[update: reorganized to have link up top, and commentary below this]
Have a read of this blog entry. Very interesting.
As a small business person, I am acutely aware of all the myriad ways that rules, regulations, taxes and fees can rise unexpectedly upon you. When taxes aren’t sane or predictable, you can suddenly get a bill for a substantial fraction of a well paid employees monthly or yearly salary. We had that experience last year with Michigan’s MBT which replaced the SBT. The SBT was annoying but roughly predictable. The MBT was simply egregious. We got a bill, complete with fines for late payment for something 4 times what the SBT was. Took a while to get this fixed. Then the state ran out of money in its unemployment insurance pool, and decided to charge all of us more. Sounds like a Ponzi scheme to me … we pay in in order for other “investors” to get their pay out.
We paid, as a corporation, more taxes to the US government than GE. We paid enough to hire someone, for a year, with a good salary. I think this year, we may pay enough for two employees. Which I very much would like to hire, but I have to pay the US government its due.
Yeah, I am sure the US government will spend that money as effectively as an employee would. For those whom are sarcasm impaired, the previous sentence was an effort to be sarcastic. The US government is deep in trouble over its inability to control and prioritize its spending, which is being exacerbated by the presence of proponents of Keynesian economics.
This said, Michigan is being turned into a less business unfriendly state. The last election pretty much transferred control over the state government into the republican party’s hands. They’ve proceeded to, in conjunction with our new governor, do a pretty good job of getting a hard budget together, to make some very hard choices on spending. Many folks expecting funding, were not happy with the outcome. But hard choices had to be made, and they made them. Kudos to them for doing the right thing.
MBT is being reigned in. The governor, a VC until he took office, has been working across party lines, pulling in the best democrats he can find, to help him make this government work. He isn’t a hard core ideologue as we have going on in Washington. He is a pragmatic and practical individual, focused upon getting the job done, and getting it done right. He capped the film subsidies in the state … they were nice, but we spent more money on them than we got back. Which meant a negative ROI. Lots of protests from the impacted folks, and this is understandable. But if you spend $1.27 to get $1.00, this is not a win. This is a fail. It takes a courageous politician to do the right thing and cap something that is losing money, versus enabling it to continue.
They are working very hard to get more investment into the state. Rewarding, not penalizing entrepreneurship. Rewarding taking risks to start and run a small business. This governor knows quite well that job growth is generated from the small businesses growing. Giving big tax breaks to large corporations to build in this state, that we small business folks pay for … no … not such a good thing. Thankfully, this process has mostly stopped.
There has been some federal investment in “green” jobs … tax money spent to subsidize a business that would not be profitable on its own. Hell, I’d love for the federal government to lower my cost basis as well. Doesn’t make it right when they do this though … the market has to select its own winners and losers. Subsidies are something of a drug, they skew the way management thinks about revenue, and the choices they have to make.
There is a battery plant here in Holland Michigan that President Obama just visited. It might not exist without the subsidies. It is a large factory, and they have hired hundreds. Once the subsidies vanish, will the factory still have as many employees? Chances are, no. Using history as a guide, they will burn through the subsidies until they disappear, and then reduce staff. This is true regardless of whether or not they are successful in market or not. Once the subsidies disappear, the cost basis for the plant goes up by that loss of subsidy. You can look at this as a revenue decrease of that amount. Which means, for a significant revenue decrease of R, that N workers who make salary S (such that N * S = R, or N = R / S) will be eliminated.
This is why subsidies are bad, as they can’t be perpetual, and they don’t encourage businesses to act in an efficient manner with their revenue and investment. But subsidies are some of politicians favorite tools. They just love giving out money to projects. Which is a problem when there really isn’t any money to give out from the budget.
Subsidies simply wind up be a form of wealth transfer, from tax payers to the beneficiary of the subsidy.
The massive stimulus is/was a subsidy.
Once the subsidy money went away, many people were again, looking for work. This is why, in part, unemployment “unexpectedly” keeps rising. There’s no more money to pay them. So they are removed from the ranks of the employed.
This is relevant as this governor and the legislature are aware of the issue and are focusing upon being business formation and growth friendly. It makes no sense whatsoever … no, its profoundly stupid … to be hostile to the people investing in creating jobs, or the underlying wealth that generates investment in jobs.
Subsidies are being capped or reduced in the state. Yeah, a few larger businesses may flee, as they won’t get the nice free tax breaks they’ve gotten in years past, that I and many of my fellow small business folks paid for. Good riddance. Just like other bad deals, sometimes you just have to walk away from a bad situation.
Its hard enough running and operating a business. Adding additional costs, and them making us pay for others subsidies, or taking higher percentages of our income because we are more successful does not encourage us to open up more positions. Artificially increasing my cost basis to pay for some politicians pet project, favorite company or market, or stimulus? Maybe not such a good idea. It will delay us opening up new positions. Spreading our wealth to help the next guy, that penalizes us for being successful? Yeah, that will encourage people to throw in the towel and close up shop. Thankfully we aren’t at the latter, yet. I am hopeful we will never get there.
All the extra discouragement to business is what drove this entrepreneur from California to Texas. I can’t say I agree with her political point as to which candidate makes sense … but she’s right about whats good for (small) business is good for everyone. Make small business’s life harder, and yeah, you are going to lose them. And their employees. And their tax base.
Being business hostile makes absolutely no sense to a government. But some do it. And they will have all manner of arguments as to why they should increase small businesses cost basis, like they need the revenue. And they will drive these small businesses away, which will not only impair their proposed revenue, but drive them further into the hole.
A blog I read has an amusing way to describe such polities. LOTB. Loyal Order of the Terminally Boned. Make life sufficiently annoying for the job creators and your tax base, and after a while, they will stop creating and start reducing jobs, and move away so they are no longer your tax base. Which solves none of your problems.
Reducing taxes, and reducing costs increases investment, which increases tax base from economic activity. Bill Clinton figured this out, and we did well as a result during his presidency. Yeah, we had some nice internet bubble bits, but this was driven as much by VC’s gone wild as anything else. Not that it needs regulation, the market eventually corrects for stupidity.