American Elephants

Managing Risk Is Hard. When the Threat Comes From Government, It is Terrifying! by The Elephant's Child

Taxes are a complicated matter, and everybody hates them. There is all sorts of confusion about just whose money it is (ours!), or the government’s (the government has no money of its own). If you allow the Bush tax cuts to expire — you are raising taxes. If you extend some Bush tax cuts for just one more year, it is not a cost to government. Things simply remain the same. If we could just agree on the meaning of language, it would help.

There are arguments as well on what the effect of raising taxes is on the economy. Democrats usually believe that is a good way to get more revenue. Republicans know that raising taxes always brings in less revenue than was expected, particularly because wealthier people have more ways to avoid paying taxes, but it also has a negative effect of dampening business activity. And the more uncertainty there is  in the mix, the more it will dampen business activity.

There is risk to all business activity. Somebody may invent a product tomorrow that will make your business obsolete. Your suppliers may raise their prices or simply fail to produce. Your employees may do something really stupid. The risks are endless. When the government essentially promises that “we’re really going to get you, starting on January 1;” who is going to hire a bunch of employees under threat of huge unknown health care costs? To top that off, it is clear that the heavy hand of government regulation may just descend on you at any time for regulations you have never heard of.

I don’t think that President Obama has a very clear understanding of business risks or of how businesses make hiring decisions. I don’t think he understands”small business.” There is an army of workers out there who are free-lancers or individual craftsmen. They work on their own, at their own pace and at their own pleasure, independently. There are small businesses that we classify as “Mom & Pop” businesses —little shops. Then there are small businesses, with only a few employees: insulation installers, plumbers, all sorts of service businesses who may range from sole practitioners to a boss with a couple of employees. All of these could fit in Mr. Obama’s under $250,000 category on whom he does not want to raise taxes because he envisions them as — Small Business. But they are not the engine of employment in the American economy.

The small business that drives employment and provides the most jobs could still be plumbers  but those who hope to be major plumbing contractors, who hope to own a fleet of trucks and grow their business. I’ve known both kinds. Both may be ambitious, but one hopes to do more business and make more money, but does not want the hassle of running a larger company, and likes his independence. If he wants to take some time off to go fishing, he can.

It’s the driven, who want to build a bigger business that create the growth in employment and in economic activity. I think that is a distinction lost on Mr. Obama, who seems to know that “you don’t raise taxes in a recession when the economy is fragile,” yet believes that anyone with a household income over $250,000 is one of the hated “rich” who need to pay more taxes —partly because he believes in redistribution of income, partly because he wants voters to hate the rich in general and Mitt Romney in particular.

There are 894,000 businesses that file their taxes as individuals or sole proprietors. They not only are targeted with much higher taxes at the beginning of the year, but if they have over 49 employees, they will be targeted by ObamaCare. To that add the uncertainty in our own economy, the uncertainty in Europe, the uncertainty of a government focused on regulating everything, and the threat of a government that seems not to understand business at all.

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