A Governor Says “No” to Government Bailouts and Stimulus

In this new era of taxpayer bailouts, everybody seems to be heading to Washington for handouts. Well, almost everyone.

It was not surprising to see New York Governor David Paterson on Capitol Hill looking for federal dollars given that New York State reportedly faces a four-year projected budget shortfall of $47 billion.

According to an Associated Press story, Paterson said: “Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending financial calamity and stabilize our fiscal condition.”

A partner – how nice.

Of course, New York State elected officials have pushed government spending relentlessly higher, while also taxing and regulating individuals and businesses to death. Why exactly should federal taxpayers be forced to bailout such economic incompetence?

What was surprising, however, was what South Carolina Governor Mark Sanford had to say to Congress. According to AP:

Sanford, a South Carolina Republican who was also appearing before the committee, contended they should not pass another stimulus package because it will not fix the economic problems but drive the country deeper into debt.

"I'm here to beg of you not to approve or advance the contemplated $150 billion stimulus package," Sanford said. "This $150 billion salve may in fact further infect our economy with unnecessary government influence and unintended fiscal consequences."

By Sanford's count, the federal government has already pumped $2 trillion into the economy this year through a previous stimulus package, the financial services bailout, and rescue actions for specific firms.

A moment of economic clarity on Capital Hill from the governor of South Carolina. A big thanks to Governor Sanford.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Presidential Candidates on Education

Entrepreneurs obviously need well-educated workers to thrive in a competitive, often-global marketplace.

Yet, talk to some small business owners, and chances are that you’ll hear about how hard it is to find such workers. Indeed, it is not unusual to hear complaints about employees who do not possess basic writing, reading and math skills. It’s scary.

So, where are the presidential candidates on the issue of education? The October 30 Wall Street Journal ran a handy comparison titled “The Election Choice: Education” by Joseph Rago.

The key difference is that John McCain is focused more on providing options to families and students, while Barack Obama likes the idea of spending more tax dollars on various education initiatives.

The most important part of the article is the following on McCain’s views:

Mr. McCain would pursue education reforms that institute equality of choice in the K-12 system. He would allow parents whose kids are locked into failing public schools to opt out, whether in favor of another public school, a charter school or through voucher or scholarship programs for private options. Parents, he believes, ought to have more control over their education dollars. Teachers' unions and school administrators find none of this amenable.

Meanwhile, on Obama, it was noted: “During a recent speech to the American Federation of Teachers, Mr. Obama disparaged ‘tired rhetoric about vouchers and school choice.’”

The choice is pretty clear. If you think choice and competition make sense, then that’s McCain’s view. If you like the idea of maintaining a public school monopoly with some tweaking here and there, then that’s Obama’s view.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Sowell on Obama’s Tax Hikes

Thomas Sowell is an intelligent and insightful economist. Each of his columns communicates worthwhile bits of economic wisdom.

Check out the latest titled “Taxing Times” as it appears at National Review Online. The article addresses the potential ills if Senator Obama wins the White House, and goes ahead with the tax agenda he has been touting on the campaign trail.

The entire column should be read, but let’s note a few points from Sowell right here:

• Those who are receptive to Senator Barack Obama’s plan to increase taxes on “the rich” seem not to understand that the issue is the nation’s loss of wealth. Today, wealth can leave the country when heavy taxes threaten it — instantly, in an age of electronic financial transfers — and create jobs and economic growth overseas, instead of at home.

• Jack up the capital-gains tax rate in the U.S. and more Americans can be expected to send their capital elsewhere. That means sending jobs elsewhere, so that even people with no capital to invest lose employment opportunities. Economists have trouble determining how many people are affected by a tax increase because those affected extend far beyond those who write the checks to pay the government. Taxes on businesses can get passed along to consumers, in whole or in part, even though it is only the business that writes the check to the government.

• The idea that you can single out one segment of society to be taxed or mandated, for the benefit of the rest of society, is reminiscent of a San Francisco automobile dealer’s sign: “We cheat the other guy and pass the savings on to you.”

Like I said: intelligent and insightful.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Raising Taxes is Not Smart Economics: The economy needs as much capital as it can get

The last thing our economy needs right now is for the government to be taking more capital from the private sector and out of our economy. Really, raising taxes is not a smart move – on anyone, or any business. There is no justification for siphoning more money out of our troubled, capital-deprived economy – period!

Politicians who supported the behemoth bailout package – including the two presidential candidates – rationalized that the taxpayer bailout would quickly infuse much needed capital and credit into the economy – into the hands of “Main Street.” Things were stuck, the economic engine was clogged. Taxpayers to the rescue!

That being the case, how can any politician reconcile their support for a bill that gives (ok – “lends”) billions upon billions of tax dollars (money – capital) to these larger firms in the name of shoring up troubled assets and credit markets, at the same time defend (and aggressively so) raising taxes on entrepreneurs or more “successful” individuals? The position is untenable.

