Small Business Options for Year-End Cash Flow, Tax Benefits
Dec. 2, 2011
December is the month for small business owners to reflect on options for year-end cash flow and tax benefits.
In general, here are items to discuss with your accountant and tax advisor:
Your first concern should be to reduce your tax obligation next April. Unless you already know you have too many write offs, you can further accomplish it with legal strategies to delay income and accelerate your expenses.
Decide what equipment, furniture and supplies you can buy this month.
Unless you have cash flow issues, and if your calendar year is your fiscal year and you run your business on a cash basis, delay mailing your invoices.
If you don’t have a retirement account, establish a qualified plan. It’s important for diversity in a downturn or when times are good. This will help your tax picture, as well.
If you’re considering updating your bookkeeping and technology systems, do it before the end of the year. In this way, you’ll make it easier to start fresh for the New Year. You’ll want to segregate your old records from the new.
As for financing any new equipment purchases, do your due diligence. Determine your best options for financing, as well as for your tax situation.
Understand how the IRS will view your situation in terms of Section 179 depreciation deductions and bonus depreciation.
In addition to understanding the pros and cons of possible tax incentives, know your credit situation. For the best credit worthy businesses, lease financing might be a viable option. But it’s getting more complicated with financial institutions than in past years.
Weigh the possible benefits for acquiring new equipment. You’ll need to make a financial forecast.
If you do buy or lease, it also goes without saying to comparison shop all fees, rates, and terms. Avoid paying so-called application fees.
Should you decide to buy from different vendors, consider grouping all the purchases into one package, which means you’ll benefit from lower fees and rates.
Consider these options small business options for year-end cash flow and tax benefits. But remember it’s not tax advice for your situation. Again, see your accountant and tax advisor for counsel as part of your decision-making.
From the Coach’s Corner, here are related resource links:
Tax Tips for Your 2011 Year-End Tax Planning
Budgeting Basics for a Micro Business
Why Accounting, Finance Can be Ideal Careers for Women
12 Tips for Profits to Keep Your Business Dreams Alive
“If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don’t get wet you can keep.”
-Will Rogers
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
How CEOs, Taxes and Policymakers Fail the U.S.
Updated Feb. 1, 2012
Like it or not, stagnant growth increases the possibility of a double-dip recession. We’re in a precarious position, largely, because businesspeople and consumers lack confidence in the economy – for good reasons.
Fourteen million Americans are out of work. For many available jobs, Americans lack education and skills to meet the specific needs of employers.
Still, many big businesses are slow to hire until uncertainty is alleviated. They have healthy balance sheets after paying down debt, and they’re hoarding cash.
Most small businesses don’t have adequate credit and can’t expand. They’re also angry about the healthcare law, which threatens their ability to stay in business.
Consumers are stunned by high food and gasoline prices. Mortgage debt stresses many homeowners. And they’re angry because of gluttonous Wall Street chicanery, and Congress can’t balance the budget.
Voters want lawmakers to tackle urgent economic problems. Instead, only a minority of policymakers has an adequate understanding of economic-growth principles, and they have the image of acting like a ruling class at the public trough.
After three years, the Obama Administration has produced any sound solutions.
Did I leave anything out? It’s no wonder the stock market is near bear-market levels.
Morale-busting headline
Consumers and small business owners were angered by a Bloomberg headline: “CEOs Earned More Than U.S. Companies’ Tax Bills, Study Finds.” Incredibly, the Institute for Policy Studies issued a report divulging that 25 chief executives were paid more in 2010 than their companies actually paid in federal taxes.
The report showed such companies averaged $1.9 billion in global profits. They include Boeing, Ebay, Cablevision Systems, and Verizon. What’s worse, while their CEOs were paid in the seven figures, some companies received government tax refunds.
The Institute for Policy Studies’ examples:
- Cablevision CEO James Dolan was paid $13.2 million, but the company had a $3 million corporate income tax benefit.
- EBay CEO John J. Donahoe received $12.4 million while his firm got $131 million in tax write-offs.
- Verizon CEO Ivan Seidenberg was compensated $18.1 million but his company netted $705 million in tax benefits.
The Bloomberg article also reported a study by another nonprofit group, Citizens for Tax Justice. It claimed 11 companies received $62 billion in domestic profits, but only paid a “negative 3.6 percent tax rate in 2010.”
True, the U.S. has a high corporate tax rate, but it’s negated by countless loopholes.
Job stimulus is anything but
Another disturbing headline: “Study: Half of Hired Stimulus Workers Were Already Employed.”
The federal jobs stimulus is not well-designed when the stimulus only results in job shifting. But that’s what’s happening, according to the study by George Mason University.
Even though workers have jobs, they’re hired by other firms – with the help of stimulus funds. The government would lead us to believe new jobs are being created, but 47.3 percent of the workers already had jobs.
How can new consumers’ money enter and circulate in the economy, if we’re merely moving workers around?
As a Biz Coach, these are frustrating developments.
Clearly, what needs to occur is widespread economic patriotism:
- The tax code has to be rewritten and simplified to eliminate the unpatriotic tax write-offs.
- Public policy has to become productive – money for jobs and has to be invested for economic development, not wasted.
- Voters have to elect representatives who understand basic economics and who will work for the common welfare of this great nation.
- Parents should encourage their children to take advantage of educational opportunities when they first start school.
- Workers should understand inertia doesn’t work – they need to adapt so that their skills match employers’ needs.
