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.

Costly Regulations Are Made by Unaccountable Bureaucrats by The Elephant's Child
April 20, 2011, 6:51 pm
Filed under: Capitalism, Economy, Law, Taxes | Tags: , ,

“Every year we are reminded how much money the government filches from us on Tax Day. However, there is no equivalent “Regulation Day” to remind us of the extra cost government imposes on us through pettifogging regulation.  The fact is that federal regulations (never mind state and local) cost even more than the skyrocketing federal budget deficit, and help bring the federal government’s share of the economy to over 35 percent.”  An important observation from Iain Murray, a vice president at the Competitive Enterprise Institute.

Regulations cost $1,75 trillion in compliance costs, according to the Small Business Administration. That’s bigger than the record federal budget. Wayne Crews, also at CEI, compiles a guide to federal regulation each year: Ten Thousand Commandments; An Annual Snapshot of the Federal Regulatory State.

Last year, Congress passed and the president signed into law a comparatively few 217 bills.  But Congress has delegated to unelected bureaucrats in federal agencies considerable lawmaking power. Agencies issued 3,573 final rules.  As there is no “Regulation Day”, there is also no “De-Regulation Day” when the government gets rid of bad, outdated, useless or too expensive regulations.

  • Of the 4,225 rules now in the regulatory pipeline, 224 are “economically significant”—that is they wield at least $100 million in economic impact.
  • Government’s spending level is $3,456 trillion. The regulatory “hidden tax” of $1.75 trillion is 50.7 percent of the level of federal  spending itself.
  • Regulatory costs exceed all 2008 corporate pretax profits of $1,463 trillion.
  • Regulatory costs dwarf corporate income taxes of $157 billion.

It’s a lot easier for members of Congress to shove off the tedious business of rule-making to unelected agencies than to devote their time to proper lawmaking. Even Republican reformers haven’t gone much farther than trying to require Congress to vote on final rules. Rule-making  just isn’t exciting information to take back to the constituents at home. Nobody gets very interested in regulations until they affect your own life. Mr. Crews survey is an important tool for government reform, but unless it has a lot more pictures than I assume it does, it’s probably not going to replace thrillers as bedtime reading.

Congress devises programs which are funded in three ways:  They can raise taxes to pay for new programs, they can borrow money to pay for them (with a promise to pay back that borrowed money, with interest, from taxes collected in the future). The third way is to regulate.  Instead of paying directly, it can require that the private sector or local governments pay.

This has created enormous problems for the states, as government airily decrees that the states shall do certain specific things, but doesn’t supply the money that the tasks entail.  “Unfunded mandates”— a term you’ve probably heard and not paid much attention to.  President Obama was excited to begin requiring states to start developing his desired high-speed rail network.  So far three states have turned down federal funds because the state portion for high-speed rail was just too costly.

More to the point, there is no accountability,  no disclosure and thus no public fuss. You can think of regulation as off-budget taxation.

Real reform may be a lot harder than we imagined, and a lot more important.

Republicans Take On Federal Regulations, and President Obama. by The Elephant's Child

The Republican led House this week is taking Obama up on his claim that he wants to make government rules and regulations less burdensome for business. The president did issue an executive order filled with weasel words and elastic deadlines in which nothing much would get accomplished.

Republicans are pushing through legislation actually making regulations go away, beginning in the Government Oversight Reform Committee, where business leaders will testify this week about just which regulations stand in the way of job creation.

The Securities and Exchange Commission, the Occupational Safety and Health Administration and the Transportation Department will surely be castigated.  The Environmental Protection Agency’s new greenhouse gas limits, beside being meaningless, are a big burden on business, as is the simple weight of not knowing just what regulations may be issued tomorrow.

President Obama has made it very clear that he does not understand how jobs are created.  He expects to manage the process.  I have a small amount of sympathy, for it can be hard if you are sure your expertise is needed, to get out of the way and let free people fix things on their own.  Freedom can be very frightening to a control freak.

Republicans point out that the president’s planned cuts don’t apply to some of the most enthusiastic regulators and those who require the most unnecessary paperwork. Republicans have no intention of excluding any agency or department from their scrutiny.  There is a suspicion that Obama was more interested in creating headlines than jobs.

%d bloggers like this: