Taxation as Self-Flagellation

The two things to understand about our economy are American entrepreneurs and small business owners create wealth where wealth does not exist. They expand the wealth pool of all Americans, not just themselves. By expanding America’s wealth pool they increase America’s tax base. Therefore by creating policies that get our best producing businesses feeling confident about the future we solve all sorts of problems not least of which is job creation and the containment of our destabilizing deficits.

The second thing we need to understand is Americans are longing to feel good again. We want our mojo back. We will not feel good again until we are economically secure. We will not be economically secure until we are all working.

Yet, there are those that are fixated on a different path for small businesses: taxation as self-flagellation. They believe if we continuously demand businesses and entrepreneurs to flog themselves with more taxes and excessive regulations, this will lead to some kind of repentance for their success, letting them attain economic and social purity. This self-punishment of our small businesses does not make us stronger; it makes us weaker. Sadly it is the failure comprehend this by those in power that will ensure job creation in America was something that happened once upon a time. There has never been such a dysfunctional relationship between the American government and our businesses.

President Obama finally seems to understand his political legacy lies in the hands of America’s small businesses. If they continue to suffer and do not begin to hire, the President’s coin in 2012 will be greatly devalued. There is no road to the White House without job creation and there is no job creation without a vibrant small business community. Small businesses over the past decade have generated over 70 percent of new jobs. Their health is essential to our economic recovery.

Unfortunately for the American people the only thing accomplished in the lame duck session of Congress is prolonged uncertainty and fear which are the antithesis of confidence and growth. The temporary extension of the tax cuts does not give our entrepreneurs and small businesses any reason to invest.

If the Democrats win in 2012 and the tax cuts are eventually scrapped altogether or even if they are made permanent for those making under $200,000, it will be devastating. The result will be a massive tax increase on tens of thousands of our most productive small businesses who are taxed on personal income rates. Although on paper these businesses may show seemingly healthy profits, these profits are based on accrual accounting. A tax event occurs upon invoicing not when cash is received which could be several weeks later. A small business on paper could be making $500,000 but don’t have two nickels in the bank as their financial resources are tied up in inventory, receivables, work in process, technology, machinery and countless other things.

This means they will either need to borrow money to pay taxes, assuming they can find a bank willing to lend them, or they will need to shrink their business to free up capital to send to the IRS. Both choices are job killers.

President Obama will try and make the case that he supports small business, but you can be sure that this rhetoric won’t match his actions. It’s only a matter of time before his progressive base moves him back toward permanently scrapping the tax cuts. So while he says he supports small business, he will be vigorously campaigning against them.

Our small businesses and entrepreneurs want to get back into the game. They understand we will not fix our problems in a day, a week, a month or even a year. However we can make great progress with just one statement from our President.

He needs to stand at the podium and say with passion and conviction these simple words “I get it. We cannot grow our economy while operating in a state of fear and uncertainty over taxes, regulations and excessive government. From this day forward I will work to reduce these job-killing, economy-busting impediments”.

If President Obama is unwilling to say these words, then for the sake of our country we need a President who will. It’s time for the flogging of small business with taxes to stop, and to give them the stability, certainty and relief they need to create jobs. Let’s not beat ourselves up, let’s beat out our global competitors with a robust economy that restores our competitive edge.

One Response to “Taxation as Self-Flagellation”
  1. In your last comment you described the fact that tire manufacturers had “quit the field” in manufacturing lower cost tires because there wasn’t enough profit so, they imported the “cheap” tires from China. This is a prime example of companies (that are citizens of the U.S.) choosing to support foreign manufacturers and as a result create jobs overseas instead of using our ingenuity to solve the problem of profitability on a lower cost item. Manufacturers owe at least a minimum loyalty to their employees and, if only to avoid layoffs and maintain the economy, wouldn’t it be more desirable to manufacture those low cost tires in the USA thus maintaining job levels and avoiding layoffs even if profits are marginal ? The “premium” tires can still be manufactured and still be profitable.

    I support profits and the creation of jobs by entrepreneurs, but entrepreneurs do owe a certain loyalty to the society that allows them to create their companies. This society is certainly not a simple one. The solutions to its problems will not be simple either……..

    Guys like you that keep on thinking are assets… Keep it up….

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