When progress is made in these areas, confidence in the free-enterprise economy will return.
From the Coach’s Corner, here’s more:
Federal Reserve Typifies What’s Wrong with Economy
Does the Federal Reserve Understand Small Business?
Only Fiscal Sobriety Will Prevent Further Fiscal Chaos
“You can always count on Americans to do the right thing — after they’ve tried everything else.”
- Winston Churchill
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Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Small Business Jobs and Credit Act — Why It Isn’t Working
Updated Dec. 22, 2011
It was touted as a huge jobs creator and big boost to small business. But after its passage more than a year ago, the Small Business Jobs and Credit Act of 2010 is still not working. Federal data shows bank loans to small business has dropped to the least number since 1999.
After analyzing figures from the Federal Deposit Insurance Corp., the Investigative Reporting Workshop indicates that aggregate bank lending has increased over the past 15 months. However, small business loans of $1 million or less is down.
In essence, the law comes with a $30-billion fund to help community banks loan money. It provides tax breaks in the aggregate of $12 billion. The goal is to stimulate entrepreneurship – investment and job creation. Democrats claimed it would result in 500,000 new jobs.
The theory behind the tax cuts: Companies can buy new equipment, and the self-employed can reduce their self-employment taxes by writing off their healthcare expenses.
Small businesses will be able to waive Small Business Administration (SBA) loan fees, which is a big deal for companies struggling with cash flow issues.
But it increases tax-reporting requirements.
Small businesses have been patiently waiting for loan opportunities – they’ve been struggling in this tight credit market. For qualifying businesses, it’s time to see a good CPA.
Not to give tax advice or to oversimplify, here’s a brief summary of the provisions:
Depreciation – The law extends bonus depreciation for equipment and for specified property with long production periods.
Startup Expensing – It increases the startup expensing limit and phase-out from $5,000 and $50,000 to $10,000 and $60,000, respectively.
General Business Credit – In accounting-techniques terminology, if businesses meet a test for average gross receipts, they will qualify for an allowance of five-year carrybacks, 25-year carryforwards, and will be exempt from the alternative minimum tax with the general business credits. That’s providing they make $50 million or less (for sole proprietorships, partnerships and non-publicly traded corporations).
S Corporations – If a business converts to an S status, it might qualify to be excused from a built-in tax gain.
Qualified Small Business Stock (QSB) – It’s possible to get a 100 percent capital-gain exemption on QSB stock.
Transaction Penalties – Penalties for failing to report transactions will be capped.
Healthcare Deduction – The self-employed can deduct healthcare expenses.
Retirement Accounts – Certain retirement accounts can be rolled over into Roth accounts.
Annuities – Annuity owners of nonqualified annuities receive tax benefits under certain conditions.
Levies – Federal contractors will have their payments levied if they haven’t paid their federal taxes.
Reporting – Renters will be required to report payments more than $600.
So what’s the impact of the law?
It’s been heavily touted as a magical economic solution. True, a lot of small established companies have been helped – but the big banks that benefited from the controversial bailout have been hoarding their cash. So, the law is widely accepted, but not by everyone.
“The Small Business Jobs Act should have been a vehicle to pass meaningful reform for every small business in this country. Instead politics trumped helping small business, and senators failed to pass the Johanns amendment which would have fully repealed the onerous new 1099 reporting requirement included in the healthcare law,” said Susan Eckerly, senior vice president of the National Federation of Independent Business.
“This bipartisan amendment represented a real chance for senators to fix a costly and burdensome paperwork requirement that lawmakers on both sides of the aisle agree must be repealed, and it’s disappointing that this amendment is not part of the bill passed today,” she added.
Why the law doesn’t work
After talking with businesses that extend credit to other businesses and consumers – my sense in 2010 was and still is – the law will not spur a big increase in jobs.
Most small businesses cannot possibly qualify for the SBA loans because of poor cash flow, too many write-offs, bankruptcies or low credit ratings – thanks to the predatory behavior of big banks and credit card companies that hiked interest rates up to 38 percent on unsuspecting borrowers in recent years.
Nothing was done to rectify the damage.
The federal government cannot require banks to give money to struggling companies that lack sufficient capital. In reality, many small businesses need operating capital now. But borrowing money for operational expense is a non-starter. Down the road, such borrowers are unlikely to be able to repay loans. Business borrowers gave to prove they don’t need money in order to qualify.
Few, if any, startups qualify for bank funding even with SBA guarantees, if they’re not highly collateralized. They usually need a successful, three-year track record. The startups have to turn to other sources, such as venture capitalists or angel investors.
As for the new tax benefits, they will not help a company if it doesn’t have abundant capital and has too many write-offs from a lack of profits.
“Moving forward, we urge Congress to continue to focus on small business issues by eliminating the uncertainty over taxes,” added Ms. Eckerly. ”If Washington wants small businesses to resume their traditional role as our nation’s job creators, Congress should extend all expiring tax rates, pass meaningful estate tax reform and repeal the 1099 reporting requirement.”
Amen.
So, don’t expect a lot of hiring from this law – the prediction 500,000 new jobs was unrealistic. It still is.
It doesn’t help the majority – small businesses struggling with poor sales, victimized by predatory lenders and hampered with credit issues. To the established companies with abundant capital, please accept my congratulations. But for all others, good luck! It will be an arduous process, but keep on trying. What other option do you have?
