Free Markets, Free People
I hate to say “I told you so”, but it isn’t just the rich who will be paying increased taxes. And what should be clear to anyone with the I Q of a turnip, is that this will cost people their jobs.
The compromise called for taxes to rise to 39.6% from 35% on personal income above $400,000. In a 2011 study, the Treasury Department found that raising taxes on incomes over $500,000 would affect roughly 750,000 small businesses organized as S-Corps, partnerships and other small entities.
Of course, you remember the Democrats claiming that this wouldn’t affect small businesses. Well, that was a flat out lie. But then we live in an era of lies which, if there political apparently, we’re willing to overlook. While most of us are. I just had to be one of those who isn’t. Not that Democrats are the only political liars, but they seem to be the most prolific and the most blatant. Especially when it comes to budget, deficit, and financial matters. They are the quintessential “snake oil” salesman.
And they have sold us are huge bottle of snake oil.
Couple these tax increases with the Obamacare taxes that kicked in on the 1st, and you have two reasons for 750,000 small businesses not to hire. And you can bet none of them will go over 50 employees, and some may even reduce staff to get under that number.
These are your “rich”. They happen to be the “rich” would generate jobs, or what have, if they hadn’t been hit by two new taxes this year.
Your government at work.
As I’ve mentioned many times, the engine of America is small business. Those businesses provide jobs to 85% of Americans. And according to the US Chamber of Commerce, they’re not going to be doing much if any hiring in the near future:
Small business owners’ concerns about the future—particularly on health care and taxes-—are impacting their hiring, according to the U.S. Chamber’s fifth quarterly small business survey released today.
Only one in five small businesses (20%) expect to add employees in 2013, according to the poll of 1,225 small business owners, conducted by Harris Interactive. The majority of small businesses say they are likely to keep the same number of employees over the next year – meaning there is likely to be little change in overall unemployment figures.
Concerns about health care and taxes (both brought to you by Barack Obama) are causing caution among small businesses and that’s because they perceive an “unsettled” business climate. Consequently there’s no incentive for them to change the status quo. In fact, they obviously believe there is some safety in the status quo (see the survey to see how they feel about their businesses locally) .
As we’ve mentioned repeatedly, government policy does have an effect on the economy. It can be an enabler that helps create incentives for businesses to expand and hire or it can be a disabler, doing precisely what it is doing now to unsettle the business climate, create disincentives for expansion or hiring and have small businesses go into a defensive posture.
It doesn’t get more defensive than now.
More from the Chamber survey:
- 78% want government to get out of the way.
- 90% are concerned about the impending fiscal cliff and are worried that Congress will fail to take action to prevent it.
- Nearly 60% say that expiration of the 2001 and 2003 tax rates and other business provisions, coupled with sequestration, will directly impact their business’ growth.
As you might imagine the road map to a better business climate is not hard to follow. There’s just no desire by the class warriors to do that.
Instead of doing the hard work of creating a business climate that will provide small business incentives to expand and hire, they’d rather tax them while demonizing them as the evil rich and talking about “fair shares” to 50% of the country that pay’s no – zero- income tax.
If this doesn’t paint the picture of what is wrong with the policies of this administration, I’m not sure what will. This is Econ 101 stuff. And apparently it is like a foreign language to this administration.
The golden goose is on life support, and the administration is about to pull the plug.
But let’s talk about Bain Capital, shall we?
One of the claims President Obama made in his State of the Union address was that his administration was engaged in cutting the red tape and doing away with regulations that stood in the way of prosperity.
There is no question that some regulations are outdated, unnecessary, or too costly. In fact, I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his. I’ve ordered every federal agency to eliminate rules that don’t make sense. We’ve already announced over 500 reforms, and just a fraction of them will save business and citizens more than $10 billion over the next five years.
Of course, like many of his claims, the devil is in the details and upon closer scrutiny, the claim has no real foundation in fact.
His first claim is a carefully constructed lie as Free Enterprise points out:
The White House admits that its rules have so far cost $25 billion, which is much more than at the same point during the Clinton and George W. Bush administrations.
