Yes, Taxes Matter

Various politicians and policymakers seem to still think that taxes don’t matter. That is, taxes can be increased or be noncompetitive, and there simply will be no downside in terms of entrepreneurship, investment, business and jobs.

Just look at the current race for the White House. Democratic Party candidate Barack Obama plans to hike personal income tax rates on upper-income earners – including many entrepreneurs – along with higher tax rates on capital gains and dividends. Obama also mocks Republican candidate John McCain’s proposal to reduce the corporate income tax rate from 35 percent to 25 percent.

Somehow, Obama thinks his tax agenda will be beneficial to the economy. From an economist’s perspective, how that might be the case remains a mystery. In reality, the Obama tax plan will raise the costs of working, investing, entrepreneurship, and generally doing business. That’s bad news for the economy.

Just in case one still needs an example of what noncompetitive taxes can do, look at an article in the Business Section of today’s (September 5) New York Times. The piece, written by reporter Julia Werdigier, is titled “British Companies Emigrating Over Taxes.”

The report notes various British firms that are picking up and leaving Great Britain due to high taxes, and tax uncertainty looking ahead.

Consider the following from the piece:

• In an open letter published last week, George Osborne, the opposition Conservative Party’s candidate for chancellor of the Exchequer, asked the government to cut the tax and simplify the tax system to prevent companies from relocating. “With companies leaving Britain, weakening an already ailing British economy,” he said, the government should revisit the tax “to restore our competitiveness and help prevent more companies from deciding to leave the U.K.”

His remarks drew a separate warning from John Cridland, deputy director general of the Confederation of British Industry, which represents about 200,000 British businesses. The “U.K.’s uncompetitive corporate tax system is driving firms overseas,” he said recently, and predicted more might follow.

• Michael Foster, the chief executive of Charter, was already attracted to Ireland because of its 12.5 percent corporate tax rate. But the icing on the cake was that the tax system appeared more stable than in Britain, where the government’s yearlong review of the controversial tax law has heightened uncertainty about how much tax companies will have to pay in the future.

“We are really concerned about the complexity and insecurity of the tax laws,” Mr. Foster said. “We need security to be able to manage our costs as effectively as we can.”

• Shire, the British pharmaceutical group, is already mostly out the door. It is preparing to hold its first annual shareholder meeting outside Britain since the company was set up in 1986 by a team of British entrepreneurs. Members plan to meet in Dublin later this month after Shire moved its tax residence to Ireland in April, saying the tax system there was more attractive for an international company.

By the way, it should be noted that the current U.S. corporate income tax rate is higher than Great Britain’s, and there is considerable tax uncertainty lying ahead.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Attacks on the Property of Small Business Continues

Columbia University wants to expand its campus in Harlem. In order to get what it wants, the university is in cahoots with government to abuse – yes, you guessed it – the power of eminent domain.

Nick Sprayregen is a small business owner targeted by Columbia University, the city of New York and New York State. His family owns four commercial properties, and operates a self-storage business, in the neighborhood Columbia wants.

Sprayregen told his story in a September 3 Wall Street Journal op-ed titled “Columbia University Has No Right to My Land.” It should be read by all small business owners in order to grasp the risks to their property – to their very livelihood – if a large private entity and government get together to advance a grand plan in which the little guy doesn’t happen to fit.

The story is not all that unusual – the threats; the bullying; the good-old-boy political network; and the casual declaration of “blight” when the term “blight” means whatever the politicians say it means.

The opening to the piece grabs one’s attention, and is worth highlighting here:

In the Fifth Amendment to the U.S. Constitution, the government is permitted to take private property only for "public use." This clause was once limited to true public projects such as the construction of highways, fire houses and public libraries. But over the last 50 years it has been bastardized by the powerful (in collusion with compliant politicians and the acquiescence of the courts) into a weapon used routinely to forcibly take other people's property for nonpublic uses.

Here is another ugly example of why state and federal elected officials need to step up and pass legislation to make sure that these abuses stop. Such reforms have occurred in some states. But in many places, including New York and at the federal level, property owners are still waiting.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Property Rights in GOP Platform

Protecting private property is one of the first tasks of government. It is, first, about freedom, but also very much about providing a necessary foundation for the entrepreneurship, investment, innovation, and invention that drive forward economic, income and job growth.

While the Republicans hold their convention in Minnesota, it is worth highlighting a paragraph tucked away near the end of the party platform. It carries the title “Preserving Americans’ Property Rights,” and says:

“At the center of a free economy is the right of citizens to be secure in their property. Every person has the right to acquire, own, use, possess, enjoy, and dispose of private property. That right was undermined by the Supreme Court’s Kelo decision, allowing local governments to seize a person’s home or land, not for vital public use, but for transfer to private developers. That 5-to-4 decision highlights what is at stake in the election of the next president, who may make new appointments to the Court. We call on state legislatures to moot the Kelo decision by appropriate legislation, and we pledge on the federal level to pass legislation to protect against unjust federal takings. We will enforce the Takings Clause of the Fifth Amendment to ensure just compensation whenever private property is needed to achieve a compelling public use. We urge caution in the designation of National Historic Areas, which can set the stage for widespread governmental control of citizens’ lands.”

Keep in mind that the victims of unjust takings overwhelmingly are individuals, families and small businesses.

This platform plank should surpass party affiliation to be accepted by Republicans, Democrats, independents, and all other Americans.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Mayor Mandate?

San Francisco Mayor Gavin Newsom continues his mandate march on business. The city was the first government entity in the nation to mandate paid sick leave for employees, and now a new law he just signed requires employers “to offer employees at least one of three commuter benefit options,” according to an article in this week’s edition of Workforce Week Management enews (www.workforce.com). Mayor Newsom also made national headlines a couple of years ago when he signed a play-or-pay health care mandate on businesses.

(To read the full article in Workforce Week please visit:
http://www.workforce.com/section/00/article/25/73/33.php)

The purpose behind the new commuter benefit mandate is to reduce greenhouse-gas emissions.

In complying with the mandate, businesses can choose three transit options. Here are the details according to the article:

-- “Set up a program under which employees can make pretax contributions to the federal legal limit of $115 a month to pay for mass transit expenses. That option is expected to be the one most likely to be offered by employers."

-- “Employers can directly pay for employees’ transportation expenses, such as buying transit passes for employees."

-- “Employers can furnish transportation by setting up van pools for employees.The ordinance, which will take effect in late December, will apply to employers with at least 20 employees and will have to be offered to employees who work an average of at least 10 hours per week.”

The law applies to businesses with 20 or more employees (including part-time and contract workers), and takes effect in late December.

Karen Kerrigan
President & CEO

A Privatizing Democrat

Do Democrats have to be in the pocket of labor unions? Do they have to oppose all efforts at privatization?

According to a local government official in New York, the answer is: NO!

In Suffolk County on Long Island, County Executive Steve Levy, a Democrat, has earned the reputation over the years as being frugal with taxpayer dollars. That’s pretty rare for either Democrats or Republicans in New York. Levy has proposed privatizing the county-owned nursing home, and faced opposition from both sides of the political aisle.

Note a few points Levy made in an August 31 letter to the editor in Newsday:

• “Suffolk County can provide the same service to its 238 nursing home patients and save taxpayers $15 million annually, but only if the legislature would allow for a local hospital to assume ownership. There is only one reason this proposal has been stalled - resistance from the union and the legislators who kowtow to them.”

• “In 1880, when the county opened an infirmary, there were no private facilities and no Medicaid. Today there are 43 private nursing homes in Suffolk, with more than 500 empty beds, that would aggressively compete for our Medicaid-eligible patients.”

• “All 44 county-owned nursing homes in New York lose money. They are so obsolete that the state is offering incentives to counties to privatize. Four have recently done so. Moreover, the state will not approve closure unless every patient is guaranteed continuity of care. A recent report concluded that even if a new manager was hired, all beds were filled, and 50 employees were laid off, our nursing home would still lose $10 million-plus annually, because the public sector employee contract is much more lucrative than the private sector's. This pattern has Suffolk on course to lose up to $50 million over the next three years ...”

Privatization looks like a no-brainer – unless you’re a politician pandering to labor unions.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council