From the Coach’s Corner, here are related resource links:
What Should You Divulge When Asking for Investment Capital?
How to Attract an Angel Investor
Budgeting Basics for a Micro Business
12 Tips for Profits to Keep Your Business Dreams Alive
Step-by-Step Solutions for a Company Turnaround
6 Values for Financial Protection
“A bank is a place that will lend you money if you can prove that you don’t need it.”
-Bob Hope
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complementary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
WA Election Reminder: Business Issues to Ponder
Updated Aug. 17, 2010
Today is Washington state’s Primary Election Day. Be sure to vote.
Meantime, there are valid reasons why Washington state public officials’ pleas of poverty and and justifications for tax increases have fallen on the deaf ears of most businesspeople. The overwhelming majority of companies – large, medium and small – have had to resort to cost savings. But only recently in mid-2010 have state leaders finally admitted state government needs to be downsized by as much as 7 percent across-the-board in the wake of declining revenue and continuing forecasts of $3 billion deficits.
However, for years, many of us have warned about the state’s propensity to spend wastefully in the face of multi-billion- dollar unfunded state pensions and $3 billion deficit forecasts. Again this year, the Legislature bypassed voter protections on transparency, and raised taxes by $800 million. In the last decade, there have have numerous Biz Coach columns about court cases and shell games by public officials in violations of state spending limits. But we’ve been ignored by public servants, which infuriates the electorate concerned about economic health and job creation.
Ironically, there have been numerous published reports of fiscal waste, mismanagement and abuse. That means if efficiencies were ever implemented– including the best-practices in fiscal management recommended by the state auditor – there would be enough tax revenue.
For example, the state was overcharged $306,000 for supplies by Office Depot in 2009, according to the state auditor. But the state’s Department of General Administration denies it’s overspending. We have to wonder how badly the other agencies are misbehaving.
The contract with Office Depot is part of a $24-million deal that includes other state agencies, institutions of higher learning and local governments.
The agency is part of a list of other state agencies also in denial, especially the Department of Social and Health Services (DSHS), and the Washington State Department of Transportation (WSDOT) and the ferry system.
As a business-performance consultant who has solved the financial headaches of public and private-sector clients since 1992 – often by not even having to look at numbers – just observing people at work – I have also interviewed State Auditor Brian Sonntag.
As I’ve written before regarding public policy, I’ve witnessed tons of waste at DSHS, WSDOT and the Washington State Department of Personnel.
My sense also is that Mr. Sonntag is a stellar public servant, and I would point a finger at Office Depot for not adhering to the contract rates, as well as at the Department of General Administration for being lazy in due diligence.
This summer, we finally heard about the flawed worked of state employees that caused two freeway projects in Tacoma to be torn down and rebuilt. It resulted in $1.5 million in more waste and no accountability. That wouldn’t fly in the private sector at most companies.
Don’t forget about the KING 5 series on mega millions in waste and inefficiency in the state ferry system.
Also, I’d ignore the disingenuous arguments in the $2 million Initiative 1098 campaign to start a state income tax. An income tax would soak the rich – many of the very people who hire workers and make investments.
A state income tax has not helped two states where I spend a lot of time: Oregon and California.
An income tax here would send a negative message to prospective employers around the globe that might consider establishing a presence in Washington. Why would anyone want to harm our potential to grow the economy and create jobs?
Another thought: Should this income tax pass this year, state officials will find excuses to broaden the income tax to include middle-income taxpayers, too. Have you ever known a tax not to expand or even disappear?
Now comes the disingenuous allegation in two state reports claiming that voters should not privatize liquor sales because they would cause shortages. That’s bunk. Not only will we put a governor on the unfunded pensions of 1500 state liquor employees, the number of privatized liquor outlets will expand 10-fold. That enhances tax revenue — it doesn’t decrease it.
Please forgive me for being a tad gauche, but you’re best advised to consider all the government waste and mismanagement, as well as the candidates’ philosophies before going to the polls or returning your absentee ballot.
Courtesy of Enterprise Washington, here are two research resources:
- Reviewing candidates’ answers to the Enterprise Washington & WashACE Candidate Questionnaire, accessible through the GROW Voter Guides.
- Viewing incumbent candidates’ legislative voting records.
May Washingtonians decide on a business-friendly environment on Aug. 17 and in Nov.
From the Coach’s Corner, this Web site has more than 50 national and Washington state public-policy columns regarding the governments’ adverse impacts on the economy and business climate in this section.
SBA Web Chat: Tips on Healthcare Tax Credits
Aug. 4, 2010
If you need up-to-date information on healthcare for your small business, the Small Business Administration is holding a Web Chat. The SBA’s Web Chat will highlight small business health care, with a focus on how the Affordable Care Act will benefit small business owners through available tax-saving incentives.
Participants can learn about the newest tax credits they can take advantage of, and additional tax provisions to be implemented during the next several years.
John Tuzynski, chief of Employment Tax and Specialty Programs for the Small Business Self-Employed (SB/SE) Division at the Internal Revenue Service, will host the August web chat on “Healthcare and Small Business.”
SBA’s Web chat series provides small business owners with an opportunity to discuss relevant business issues online with experts, industry leaders and successful entrepreneurs. Chat participants will have direct, real-time access to the Web chats via questions they submit online in advance and during the live session, with instant answers.
WHEN: August 12, 2010, 2010, 1 p.m. ET. Mr. Tuzynski will answer questions for one hour.
