. ... But instead of fixing the system, Wall Street still is not allocating capital where it is needed. They are, however, taking huge profits and giving out huge bonuses.

Let’s make finance the servant of the real economy again, rather than its master.

Problem put simple: our government is helping the big banks, but instead of using the government assistance to lend, they are speculating and giving out huge bonuses. This is a disaster for the economy and for the public's faith in government and democracy.

The initial bank bailout was presented to Congress as an emergency so severe it required passage in 48 hours, would have no oversight and would be “non-reviewable by any court or any agency”. Of course, when it didn’t pass in 48 hours the economy didn’t collapse, but they did finally pass it because Congress apparently follows a higher law that says the big banks must get what they demand.

Along with the TARP bailouts there has been the AIG pass-through, allowing them to not mark the losses from their gambling to market value, bad debts have been guaranteed by the taxpayers, and money is lent to them at zero interest rates which they lend right back to the government at a higher interest rate! (These low rates are a tax on people with savings accounts, for the benefit of the big banks.)

This year's $150 billion bonus pool would, all by itself, go a very long way toward restoring jobs as well as faith in our government and economy, if only it were applied to the problem instead of handed out to already-wealthy people as bonuses.

It is time to change the situation and make the banks the servant of the economy instead of the other way around. If the banks won't lend the government has to either make them lend or start lending directly. Either way it is time to break up the big banks to reduce their destructive influence over the government and economy.

Small Business Tax Hoax

Isaiah J. Poole — Thu, 02 Apr 2009 12:06:41 -0400

Progressive Tax Policies Won't Harm Small Businesses

Isaiah J. Poole — Tue, 03 Mar 2009 09:53:13 -0500