The claim is also couched in non-specifics for a reason. The “500 reforms” are mostly regulations with little or no monetary impact on those who have to satisfy them. However, the administration has added more rules that cross the magic 100 million dollar impact line than any other administration. And, of course, those require, by law, that the monetary impact be assessed. Here’s an example of one (PDF, pg 69):
Enforcement Fairness Act (5 U.S.C. 801 et seq.). This interim final rule:
a. Will have an annual effect on the economy of $100 million or more. This rule will affect every new well on the OCS, and every operator, both large and small must meet the same criteria for well construction regardless of company size. This rulemaking may have a significant economic effect on a substantial number of small entities and the impact on small businesses will be analyzed more thoroughly in an Initial Regulatory Flexibility Analysis. While large companies will bear the majority of these costs, small companies as both leaseholders and contractors supporting OCS drilling operations will be affected.
Considering the new requirements for redundant barriers and new tests, we estimate that this rulemaking will add an average of about $1.42 million to each new deepwater well drilled and completed with a MODU, $170 thousand for each new deepwater well drilled with a platform rig, and $90 thousand for each new shallow water well. While not an insignificant amount, we note this extra recurring cost is less than 2 percent of the cost of drilling a well in deepwater and around 1 percent for most shallow water wells.
b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. The impact on domestic deepwater hydrocarbon production as a result of these regulations is expected to be negative, but the size of the impact is not expected to materially impact the world oil markets. The deepwater GOM is an oil province and the domestic crude oil prices are set by the world oil markets. Currently there is sufficient spare capacity in OPEC to offset a decrease in GOM deepwater production that could occur as a result of this rule.
Therefore, the increase in the price of hydrocarbon products to consumers from the increased cost to drill and operate on the OCS is expected to be minimal. However, more of the oil for domestic consumption may be purchased from overseas markets because the cost of OCS oil and gas production will rise relative to other sources of supply. This shift would contribute negatively to our balance of trade.
These rules were proposed in the wake of the BP oil spill in the Gulf of Mexico (GOM). They clearly identify the effect of the rules. Ironically they include increased cost to consumers, more dependence on foreign oil, and a negative increase in the balance of trade – all problems the administration and most economists identify is problems to be solved if the economy is to move forward.
Now, some may argue that these rules were necessary. I’d argue that perhaps some new regulation was necessary, but it should have been a regulation which, to the best of its ability, mitigated the effects listed to the minimum, or eliminated them altogether. Instead, the regulators airily note the effects and then blow them off. In reality, regulators really don’t care if it costs consumers more, deepens our dependence on foreign oil or ups the balance of trade.
In the State of the Union address, Obama tried to grab the middle and pretend he is a friend to small business:
You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country. That means women should earn equal pay for equal work. (Applause.) It means we should support everyone who’s willing to work, and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.
After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. (Applause.) Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year. (Applause.)
But again facts undermine the claim. As the Small Business Association reports, regulations disproportionately effect small businesses:
In the face of yet higher costs of federal regulations, the research shows that small businesses continue to bear a disproportionate share of the federal regulatory burden. The findings are consistent with those in Hopkins (1995), Crain and Hopkins (2001), and Crain (2005).
The research finds that the total costs of federal regulations have further increased from the level established in the 2005 study, as have the costs per employee. More specifically, the total cost of federal regulations has increased to $1.75 trillion, while the updated cost per employee for firms with fewer than 20 employees is now $10,585 (a 36 percent difference between the costs incurred by small firms when compared with their larger counterparts).
Say one thing while doing the opposite. Vintage Obama. Tomorrow’s Steve Jobs would have a very expensive uphill climb in today’s regulatory climate. The net effect? $1.75 trillion dollars of cost to small businesses, the place where “most jobs are created” per Obama.
The SBA also reports:
Environmental regulations appear to be the main cost drivers in determining the severity of the disproportionate impact on small firms. Compliance with environmental regulations costs 364 percent more in small firms than in large firms. The cost of tax compliance is 206 percent higher in small firms than the cost in large firms.