HOW: Participants can join the live Web chat by going online to www.sba.gov, and clicking “Online Business Chat.” Web chat participants may post questions before the August 12th chat by visiting http://web.sba.gov/livemeeting/Aug10/ and posting their questions online.
To review archives of past Web chats, visit online at http://www.sba.gov/tools/monthlywebchat/index.html.
From the Coach’s Corner, however, please note these columns:
Healthcare Reform Increases Costs to Workers, Study
How Healthcare Law Would Affect Small Business
Oxymorons: ‘Healthcare Reform’ and ‘Public Servants’
How Much of a Hit Will Business Take from WA Legislature?
Updated April 2, 2010
While the Washington State Legislature dallies after yet another week of a special session, businesspeople worry about how they’re going to meet payrolls and pay their taxes.
Most lawmakers are oblivious to the desperate straits of business. They’ve eliminated transparency; suspended The Taxpayers Protection Act, Initiative 960; and they continue their unnecessary spending and taxing. They are unfriendly to employers and unemployment is astronomically high.
The net effect of their behavior: Theft of the average Washingtonian’s economic and political freedoms.
A perfect symbol is the embarrassment over the July 4th celebration near Seattle’s Lake Union. A longstanding fireworks display — a symbol of our freedoms – was in doubt this year because it was announced a sponsor couldn’t be found. Following the sad publicity and a concerted radio promotion begging for dollars, Microsoft and Starbucks each offered $125,000 in matching donations, and then smaller donors stepped to the plate. Thankfully, The Seattle Times was able to report a front page story, Donors save Seattle’s Fourth of July fireworks. Nevertheless, it’s a near black eye for the nation’s 13th-largest market, and still typifies the impact of the downturn from bad government policies.
The Legislature has not been discussing efficiencies to solve its $2.8 billion deficit. Instead, lawmakers have been debating how to raise taxes. They’re in the special session because Senate and House couldn’t agree on whether to hike the sales tax.
Otherwise, the House of Representatives’ version would nail businesses or their sales about $650 million in new taxes. That includes hiking the business and occupation tax by .25 percent on most service businesses to raise $201 million; $76.5 million in sales taxes on custom computer software; and $50.7 million in taxes on mortgages and community banks. The aggregate House tax increases would total $795.3 million.
There are a few differences but the Senate’s tax increases would total$818.2 million.
The good news is that the state’s Tax Freedom Day, April 15, is just around the corner. Coined by the Tax Foundation in 1948, Tax Freedom Day is the date that we stop working for local, state and federal governments. Coincidentally, it’s the deadline for filing federal tax returns.
The Tax Foundation says Washington has the fifth-worst tax situation in the country. In general, “…Americans will pay more taxes in 2010 than they will spend on food, clothing and shelter combined,” according to the Tax Foundation Web site.
Regarding the debate over who pays the most in taxes, Carl Gipson of the Washington Policy Center (www.washingtonpolicy.org), cites an analysis of tax burdens. It’s from the Council on State Taxation (COST) and Ernst and Young.
“As policymakers continue to exhort the need for businesses to ‘pay their fair share’ in taxes, it might be worth taking into consideration that business paying taxes to play fair is a bit of a misnomer,” he wrote in a recent blog. “Businesses don’t pay taxes. People do.”
Mr. Gipson says businesses do not receive benefits in proportion to their taxes. He asked: “What then, is Washington’s ratio of state and local taxes on benefits versus spending benefiting businesses?”
Not good.
“On the high end (assuming no education spending directly benefits businesses) our ratio is 4.1:1— businesses are taxed 4.1 times as much as they receive in benefits from government spending,” he stated. “The national average is 3.5:1.”
What about including the benefits of education?
“Even when assuming, on the low end, that 50 percent of education spending directly benefits business, Washington is still above the national average at 1.4:1 — the national average being 1.1:1,” he wrote.
“Even though 2009 was in the midst of the Great Recession for tax revenue, in Washington revenues were up 15.2 percent over 2005 levels in the amount collected from businesses and up 17.6 percent in the amount collected in total state and local taxes, which is pretty much along national trends,” he added. “Yet, even with these increases, Washington and most other states are facing the reality of making drastic cuts in spending, raising taxes, or both.”
So, the Legislature still dallies, violates transparency standards, deprives businesses and consumers of The Taxpayers Protection Act, and hikes taxes.
They learned a lesson after the 1993 tax increases, but they’ve forgotten. This Legislature will never be able to tax its way into a healthy economic environment and job creation. It’s time lawmakers head in a new direction, and stop the theft of economic and political freedoms.
From the Coach’s Corner, why don’t you get involved?
Enterprise Washington is an excellent place to start. They’ve got some terrific programs for businesspeople.
Transparency and Why WA Unemployment Rate Jumps to 9.5 Percent
March 16, 2010
Universal criticism of the Washington State Legislature’s failure to be transparent is validated once again as the state’s unemployment rate continues to climb – now at 9.5 percent.
The increase stems from another 8,300 lost jobs, including 3,200 in construction and 2,100 in business services.
The timing couldn’t be more symbolic during this national Sunshine Week. The unemployment rate dovetails with the declining transparency at the Washington State Legislature. It’s in a special session to finalize the state budget with seemingly countless tax increases following years of over-spending.
