American Forum Op-Ed

AMERICAN FORUM

By Frank Knapp, Jr.

Economic reports show that most job growth in our country this year has come from small- and medium-size businesses. That trend will only accelerate, according to the recently released Small Business Index from the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business.

Nearly 3.8 million new jobs will be created by small businesses with fewer than 100 employees in 2011, says the report. That will be enough alone to lower the U.S. unemployment rate by 2.4 percent. The survey, conducted in January, also found that only 2 percent of small businesses planned to lay off workers.

Major health insurance companies nationwide are reporting dramatic increases in small businesses offering health insurance to employees. This reverses a trend for small businesses dropping insurance because of affordability.

This is not what opponents of health-care reform told us would happen if Congress passed the Affordable Care Act (ACA). They warned us strenuously before the ACA became law March 23 of last year that small businesses would not only stop hiring out of fear of the future but would begin laying off workers because of anticipated new taxes, fees and health-insurance mandates under the ACA. Small businesses also were supposed to start dropping health insurance because the ACA would drive up premiums. These dire predictions continued right up until last year’s November elections.

Fortunately, the gloom and doomers were wrong. Those of us who supported the ACA have tried valiantly to put out more realistic predictions about how the ACA was going to help small businesses. There will not be new taxes, fees or health-insurance mandates for small businesses with 50 or fewer employees (approximately 96 percent of all businesses). However, most of the mainstream media preferred to report on the negative tea-reading.

But now the good news for small business is rolling in and the positive future effect of the now 1-year-old ACA is becoming clear.

More than four million U.S. small businesses with fewer than 25 employees are eligible to receive health-insurance tax credits under the ACA. That’s 87.3 percent of all small businesses in the country that the ACA can help by making health insurance more affordable.

As for the ACA dramatically increasing the cost of health insurance, a senior vice president at Harvard Pilgrim says that the federal law has only increased premiums by 1 percent.

The ACA is helping small-business owners who have been locked out of health insurance because of their own pre-existing condition. Right now, these entrepreneurs are eligible for affordable coverage from new high-risk pools established under the ACA.

This year, the ACA is requiring that at least 80 percent of every premium dollar being paid in small group health insurance plans is actually paying for medical costs -- not marketing, CEO salaries or profit. If not, the policyholder is owed a refund.

These benefits for small business are in place now.

Today, small businesses are paying as much as 18 percent higher premiums than big businesses. This is a result of higher administration costs for small groups. In 2014, this extra cost is eliminated, so small-business employees, along with individuals, will be able to purchase their coverage from the new health insurance exchanges in each state.

A small business with only one employee with a pre-existing condition finds itself priced out of the market or paying highly inflated premiums. In 2014, health insurance companies will no longer be allowed to charge higher rates because of pre-existing conditions.

And because no one will be denied health insurance because of a pre-existing condition, aspiring entrepreneurs will no longer be locked into a job because of health-insurance benefits. As a result, ranks of small businesses should expand.

The one year anniversary of the ACA is truly something small businesses should celebrate for what it has already done. The future will be even better.
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Knapp is president and CEO of The South Carolina Small Business Chamber of Commerce and serves on the steering committee for the American Sustainable Business Council.
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Copyright (C) 2011 by American Forum. 3/11

AMERICAN FORUM

By Brian Setzler

As a Certified Public Accountant and business owner, I know the impact of taxes up close and personal. And the claim that ending Bush-era tax cuts on income over a quarter of a million dollars will hurt the economy, reduce employment and burden small businesses is patently false. Let’s take a look at the evidence.

First off, small business owners rarely have taxable income in excess of $250,000 (gross income would be substantially more as taxable income includes reductions for business expenses, personal deductions and family exemptions). Hiring people and investing in your business actually reduces taxable income, so hiring and investing decisions would be unaffected. At issue is the tax on income, or the money the owner has available to take out of the business.

According to the Congressional Joint Committee on Taxation, less than 3 percent of tax filers with any business income make over $250,000 (couples) or $200,000 (individuals) a year, the thresholds above which the Bush tax cuts would expire, and many of those are not small business owners. As Ed Kleinbard, former staff director of the Joint Committee on Taxation, said, “Every student who is a part-time Web designer, partner in a law firm with a billion dollars of revenue and investor in a hedge fund gets lumped together in the data, along with real small businesses.”

Even if someone does have over $250,000 of taxable income, the additional tax rate is a marginal tax rate, which means they only pay the higher rates on the portion of income over $250,000, not under it. When the rate goes from 35 to 39.6 percent (back to the level under Clinton) in the very top bracket, for example, it doesn’t mean they pay 39.6 percent of their total income in taxes any more than they paid 35 percent of their total income before. They still start at a 10 percent rate for their first portion of income and work their way up incrementally through the tax brackets. They still pay the same rates everyone else does up to that level of income.