Capital, credit and cash flow is extremely tight right now. Wouldn’t you want business owners, investors and entrepreneurs who may have some discretionary profits at their disposal putting these dollars back to work -- in their firms, their workforce, their communities and perhaps other business ideas?

And even if “the rich” lavish themselves with a vacation, new clothes, another big-screen tv, a home renovation project and a couple of nights out at their favorite restaurant – isn't it better that these dollars are spent more directly by consumers – as opposed to being re-circulated by government (or wasted as the case may be)?

We can endlessly debate what percentage of the population earns more than $250,000 or $200,000 -- or now (thanks to Joe Biden), $150,000. We can debate the merits of raising the capital gains taxes and who is impacted by these tax hikes.

The fact remains that Barack Obama says he will raise taxes, and I believe him! Many small businesses and entrepreneurs – the high growth, high performance, innovative, job-creating firms that we actually need to be rewarding with more tax relief, not punishing -- will surely get hurt. But do you really think that a Congress that is already on record supporting a deeper, more massive tax hike will stop at an Obama-established threshold?

Look, the starting point for candidate Obama is his tax plan – it raises taxes. Mark my words, after spending a couple of decades in this town, my bet is that the end point for hiking taxes will go deeper, much deeper.

Karen Kerrigan
President & CEO

Obama's Undecided on Key Details of Health Care Plan

By his campaign’s own admission, key details of presidential candidate Barack Obama’s health care plan are not known, or have not been decided.

An October 27, 2008 New York Times piece, “Businesses Wary of Details in Obama Health Plan,” reports on the general fuzziness regarding critical elements that relate to small businesses. Namely, what size businesses would be exempt from Obama’s play-or-pay mandate, the amount that small businesses would have to contribute to their employees’ health coverage in order to qualify for the tax credit, and the size and scope of the penalty imposed if businesses do not comply with the mandate.

According to the article, campaign officials pretty much said that those details have not been determined.

As detailed in the article by writer Kevin Sack -- Harvard economist and campaign health care expert David M. Cutler said: “We made a decision even before the plan was rolled out not to decide....It’s not that there’s a decision out there that we’re not telling. It’s literally that we’ve decided not to decide.”

Sounds like a “present” vote to me.

Earlier in the campaign, when I first reported on the candidates’ positions on key small business issues using the SBE Council side-by-side issue grid, there was no mention of an exemption for “very small businesses” in the Obama health care plan. This new exemption – which is a welcome sign for small businesses -- only appeared recently. (And SBE Council has updated the grid to reflect that new position.)

[To view the issue grid, please visit: http://www.sbecouncil.org/uploads/Candidate Side by Side Oct 20 Update[1].pdf]

Still, if small business voters and their workforce are being asked to judge the candidates on their health care plans, they need these details not yet decided upon by the campaign. These details are the crucial issues that will drive their support or opposition to Obama’s stand on health care reform.

As the New York Times article outlines, for example, will the employers be socked with financial penalties that amount to 3 percent, 4 percent or 6 percent of total payroll if they can’t afford to buy health insurance?

And, as I have noted and asked previously:

What is a “very small business” exempt from the play-or-pay payroll tax? A self-employed enterprise of one? Or, a business with five, ten or fewer employees?

And, to qualify for the tax credit, how much will small businesses have to contribute to their employees’ health plan – all of it, 75 percent? And, what constitutes a “quality” health care plan, which also seems to be a factor in accessing the tax credit?

[To read the New York Times piece, please visit: http://www.nytimes.com/2008/10/27/us/politics/27healthcare.html?th&emc=th]

Small business voters should demand specifics. After all, if the next Administration comes after you to collect its payroll tax penalty for health care, do you think “deciding not to decide” on whether your business will offer health care for its workforce will be an acceptable excuse for not complying with the play-or-pay law?

Karen Kerrigan

Proposed Power Plant Regulations

An October 27 Wall Street Journal article points to a possible moment of clarity on the regulatory front.

The piece, titled “EPA to Loosen Controls on Power-Plant Pollution,” reports that the Bush Administration will propose to judge power plant by “their hourly rate of emissions rather than their total annual output.”

The Journal noted: “Under current policy, power plants that make upgrades to operate longer and increase emissions must install pollution-control equipment. The proposed rules, which seek to make it easier for older power plants to extend their life span and upgrade without installing costly new equipment, are tied to an hourly rate of emissions. As long as a power plant's hourly emissions stay at or below the plant's historical maximum, the plant would be treated as if it were running more cleanly, even if its total annual emissions increased as plant operators stepped up operations.”

The Bush Administration is pushing to get the rules finalized by November 1, as it would make it harder for them to be undone after more than two months, according to the Journal’s report. Unfortunately, various congressional leaders are opposed, and threatening to launch an investigation.

Why some in Congress would want to stop this change in power-plant regulation is a mystery, especially if one expects government policies to be based on both sound economics and sound environmental policies. After all, this measure would reduce electricity costs, while still providing reasonable environmental protections. Sounds like a good combination.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council