If it weren’t for the watchdog efforts of people like Jason Mercier, Washingtonians would be in the dark regarding the chicanery of the Legislature. Lawmakers have refused to implement efficiencies at the expense of a suffering electorate and business community. They’ve passed ghost tax bills and made many decisions in private, but have not accomplished anything to improve the state’s economy. Mr. Mercier, who is the director of the Center for Government Reform for the Washington Policy Center, has issued countless updates from Olympia.
As a result of the secrecy in passing numerous unnecessary tax increases and other dubious legislation, newspapers across the state are clamoring for good, open government in Washington state.
Here’s a sample:
A bad example of legislative ‘transparency’, Olympian
“In the waning days of the regular legislative session, Senate Majority Leader Lisa Brown, a Democrat from Spokane, claimed the Legislature is much more transparent than it was when she entered the Legislature. Brown is wrong . . .”
Sunshine and Clouds in Olympia, Kitsap Sun
“The bad news is that public access to information and hearings about legislation has been … challenging. There’s been a flurry of ‘title-only’ bills introduced and set for hearings, sometimes on short notice, and with no timely public information on their content. Members of the public deserve better than that — and if they want to get it, they’d better say so this fall to those who seek to represent them in the Legislature.”
It’s National Sunshine Week, but state’s transparency forecast remains cloudy, Longview Daily News
“Shutting down the Sunshine Committee less than three years after it was formed is as difficult to justify as that legislative exemption from public disclosure. It proved too much for legislators to pull off in the light of day. The Sunshine Committee was taken off the bill’s termination list — less than a week ago. Sadly, that remains this legislative session’s single accomplishment on behalf of government transparency.“
State government clings to double standard, News Tribune
“Is it any wonder that city and county officials clamor for relief from open meetings and records laws when they see their counterparts in state government behave as they do? State officials profess a belief in public disclosure. They’re just not sure it always applies to them. Lawmakers in particular hold themselves apart from the state’s sunshine laws. They caucus in secret for any reason and insist that their correspondence is somehow constitutionally protected from public dissemination. They also apparently reserve the right to skip public process in the interests of expediency.”
Public input? Who cares?, Everett Herald
“With increasing audacity, key state legislators are taking control from the people and seizing it for themselves. Amid the difficult process of closing a $2.8 billion budget shortfall, they’ve skirted, waived or ignored the public’s right to know what they’re up to and comment on it.”
And there others we can cite.
Meantime, Mr. Mercier offers some excellent solutions for transparency and the Legislature’s practice of passing ghost tax bills.
“Add the preamble of the state’s public records act to Article 1,” he writes. This would help re-enforce this transparency intent for any wayward court.” (See the preamble about the voters’ sovereignty.)
“Add a new section to Article 2 which would require 72-hour public notification before any bill could receive a public hearing, he adds. “While the requirement currently exists in legislative rules, it is often waived.”
Amend Article 2, Section 19 to prohibit title only bills. No public hearing or vote should occur on a “ghost bill.”
Amend Article 2, Section 22 to prohibit votes on final passage until the final version of the bill to be approved has been publicly available for 24-hours.”
He points out it would not be a stretch for the Legislature to be transparent and give the voters adequate notice before passing bills that affect their livelihoods.
“Florida’s Constitution (Article 3, Section 19) requires a 72-hour public review period for appropriations bills before they can be voted on,” Mr. Mercier explains. “Hawaii’s Constitution (Article 3, Section 15) requires a 48-hour review period before any bill can be voted on for final passage.”
Is transparency too much to ask? No. So, why don’t we tell lawmakers how we feel? Otherwise, the unemployment rate and the economic climate will remain unnecessarily unacceptable. Not to mention the theft of Washingtonians’ economic and political freedoms.
From the Coach’s Corner, here’s a link from Enterprise Washington to find your legislators’ phone number and email address.
Washington State Spending, Taxes – ‘Katy Bar the Door’
Updated March 7, 2010
Watch out. A desperate situation is at hand. The 19th century phrase, “Kay Bar the Door,” is applicable to the 2010 Washington legislative session. The Legislature is creating tax bills and is spending at a dizzying pace.
You mean it isn’t helping to create a strong, state economy and environment for job-creation while facing a $2.8 billion shortfall? No efficiencies anywhere? What about the reports of mismanagement, poor results revealed in performance audits, and hundreds of thousands of dollars in state-employee bonuses?
Well, let’s consider:
- At least one formal hearing has been scheduled sans a 24-hour notice.
- Sen. Rosa Franklin, D-Tacoma, introduced an income tax bill, SB 6250.
- A ghost tax bill was introduced (that’s right, no text – it was blank).
- The Senate wants to raise $918 million with a sales tax increase of three-tenths of a cent to 6.8 percent.
- Senate Majority Leader Lisa Brown’s income-tax proposal on the fall ballot and would reduce the proposed new sales tax by one cent. It would put an income tax of 4.5 percent on many job-creators – individuals earning $200,000; heads of households making $300,000; married couples would face a new tax if they earn $400,000.
- Imposing a sales tax on out-of-state businesses and consumers who buy Washington products.
- Imposing a surcharge on auto insurance.
- Hitting out-of-state financial institutions with a business and occupation (B&O) tax.
But that’s not all – not by a long shot.
Of course, you know Gov. Gregoire signed into law the bill that “temporarily” repealed The Taxpayer Protection Act, Initiative 960. That’s a clear rejection of voters’ wishes. Three times voters have formally stated their wish for tax protections. But again, the Legislature does not have to pass tax bills by a two-thirds margin. It also removes transparency for voters about taxes they’re forced to pay.
