Some of you may know that I, along with
my wife, own and operate a small business. It is a business that
provides services and some durable goods sales to mainly residential
customers. It is very small having only one employee at the time. I
have had as many as two and at other times it has just been me. I
confess that I am not the 60 or 80 hour week kind of guy but I have,
on occasion, been forced into such a schedule. Some years we have
done okay and others we haven't. Since the economy fell off the
cliff it has been more haven't. I believe it was the year following
the beginning of the recession that the President pushed a small
stimulus bill through Congress and it was targeted in a way that
impacted my business favorably. It was a decent year. Since then
business has been more a matter of holding on that being a growth
business. I have made a few observations of things that have
impacted my business and I think they may be the same kind of things
that impact other businesses.
One thing I can say for sure is that
tax policy is a non-issue with my business. Taxes are reasonable and
I have discovered that to pay taxes one has to make money. Social
Security is the largest burden since, as a self-employed
entrepreneur, I have to bear the entire payment. If you are employed
by another employer you only pay half while your employer pays the
other half. But I really can't gripe because I knew that going in
and I figure I will get more than I paid in when I start receiving
benefits. What hasn't happened is enough income to plan for
retirement so my plan is to work as long as I can even after I start
receiving benefits. This way maybe I'll drop dead on the job and
won't have to worry about retirement.
Over the years I have noticed how my
business rises and falls with the local economy. I have examined
that with a great deal of interest since people that I owe money to
really want to get paid whether or not I have any money. I'll bet
that is true for most of you. With my business I carved out a small
niche where I wasn't in competition so much on price as I was on
quality and customer service. What I have seen is that when other
companies in my line of work who are larger employers become affected
by the local economy they begin to lay off workers. Some of those
workers do what they have to do to earn money and that is encroach
into my niche. With that competition goes up and I have the choice
of doing less business, lowering prices or cutting quality which is a
part of my overhead. I have to tell you that if I had known thirty
years ago what I now know about operating a small business I may have
looked a little harder at working for another company or trying for a
government job. However, I was confident that my work and skill
would be a better choice in the long run. Entrepreneurship is to be
highly valued. Those owners really are a vital part of a local
economy and they assume a lot of risk often being ill equipped to
assess that risk and therefore become one of the many that fail
within the first 5 years.
This recession that began in the year
before President Obama was elected was rooted in the exploding home
construction bubble. I recall in those years leading up to the
recession people in my business kept wondering who was really buying
all those houses. Turned out that a lot of people were just trying
to buy those houses. When the bottom fell out and the mortgages on
those houses turned upside down that golden goose died and with it
the dreams of millions of people. Around here the ripple effect
could be observed going through the economy. Because I wasn't so
much involved in construction it took a little longer to begin to
affect me but affect me it did in two ways. As I said, those workers
laid off started businesses of their own and they were willing to
work in my niche. Also, it soon became evident that our local
population was being much more conscious about how it spent money.
Jobs that would have come along were now being delayed and people did
not spring for repairs until they were affected in a painful,
negative way.
So, this is what I have learned about
operating a small business, at least one as small as mine. Tax
policy on earned income is of little consequence. What is of
consequence most is lack of demand. People don't have any money.
Now, some are okay but I am speaking generally. The federal stimulus
was a matter of tax policy but it allowed people to use a deduction
to stimulate the economy in a targeted way. The way it affected my
business was to create demand and I suppose it did the same for
others who are in my line of work. In addition, it was targeted in
such a way as to get people to make investments in energy efficiency
which stimulated the entire economy to some extent.
This is what I see. Of all factors
demand is most critical. Demand is created when consumers have
disposable income that they can use for necessary or elective needs.
We have a lot of people, just ask Mitt Romney, who don't make enough
money to pay much more in taxes than their Social Security. If you
take that population out of the equation then demand takes a huge
hit. Lowering the overall tax rate will not impact those people to
any large degree. However, targeted stimulus using the tax code will
impact those people by making it possible to have some extra income
to spend and that ripples through the economy from the ground up. It
does not trickle down. Families with children are able to access the
earned income credit which also allows them to acquire income they
would not have had before and this is stimulative to the economy from
the ground up.
Lowering taxes on higher incomes has no
stimulative effect on my small business. Even if they invest the
money in stocks, bonds or whatever it is simply not trickling down
because the businesses those stocks represent are not creating new
business. They are sitting on trillions of dollars of cash or using
it to buy back stock to increase the net worth of that stock. It has
no stimulative affect nor does it create new wealth.
My take is that we are told a lie when
our aspiring leaders tell us that taxes are too high and that
lowering them will bring prosperity. What is needed is demand and we
must ask what will create new demand. It's not hard.
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