Owning a small business the last couple years feels like a scene from Gladiator. You are in the arena, they open the gates and hungry lions come running out. Ah. Just another day in the life.
Sorry to say it but the Federal Government is no friend of the small business owner. President Obama has not done much so far to help the situation. The turmoil surrounding health care has only added to the confusion we have felt.
Now, Mr. Obama has rolled out a small business plan. There are a couple small provisions and two big ones. One part involves a tax credit for hiring new employees or increasing wages.
The problem with this is twofold. First, you need taxable profits from which to credit. So, this won’t help many small businesses. Second, staffing decisions usually only make sense when there is increasing demand. Otherwise, a bad decision is merely a drag on the business.
The second big plank is an incentive plan aimed a community banks to lend to small businesses. If this is under TARP, these banks will shy away from it. Accepting TARP funds painted your bank as weak. Nobody wants that tag.
The other big flaw is the belief that small businesses will use this money to expand. It won’t happen. Why? We are scared. We don’t know what will happen next. And we are already full of debt. Owners who get these loans will pay themselves bak the personal loans they made to their businesses or pay off their credit cards.
This will make their balance sheets looks better but it won’t increase capital investing. I clean balance sheet is swell, but it doesn’t help the economy.
Here’s my plan. Eliminate business income taxes. Not all the way—people would go crazy thinking about Exxon Mobil making a bazillion dollars more profit. But just part of the way. No income tax on the first $2 million dollars of profit.
This would eliminate income tax for the vast majority of small businesses. It would cut the unfairness of double taxation of small and family owned businesses. The Fortune 1000 would still pay taxes on the majority of their profits.
There would be several benefits. Owners would have profits to do the most economic thing with. They would reinvest in their companies, hire more people or increase wages as sales grew, or they would pay down debt. They would also pay themselves more.
Several things in the above paragraph would be taxable events. Income tax revenues would go up. Also, prices of goods and services would go down. Investment in businesses and opening businesses would increase. Innovation would also increase.
There would have to be a mindset shift for this to happen. Business people are too easy a target. Politicians would have to join arms with business owners instead of painting us as greedy exploiters. The public would have to come to appreciate the sacrifices we make. The era of mistrust would have to end in pop culture. Bernard Madoff and J.R. Ewing need to be lampooned as the freakish anomalies they are, not as symbols for all business people.