The big rush is underway to push through the “economic stimulus” package. The U.S. House advanced their version of the bill yesterday, and without one Republican vote. Just about every single politician supporting the bill can’t say for sure whether it will help the economy or not. If that is the case, then why are they risking nearly $900 billion ($1.5 trillion with interest) of our tax dollars on a massive spending measure that may not work?
For small business owners, the tax items in the House bill are generally worthless.
Yes, small business owners who have cash-on-hand may benefit from the extension of Section 179 expensing (if they decide to make an investment). But for many small business owners who are lucky to have discretionary cash and capital, uncertainty in the economy as well as where Congress will take tax and health care policy this year and next has them hanging onto every penny of profit. Of course, for those small business owners who struggle daily to get by (what cash flow?) – the tax measures mean very little.
SBA loans may get a recession make over, but from what I have read about program changes (and given the outlook for the economy) my guess is that these modifications will only marginally help small businesses.
There’s a lot of spending in this bill and it appears that a big chunk of it is directed to the states to cover their losses (another bailout for bad planning and decision-making), and to support existing federal programs. Yes, $188 billion in new construction/project money has been included, but unfortunately two conditions in this gigantic bill – the prevailing wage requirement (Davis-Bacon) as well as the E-verify mandate -- mean that small businesses will be put at a competitive disadvantage when bidding on these federal projects.
While the Senate package is shaping up to be even bigger that the House bill (and more bipartisan, I might add), some of the tax measures under consideration seem to be more beneficial for small businesses (an AMT fix, etc.).
If Congress took more time to get additional input on the package, they would find out what the true source of pain is for small firms and address those accordingly. Payroll tax relief would certainly help small business owners and their employees. Such a move would put more resources in both of their emptying pockets. Making some of the current tax relief measures permanent (like personal income tax rates, the research and development tax credit and capital gains taxes) would allow for entrepreneurs to plan “long-term” rather than worrying about what financial tools and resources they will have at their disposal in the future. And, giving self-employed people tax parity with larger companies in deducting health insurance is a long overdue move, and certainly needed right now.
It’s important that Washington act boldly to get our economy back on track. But it’s more important that they do the right thing at this critical moment.
Karen Kerrigan, President & CEO
Friday, January 30, 2009
Thursday, January 29, 2009
More on the Economics of Hiking Tobacco Taxes
The U.S. House of Representatives approved an increase in the federal tobacco tax on January 14 by a 289-139 as part of a bill to expand the State Children’s Health Insurance Program.
While jacking up tobacco taxes to fund a health care program might sound like a good idea to some, there are many costs involved. For example, increased government involvement in health care inevitably leads to higher health care costs.
Plus, there are economic costs to increasing taxes.
Some of those costs were laid in an article by Scott Ramminger, president of the American Wholesale Marketers Association, in the January 19 Buffalo News.
Ramminger noted:
Remminger goes on to note other costs, such as increased criminal activity and hitting the pocketbooks of low and middle-incoem earners.
Can the Senate and President Obama really ignore these higher costs and lost jobs?
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
While jacking up tobacco taxes to fund a health care program might sound like a good idea to some, there are many costs involved. For example, increased government involvement in health care inevitably leads to higher health care costs.
Plus, there are economic costs to increasing taxes.
Some of those costs were laid in an article by Scott Ramminger, president of the American Wholesale Marketers Association, in the January 19 Buffalo News.
Ramminger noted:
If Congress approves a bill to expand the State Children’s Health Insurance Program (SCHIP) by significantly increasing federal cigarette and tobacco taxes, the result will be major sales reductions, massive layoffs, numerous store closings and many more robberies because of the much higher value of tobacco products…
The economic impact on the entire tobacco industry will be disastrous.
First, a 156 percent tax rate increase on cigarettes compounded by tax rate increases of up to 6,000 percent on large cigars, 2,197 percent on little cigars, 710 percent on roll-your-own tobacco, 156 percent on smokeless tobacco and 156 percent on pipe tobacco will lead to declines of 10 percent or more in retail sales of tobacco. This large reduction in sales will have a corresponding impact on industry jobs.
According to 2002 U. S. Census Bureau statistics, 1.17 million union and non-union employees are employed by tobacco manufacturers, wholesalers and retailers. With upward of a 10 percent decline in tobacco sales, industry estimates project up to 117,000 jobs will be lost.