Those fortunate enough to make these high incomes will still benefit from the tax cuts on their first $250,000 of income, just like other Americans. The amount at issue is 3.9 percent or $39 for every $1,000 of income above $250,000. You can check out your own tax situation with the calculator at the non-partisan http://calculator.taxpolicycenter.org/ to see how you might be affected.

When someone claims a small businessperson will pay additional taxes of $20,000, that small businessperson must have taxable income in excess of $700,000. If they claim they’ll pay $120,000 more, they have an eye-popping “small business” income of $3 million. Sounds more like a hedge fund manager to me.

Small businesses are crucial job creators, but if lower tax rates produced job growth, we should have seen a boom in new jobs following the tax cuts. Instead, even the Wall Street Journal, not a bastion of liberal economic policy, said President Bush “shows the worst track record for job creation since the government began keeping records in 1939.” In fact, it’s much worse than under President Clinton who increased taxes. As a new report by Business for Shared Prosperity explains, “The Bush administration created just 1.1 million jobs net while the Clinton administration created 22.7 million.”

The choice is stark. Do we borrow $700 billion from China as we did this past decade to pay for tax cuts for hedge fund managers and Wall Street barons -- irresponsibly burdening our children with repaying, a debt with interest we don’t need to incur?

Do we make deep cuts in social services, education and public safety and forgo investing in the 21st Century infrastructure we desperately need to be competitive?

Or do we do the right thing and ask fellow citizens with really high incomes to pay their fair share? These are real choices our Congressional representatives will make in coming days.

Let’s tell Congress that investing in the infrastructure our businesses and well being depend on, educating our children, caring for the sick and the elderly, and investing in the future are what made America great in the first place.
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Setzler is a certified public accountant since 1989 and president and founder of TriLibrium, an accounting and business advisory firm located in Portland, OR.
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Copyright (C) 2010 by the American Forum. 11/10

AMERICAN FORUM

By Rick Poore

A good friend and fellow businessman once told me, “Give me more customers and I’ll be forced to buy equipment and hire people to meet demand. Give me a tax break without more customers and I’ll just go to Aruba.”

Ending the Bush tax cuts for the wealthiest taxpayers is the right thing to do for small businesses. I’ll say that again: it’s the right move for small business. Let me explain.
I consider myself an example of an average small business owner in Nebraska. I have 30 employees. My business does $2 million plus in annual sales. My personal income as the owner is less than $85,000 a year.

It’s a comfortable living, but ending the Bush-era cuts on the top two brackets won’t come close to impacting me. And it won’t impact the other small business owners I know, either. The top brackets won’t kick in until your taxable income is over $200,000/year for individuals and $250,000/year for couples, and they’ll only apply to the portion of your income above those amounts, not below them. Less than 3 percent of taxpayers reporting any business income (not limited to small business income) earn enough to break into the top two brackets.

But that’s not all. That 3 percent figure includes Wall Street hedge fund managers and K Street lobbyists whose income is reported as business income on their personal tax returns. Not exactly what you’d think of as small businesses, or our nation’s job creators.

Last time I checked, Wall Street types and their K Street friends had driven the economy into a ditch the size of the Grand Canyon and killed over 8 million jobs. Do they really deserve another tax giveaway to reward their efforts?

The idea that ending the Bush cuts for the top brackets will hamper small businesses’ ability to reinvest is a complete red herring. Any true small business that ends up with more than $250,000 net profit flowing through to the owner at the end of the year needs to hire a better accountant and rethink its business plan.

Let’s use me as an example. I gross a lot in sales, sure, but I’m busy reinvesting that money back into my business – buying equipment, promoting my business and hiring more workers. The dollars I reinvest don’t pass through onto my personal tax return so I don’t care if that rate changes a little bit, and neither do the millions of other true small business owners in this country.

Despite all this, some politicians continue to recycle the tired old myth that a small change in the top brackets will hurt business owners’ ability to reinvest in our businesses. There are two possible explanations for this.

First, these politicians have never been close enough to a small business to learn how our taxes actually work. We’ll call that an accidental sin of ignorance. A simple cure is to get out and meet some small business owners in their home states and hear about our day-to-day operations.

Second, some politicians are playing fast and loose with the facts. They know better, but they just don’t care. That’s intellectual dishonesty – a different kind of sin. Not much I can do to help there.

The bottom line is small businesses don’t need another tax giveaway. What we need are policies that restore our customer base by getting people back to work in our communities and putting money in their pockets to spend in our businesses.

Ending the high-end tax cuts would free up close to $40 billion in 2011 and $700 billion over the next 10 years to invest in job creation and rebuild our customer base. That’s what small businesses really need.
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Poore is owner of Design Wear, Inc., a custom screenprinting business with 30 employees in Lincoln, Nebraska. He serves on the steering committee of the Nebraska Main Street Alliance.
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Copyright (C) 2010 by American Forum. 10/10

AMERICAN FORUM

By Frank Knapp Jr.

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Knapp is president and CEO of The South Carolina Small Business Chamber of Commerce.
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Copyright (C) 2010 by American Forum. 7/10