Small Business Economics…Stunted

Life, Liberty, and the Pursuit of Happiness

I started the growth and expansion of my business at the start of the 2009 recession.  Americans, filled with fear, were becoming accustomed to the state of the economy and what had become our new normal.  The SBA (Small Business Administration) and banks drastically tightened their available loans.  In the first quarter of the 2009 fiscal year, the SBA’s 7(a) program dropped 57% compared to the first quarter of 2008! [1]  In fact, my loan and one other were the only two loans that were accepted in a local Minneapolis, MN bank in a period of 8 months!   

Things haven’t changed much.  As of March of this year, total SBA approved loan volume was down 35%, or $4.8 billion.[2] To make the situation worse, the day before I moved into my new and beautiful salon build-out, the entire business district across the street burned to the ground from a kitchen fire.  “Welcome to the neighborhood!”

Surviving

It’s been 3 ½ years since this journey began and we are fully staffed, producing products and surviving.   I am constantly taken back to the reality of the costs, regulation and taxes.  Just like parents never expect the real costs of having a family, a new business owner is never fully prepared for the financial burden.

Tax Time

One time of the year that is despised by many business owners is the first few weeks in April (tax time).  We break out the checkbook and submit a very hefty payment to Uncle Sam.  This is because most small businesses file as S-Corporations, so their business income funnels directly to their personal taxes.  When Congress makes changes to personal tax rates, it is a direct tax on small business.  In the current economic crisis, increased taxes alone can stifle and put small businesses out of business.   This will be especially true if the Obamacare Mandate “tax” is allowed to continue.

Note that the National Association of Manufacturers President stated, “Escalating health care costs are job killers, forcing manufacturers to pay more in premiums rather than investing in their business and creating jobs… it is essential that Congress repeal the law and replace it with reform that benefits manufacturers and their employees.”[3]

Small Business Tax: Hard Numbers

Here is an example of what a small business owner pays:

• 7.15% of ALL employee payroll for FICA (payroll tax)
• 36% of ALL profits (including employee wages) in Federal Income Tax
• 7.95% of ALL profits in State Income Taxes

This means that over 51% of all profits to a business owner are paid in personal taxes, and there are tons of taxes beyond this. MN has a sales tax, car tabs, licenses, industry licenses, shipping taxes on goods, service taxes, cost of goods, shipping fees, etc. “Get it?”  Increased tax costs for businesses restrict the ability to grow and create jobs.

Drop-Off Ahead – A Nail-Biter

As I grow eager to grow my business by hiring more employees, producing more products and eventually opening another salon, I am even more fearful than I was when this recession first started because of the fast approaching “fiscal cliff” – straight ahead.

Over 40 consecutive months of 8% or more unemployment has flattened hopes for the “Recovery” Obama has been claiming.[4]  The U.S. economy created just 96,000 new jobs during the month of August.[5]  Although the number of jobs needed to keep up with population growth is not easy to calculate, that number is easily well over 100,000 new jobs needed every month.[6]

What is even more tragic is that more workers joined the government’s disability program than got new jobs in the month of June.[7]  Obama’s administration may be blind to this, but the American people know it is definitely not a sign of recovery.

Struggling companies will continue to shed their employees through the end of the year.  The end of 2012 will also bring a flurry of federal tax increases as the Bush tax cuts and temporary payroll tax reductions expire.[8]  A number of major tax-and-spending changes will take effect unless Congress acts. To top this off, the looming Obamacare “tax” will be the largest tax American history has ever seen!

It’s a Spending Issue

Reducing federal spending is critical to businesses and to our nation’s future.  The President should be leading our country in the opposite direction by giving employers and individuals the assurance that these tax hikes will be halted in their tracks.  In contrast, Obama’s 2013 budget calls for another $2 trillion in tax increases![9]  It’s apparent he has NO plan.

We must act now; the longer Congress waits to prevent Taxmageddon, the more uncertainty there will be.  Policymakers must be held accountable – they need to act quickly to lower taxes on individuals and businesses, simplify the tax code, and reduce bureaucracy. It has become clear that the President cannot lead, and the Democratic-Party-led Senate will not act.  The House of Representatives has repeatedly voted to fix these problems to no avail.

If you are a business owner, know that this nation cannot exist without you!  Share this article with your friends and business network, and join ACEF to change the direction of the United States of America – one person at a time.