Those regulations are primarily driven by OSHA and EPA. And there’s no secret about the expansion of both regulators and regulation being pushed by Obama’s EPA focused on the environment.
The “good” news, however, this is one “shovel ready” project that seems to be creating jobs:
Large, small, global and regional — law firms are opening Washington offices at a rate not seen since before the recession, as they position themselves for work centered around the capital’s regulatory machinery.
Yes, I was being very facetious, however, when sharks smell blood in the water, they tend to gather in large numbers in anticipation of a feeding frenzy. Despite Obama’s claims to the contrary, there’s a reason this is happening, and it isn’t because the administration is lessening or cutting regulations, it is because it is imposing more and needs additional legal enforcement help (there’s also the side that will concentrate on defense).
Don’t forget, the $1.75 trillion dollar cost above applies to only small business. That means that the total cost of regulation is much higher than that. Also don’t forget, when Obama makes his claim about not passing as many regulations as previous administrations, that’s meaningless without an dollar effect numbers. As noted, in regulatory cost to the economy, he’s passed many more costly regulations at this point in his presidency than did the previous administration.
The bottom line, of course, is that A) you can’t believe a thing the man says and B) contrary to his claims, he’s imposed more cost on the economy via regulation, not less.
Finally, if you think it is bad now, wait until ObamaCare kicks in. One of the reasons law firms are beefing up their Washington DC presence is in anticipation of that law going into effect. If you think it’s a regulatory nightmare now, just wait. It’s going to get worse.
Sean Hackbarth, commenting on the increase in lawyers:
Resources spent on paperwork and re-jiggering business plans is less money going to business investment and job creation, but at least we know someone is benefiting from the regulatory pile-on.
Shovel-ready – and not in the good sense.
And frankly, I think they’re right:
– There is little appetite among American voters for additional regulations coming out of Washington. Three quarters (74%) of voters throughout the country believe that businesses and consumers are over-regulated. Further, another two thirds (67%) believe that regulations have increased over the past few years. These percentages include majorities of all partisan affiliations, with 91% of Republicans, 75% of Independents and 58% of Democrats saying businesses/consumers are over-regulated.
Now you may argue that “over-regulation” may mean different things to different groups. However in each case the term “over” has specific meaning – it means there’s too much regulation. While they may argue about the degree of over-regulation, it appears that each and every group sees over-regulation in the same and proper light.
– A key fear among voters is that regulations will hinder job creation, as most believe the result of new regulation will be either job losses (47%) or increased prices for American made goods and services (22%).
Or both. You see, businesses will absorb only so much (job losses) before passing along the cost of regulatory compliance in the cost of their goods and services. We’re well past the first part in this recession. Businesses are about as lean and mean as they can stand to be and still function well. Additional regulatory cost, then, is likely to be passed on to consumers – another among many reasons consumer confidence is down.
– More than two thirds (70%) believe increasing the number of regulations on American businesses will result in more jobs moving overseas. Also, majorities agree that the increasing number of regulations have created uncertainty for large and small businesses (66%), and that agencies who enforce regulations fail to consider how their decisions lead to increased prices for consumers and job losses (69%).
All three of these beliefs among those polled is on the money. The amount of regulation is a key consideration for businesses when they assess a business climate. Their cost is calculated in the cost of doing business there. And when that cost is deemed to be too much or too unreasonable, businesses look around for a less costly place to establish themselves. We’ve seen this right here in the US as states with more regulation and higher taxes lose businesses to states that impose a less costly regime of taxes and regulations. They don’t call the Midwest the “Rust Belt” for nothing.
And those polled are right when they say they believe those who impose regulations “fail to consider how their decisions lead to increased prices for consumers and job losses”. But while regulators may not consider it, voters apparently do:
– One of the highest points of agreement in the survey is the fact that 73% concur that “every time the federal government mandates a new regulation on America’s large and small business, the prices of American made good and services like gasoline and food go up.” Only 22% supported the view that “while many federal regulations might be just another burden to operations of America’s large and small businesses, customers do not see major cost increases for American made goods and services like gasoline and food.”