Personally, I don’t mind taxing out-of-state credit card companies with a history predatory interest rates and fees for bogus reasons. They’re domiciled in states permitting predatory behavior that was not retroactively rectified in a credit-card protection bill passed by Congress. The predatory practices are a major reason small businesses have poor credit.
However, it appears an income tax that only hits the wealthy is unconstitutional. It would require approval by voters and a two-thirds majority in the House and Senate. But a Seattle Times report indicates Senate Democratic leaders are hoping to bypass the required two-thirds vote in the Legislature because they know they can’t overcome the Republican opposition. If they’re successful in another end-run around legal checks-and-balances, of course, lawyers will get involved.
The Democrats’ idea is patterned after a 2010 voter-approved measure in Oregon, which hiked income taxes on individuals earning $125,000, households making $250,000, and on businesses.
However, unlike Washington, Oregon does not have a sales tax.
Lawmakers lax on major revenue source
Considering Washington relies heavily on sales taxes from vehicles, the Legislature is incredibly uninformed.
For example, a sales tax on Oregon and Alaska businesses and consumers will discourage commerce in Washington and threaten the livelihood of the state’s businesses and will worsen the state’s already-weak jobs situation.
Secondly, when buyers stop shopping in Washington, state businesses will pay reduced B&O taxes to the state.
A new tax will especially impact the sale of big-ticket items. Ask any Washington commercial-truck dealer if they have out-of-state customers. Their answer will be yes.
They’re already concerned their sales are down. What’s worse, relatively few have the cash flow to advertise now – ask any media advertising salesperson. During good times, the auto sector is the No.1 advertiser on radio and television. Even Honda dealers have had to lay off employees. (Disclosure: I’m very familiar with the auto sector. My firm formerly had auto dealer clients who advertised on radio and television. A regional truck dealer has an ad on this site.)
Out-of-state businesses come to Washington to buy fleets of trucks because the quantity and selection is superior. Privately, one dealer confides that some buyers travel 3,000 miles to Washington to buy commercial trucks. So they patiently wait for the economy to improve.
However, it’s also well-known that Washington state car buyers journey to Idaho for savings and to avoid paying high sales taxes by buying from Dave Smith Motors – a high-volume car dealer who advertises heavily in an in-your-face style on Seattle radio stations.
The dealer’s slogan: “Serving the Pacific Northwest and Beyond Since 1965,” and on its Web site it boldly states: “We cannot sell any NEW vehicle for Export or Resale.” The hint being that Washington car dealers could get a better deal in Idaho, too.
In fact, the dealer is the world’s largest Dodge, Chrysler and Jeep dealer, and is a leader in sales of General Motors cars and trucks.
The sales tax for the metropolitan King and Pierce counties is 9.6 percent. Idaho only charges a 6 percent sales tax, which is shared with cities’ coffers, and the state affords a lower cost of doing business.
Bad planning
Moreover, the budget ramifications for Washington state:
- No B&O taxes are collected
- Reduced sales taxes because after making a purchase, motorists drive over the state line to Washington where they can register their vehicles in less-populated counties to save 1 to 3 percent on their vehicle’s sales tax.
The Legislature is behaving unproductively in another matter. Adversely affecting dealers and consumers, alike, the Senate wants to halt another major car-buying incentive – the long-time tax deduction for used-car trade-ins. In other words, the Senate wants to tax motorists at both ends – when buying and when selling a vehicle.
Incredibly, lawmakers insist on staying in the liquor business – is liquor a core state service? The state employs 1500 liquor employees and taxpayers are saddled with their costly pensions.
At best, the surcharge on car insurance is disingenuous. “Perhaps if the Legislature hadn’t raided the account the funds would be available for the use intended – preventing auto theft,” says Jason Mercier of Washington Policy Center.
FYI, if it weren’t for the tireless efforts of Mr. Mercier, much of the Legislature’s chicanery would not come to light. It’s a full-time job making sure there’s transparency. Many lawmakers are doing their best to make certain Washington does not have an open government.
The Legislature also wants to heavily tax candy – in the aggregate, a big state employer. Simply consider just one heritage state company, Brown and Haley, an employer of 250 workers but is in the midst of financial woes even without a burdensome sales tax.
Other sin taxes include a 500 percent increase on cigars, but gives favored documented treatment to Tribal smoke shops.
Let’s not forget the stifling new tax on bottled water.
Some lawmakers want to double the death tax.
And others want to triple the tax on gasoline and diesel as hazardous or toxic but they won’t use the revenue for badly needed road repairs or construction. Meantime, Washingtonians will undoubtedly pay even more for fuel.
Meantime, nothing has been done about the state’s bloated payroll and associated costs. Ask any employer if they are able to pay 88 percent of health insurance, or if their retirement plans can compete with the state pension system. The answer will be no. Don’t forget the Legislature is tardy in plans to fund $7.9 billion in retiree health benefits.
That sums up the debacle pretty well – continued spending, boundless chicanery in violating transparency standards, unsatisfactory performance audits, mismanagement and stifling taxes. Nothing has been accomplished that will strengthen the state’s economy or create jobs. In fact, it can be easily concluded that the 2010 legislative session has resulted in a sharp decline of voters’ economic and political freedoms.
From the Coach’s Corner, to stay informed, here are other sites you’ll find helpful:
- Washington Policy Center, www.washingtonpolicy.org
- Enterprise Washington, www.enterprisewashington.org
- Association of Washington Business, www.awb.org
- Washington State Auditor’s Office, www.sao.wa.gov
- Washington Votes, www.washingtonvotes.org
How Enterprise Washington Helps State’s Businesses
Feb. 28, 2010
In trying to solve a $2.8 billion budget shortfall, Washington state lawmakers have been debating the wrong issues. Instead of debating whether to increase the sales tax or to eliminate tax exemptions for industries, lawmakers would better serve voters if they dealt with the core issue.
The core issue: Developing a healthy economic climate with public policies that help – not hinder creation of private-sector jobs.
Most businesses have had to significantly cut payroll – 175,000 jobs were lost in two years. However, instead of being good stewards of taxpayer assets, many public officials are frantically looking to spend money and generate more tax revenue. The only jobs the state helps to create are government jobs that exacerbate the economic climate.
Worse, state pensions are 74 percent higher per person compared to the private sector. And the Legislature has failed to fund at least $7.9 billion in healthcare and pension liabilities – a financial time bomb set to explode.
Thirty percent or more of your business headaches are caused by onerous government regulations and taxes.
These and countless other issues hurt the economy.
However, there is hope. At the grass roots level, Enterprise Washington (EW) is an organization effectively clearing the air. They know a strong economy will create jobs in a way that helps the environment.
In essence, the EW folks understand the core issue, and they are recruiting and helping business-friendly candidates get elected to office. I recently met with the group’s principles at their Issaquah office and walked away with favorable impressions. And what’s really neat is that they understand it’s important to be open-minded. They recruit both Democrats and Republicans.
It was refreshing to hear the insights of EW President Erin McCallum.
My sense is that you’ll want to know more about EW. Here are Ms. McCallum’s answers to my questions:
Q: What is your success rate?
A: Since EW’s formation in 2007, there are seven more business-friendly lawmakers in Olympia.
Five GOP include: Sen. Randi Becker, Reps. Kevin Parker, Jan Angel, Bruce Dammeier and Terry Nealey.
Two Democrats: Reps. Reuven Carlyle and Scott White.
EW was instrumental in five of the seven victories (Becker, Parker, Angel, Nealey and Carlyle).
In each of these races, EW either identified and recruited the business person or ran a significant independent expenditure campaign that helped educate voters about the candidate who was the stronger champion of the economy and the health and sustainability of Washington’s private sector.
Q: How would you describe your mission?
A: Recruiting, training and electing business-minded state lawmakers.
Q: You have different organizations under your wing?
A: Yes we do. EW, the mission is described above and EW’s Jobs PAC which is a 527 political action committee. There is also a legally separate 501 (C)(3), charitable organization called Business Institute of Washington. It is an educational resource for our communities that helps Washingtonians gain a stronger understanding of the significant role our lawmakers play in establishing laws that govern our state.
Q: Please describe how they’re structured cohesively.
A: EW is legally organized to influence the outcome of elections in key districts (C-6, membership organization, and a 527 political action committee). EW has established these separate entities to accommodate the different reporting requirements for various political expenditures.
As a result of the economic downturn and what a majority of the public sees as government spending run amok, the current political climate is favorable for pro-business/anti-tax candidates. Business has an opportunity to capitalize on this shifting political climate during the 2010 election cycle.
Q: Briefly, what is the history of your organization?
A: EW grew out of an old business political action committee, United for Washington. We developed our business model using best practices from business communities in other states, and taking examples from currently successful players in Washington state politics.
Our research has unveiled that successful special interest groups in Washington state have not been friendly to private sector business for some time.
Q: How would you describe the state of politics in Washington?
A: The political stage was set many years ago for what’s happening in Olympia and state government today. For decades, special interest groups outside of the business community have worked tirelessly in recruiting candidates who will champion their issues and helped get them elected. Our state’s current political climate augurs opportunity for pro-business candidates – Democrat and Republican, alike. And with the new top two primary, business-friendly Democrats are viable again.
Here are some examples of how other special interest groups operate in our state, and how the private sector community has assisted in bringing them to power:
Organized labor has done an incredible job in helping to elect candidates to champion their issues in Olympia. Organized labor, with SEIU largely driving the effort, has been effective in politics by winning one race at a time. Their efforts have paid dividends for them on shaping public policy.
Other special interest groups such as the Trial Lawyer Bar, WEA, Firefighters, etc., make sure contributions get funneled to close races, usually to Democrat candidates. When business contributes to both parties (often to gain political access) a significant portion of contributions made to Democrat leaders are transferred to competitive races and used against pro-business candidates. Organized labor has been able to rely on a pro-union majority in both the House and Senate to protect its interests.
Q: How many members or supporters does your organization have?
A: EW currently has about 250 members representing businesses from all across the state in a broad range of industries. This year, we are currently in a drive to double our membership. Any of you who are business owners and who care about the future of our state, please join us by visiting www.enterprisewashington.org and become a member.
Q: A lot of voters think of business-oriented people as Republicans-only, but you have the vision to be nonpartisan. Please describe how and why you decided on the nonpartisan approach.
A: Business issues do not necessarily cut clearly across political party lines. Also, given our state’s demographics and increase in population, we recognize that voters in this state are fiscally conservative, socially progressive. With Washington state’s two political parties tending to lean more to the extreme we look for balance and middle ground.
Q: What’s your criterion for a political candidate?