In a study, The Small Business Association found that the regulatory burden on small business in this country was quite high:
The research finds that the cost of federal regulations totals $1.1 trillion; the cost per employee for firms with fewer than 20 employees is $7,647.
Under 20 employees is indeed a “small business” yet most would agree, $7,647 in compliance costs per employee is a lot of money. It is over $140,000 for the 20 employee firm. That money has to be made up somewhere, just to break even, much less turn a profit. And it is clear that depending on the type of firm and needs of the employer, any number of employees could be hired for that amount. And don’t forget, small businesses account for about 80% of the jobs in the US.
So it is clear that there’s a tremendous regulatory burden that has been placed on the businesses of America that most feel over-regulate them and cost jobs and increase prices.
There’s a move afoot within the Obama administration to cut regulation. That’s a good thing. But we have to remember, it’s the Obama administration where they usually talk the talk and never walk the walk. One way to get the economy moving is to lift some of the burdensome regulation and its related costs.
So who should be leading this charge? The executive branch. And, as the poll indicates, most voters don’t understand that it is at that branch the buck stops. But they are clear in what they want – much more consideration and an amended approval process before new regulations are imposed:
– Voters are simply unaware that Congress is not in a lead position with regard to regulation, as a majority say that Congress (52%) creates regulations. However, there is a strong desire for checks and balances in creating regulations, as two thirds (65%) favor requiring regulations be approved by Congress and the President before they are enforced. Voters do not want a regulatory process that takes away legislative duties reserved for Congress – just as they do not want judges legislating from the bench. This strong support for Congressional involvement is consistent across partisan groups, including among Democrats (67%), Republicans (65%) and Independents (64%).
Of course that would mean that most oppose the unilateral imposition of new regulation by the executive branch as we’ve seen during this administration.
All that is not to say that at some level, most Americans see some necessity for regulation:
– There are some positive connections to regulations, with solid majorities saying they are positively impacted by those that require certain safety levels for drinking water (72%) or require controls to ensure better safety at schools and in the workplace (66%).
But, not like this:
– When presented with a lengthy explanation of the Boeing case — where the federal government has filed a lawsuit over the their motivations for locating a new facility in the non-union state of South Carolina — fully 78% of voters side with Boeing in agreeing that a business should be able to open a facility in any state, and that the government should not be involve in the decision about where Boeing or any company locates new plants.
A very interesting poll, and one that needs to be in front of every politician and department executive in government. Back off, unchain the engine of prosperity and listen to the people. They’re pretty clear here in what they want. A less costly and intrusive regulatory regime and government out of places it doesn’t belong – like in the Boeing example.
And why when government tells you how you must spend your money a certain, the unintended consequences are usually terrible:
Look, this isn’t rocket science, and the business owner in this video explains very well what happens when government dictates how you will spend any profits you make. Take a moment and listen to what he has to say near the end of the vid especially. He talks hard numbers and why, if forced to do what the government dictates, it will cost future jobs.
One of the things I’ve always said throughout this health care debate is health insurance should be something someone buys outside of employment. If Congress would deregulate the industry to the point that buyers were able to shop across state lines for a competitive insurance policy to cover their family and be a part of a huge nation wide pool to boot, prices for insurance would come down.
What is being mandated here puts no pressure on insurance companies to be competitive but it does require companies who are presently unable to provide it to do so. That will have an impact in employment. Owners like the one featured here will figure the cost per employee and most likely reduce the employee pool at a point where he thinks he can manage the mandate and still make a profit.
Of course he most likely won’t make the profit he was and so more restaurants won’t be built and more people won’t be hired.
The solution for lower cost health insurance does not lie in more government control or mandates. It is to be found in a real market that allows buyers the leverage they need to force health care insurance providers to field a competitive product. Until that happens, none of the solutions tendered through ObamaCare will increase coverage and decrease cost. It is an absolute impossibility the way that law is structured.