A: Our state is quite diverse, so the ideal candidate can vary quite a lot depending on the location of the district. Having said that we are looking for business people, both employers and more likely employees, who have strong experience in the private sector and can bring their expertise to the state lawmaking process.
Q: What’s on tap for your association?
A: We are in the midst of a $1.6 million campaign for Washington’s private sector and invite everyone in business in this state to get engaged through EW membership. Unlike public employee unions that can collect political contributions through the monthly dues process, EW must appeal to the greater business community, those who have the most at stake, to make our programs succeed.
Please go to www.enterprisewashington.org and become a member today! Through membership, you can help elect more business minded state lawmakers who will understand and support public policy that supports private sector jobs.
Q: What else would you like to add?
A: The business community has a choice to make: either get involved and help elect more business friendly lawmakers or face steeply higher taxes. EW is the only organization in Washington state that is tackling the political landscape with the goal of making significant positive changes to the makeup of our state legislature. Democracy is not a spectator sport so join EW today! Having strong elected lawmakers who understand that it’s the private sector that creates jobs and turn builds healthy and happy communities.
From the Coach’s Corner, here’s more on upcoming state-government developments:
To identify state efficiencies and savings, Washington State Auditor Brian Sonntag has announced his performance audit work plan.
Why You Can’t Get Work or Hire Workers
Are you one of the countless baby boomers who is relying on Social Security before you reach retirement age? You’re not alone. The dearth of jobs has prompted many Americans to accept lower Social Security payments at the age of 62. This means Social Security is forecast to start paying out more in benefits than it receives starting in 2017.
The Labor Dept. says some 2.7 million Americans will lose their unemployment parachute checks near the tax-filing deadline of April15. About 6.3 million folks have been out-of-work for six months or longer.
The government believes 15 million people are jobless. That’s only an estimate. It doesn’t include the high number of self-employed people desperately taking independent contractor projects because they can’t find jobs, or the under-employed taking temporary jobs.
These numbers also jurt job creation. Higher unemployment rates charged to business by government is a disincentive, too.
After having worked through 6 major economic downturns, my analysis of the data and the trends is that the real unemployment rate is about 25 percent. That’s depression-like, not recession-like numbers.
A recent study proves it’s getting worse for American workers. The Center for Labor Market Studies at Northeastern University in Boston sums up the problem in its study’s subtitle – “A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent.”
For the nation to catch up, most experts believe 100,000 new jobs need to be created every 30 days. But veteran pragmatists know it won’t happen. Count me as one of those.
The job drought is not a new phenomenon in the sense that it’s been years in the making. The federal government began tracking the number of unemployed in 1948.
Many jobs have not and will not return. Not to over-simplify, institutional investors own increasing numbers of companies. Largely, they extract profits by slashing payrolls and encouraging offshoring of jobs in Latin America and Asia where labor is cheaper.
Since 2000, automation is responsible to cutting 5.6 million jobs.
After each recession since 1970, job-growth rates have decreased. Published reports indicate that even before the Great Recession, it was less than one percent a year and was only 2.4 percent in the 1990s and 1980s, according to the Labor Department figures.
Based on trends following recessions, I’m in agreement with economists who forecast it will be at least five years before the unemployment rate returns to more palatable levels – hence, the term, jobless recovery. Even then, I’m not sure it will happen.
Historically, consumer spending has been a key ingredient for economic recovery. But that won’t happen unless there’s a fundamental economic change.
This also means the tax revenue pie for governments at all levels will remain flat.
For good reason, Americans have returned to 1930’s money values. They’re becoming tight-fisted with their money and are demanding government accountability.
The housing bubble resulted in a high volume of excise taxes, but the high rate of foreclosures alters that scenario.
Talk to anyone who checks credit for consumers or small businesses. The aggregate level of bad credit is huge –largely caused by the predatory behavior of big lenders. They’ve nearly destroyed the livelihoods of small businesses with mega interest rate hikes for bogus reasons.
Small business has historically has been the main job-creation engine, but no more.
Small businesses do not have the financial firepower expand and create jobs. New credit card legislation does nothing to correct the injustices.
Instead of focusing on helping business, government at every level, is hindering the economic climate. Economic and political freedoms are being stolen each day by bad government policy (See this site’s other Public Policy columns). The largest employer in many communities is government. Public-sector agencies are still growing, not laying off, while spending and taxing at ever-increasing levels. For the common good of all Americans, change is needed.
Businesses and consumers can no longer afford the status quo in taxes. Government must reform.
From the Coach’s Corner, effective on Feb. 22, 2010, here is the essence of the credit card law:
- Credit card companies cannot increase the rate in the first year until the introductory rate expires. The banks must give 45 days notice to change the rate.
- Unless two months past due, rates can’t be changed.
- The original interest rate must be granted once payments are on time for six months.
- The fine print will be easier to grasp.
- Activation and annual fees can’t exceed 25 percent of the credit limit in the first year; and will be unlimited after 12 months.
- Credit card statements must be sent three weeks in advance.
- Transactions can’t take place over the credit limit unless the cardholder agrees.
- The “universal fault” nonsense (if you were late one day on one payment, the other credit card companies jacked up your rate) is stopped and interest rates on existing balances must stay the same (see No.1).
- Companies can’t give students or anyone under 21 a car unless she/he has a co-signer or the autonomous ability to pay statements. Schools have to make public any credit-card marketing deals, and companies cannot stage publicity or giveaway events on or near campuses.