Remminger goes on to note other costs, such as increased criminal activity and hitting the pocketbooks of low and middle-incoem earners.
Can the Senate and President Obama really ignore these higher costs and lost jobs?
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
Tuesday, January 27, 2009
A Stimulus Program Entrepreneurs Can Access Immediately
The big debate in Washington centers on how quickly measures proposed in the stimulus package will make their way into the economy to help ordinary Americans – including, of course, small business owners. Well, Intuit Inc. has just announced a “Small Business Stimulus Program” that entrepreneurs can take advantage of right away.
Here is an excerpt from Intuit’s media release on the program (you can read the full release and elements of the stimulus program by clicking here):
“America's entrepreneurs are getting a much-needed boost to start and grow their businesses with a new initiative from Intuit Inc. (Nasdaq:INTU), maker of the best-selling QuickBooks® financial software. The company's "Small Business United" campaign features a stimulus package aimed at helping America's 27 million small businesses save money, get more customers and save time.
“The stimulus package includes:
• Free software and services from Intuit valued at nearly $1,000 per small business to help them succeed. Four out of five Intuit customers agree that using QuickBooks helps their business succeed.
• $315,000 in small business grants to give entrepreneurs the extra boost needed during a tough economic climate.
• $50,000 in donations to organizations that help budding entrepreneurs get started and advise existing businesses looking to grow.
“As part of its stimulus package, Intuit will give away both totally free and special offers of its best-selling solutions that help small businesses address their most critical problems: better managing their finances, getting more customers, paying their employees accurately and on time, and more.
“The offerings, available at http://www.smallbusinessunited.com/, include:
• Totally Free Software: Save money with accounting software: Based on customer surveys, 70 percent of QuickBooks users say that using QuickBooks helps them be more profitable, and agree that it helps them get paid faster. QuickBooks Simple Start Free Edition lets users easily track money coming in and money going out. The downloadable software is easy to set up and use, and also helps businesses get ready for tax time.
• Free Year: Get more customers with free Web sites: Intuit research shows that while less than half of small businesses have a Web site, more than 95 percent want one. The Intuit Website service lets businesses quickly set up professional-looking websites to attract more customers. The package, free for the first year, includes award-winning Web site-building software with easy point and click features and design templates, Web hosting, and toll-free phone support seven days a week. Charges after the first year start at only $4.99 per month.
• Free Six Months: Save time with free payroll service: To help small businesses accurately run payroll - and avoid costly mistakes and penalties - the Intuit Online Payroll service is available for free for six months and only $9.95 per month after that for new users, a savings of more than $300 per year. Simply enter employees' hours and run payroll with just a few clicks.
• Free Service: Get incorporated with free incorporation services: With more entrepreneurs entering the market from other jobs that are no longer available, Intuit is offering free incorporation and LLC formation services from MyCorporation, an Intuit company, until July 31, 2009.
• Free Six Months: Get paid faster with free credit card processing: Finding more ways to help small businesses get paid and maintain cash flow, Intuit is offering credit card processing services free for six months through Intuit QuickBooks Online Terminal. Transaction fees still apply.
• Free Download: Manage cash flow with free retail management software: To maximize profits by tracking sales and customers, Intuit is offering its recently announced retail software, QuickBooks Cash Register Plus, as a free download, a $300 value.”
Intuit is also encouraging entrepreneurs to help each other, and you can learn how you might be able to win up to $25,000 by sharing your success story or advice by visiting http://www.smallbusinessunited.com/.
Some organizations dedicated to helping business owners and entrepreneurs are also receiving support from Intuit to help bolster their training programs and outreach. SBE Council is one of those organizations.
These are certainly challenging economic times. Yet, entrepreneurs have an opportunity to explore new ways to operate their businesses and reach new and existing customers more efficiently. The package of tools offered by Intuit’s Small Business United campaign are the type of tools that can help stimulate efficiencies, sales, creativity and focus during this tough economic period.
Karen Kerrigan, President & CEO
Here is an excerpt from Intuit’s media release on the program (you can read the full release and elements of the stimulus program by clicking here):
“America's entrepreneurs are getting a much-needed boost to start and grow their businesses with a new initiative from Intuit Inc. (Nasdaq:INTU), maker of the best-selling QuickBooks® financial software. The company's "Small Business United" campaign features a stimulus package aimed at helping America's 27 million small businesses save money, get more customers and save time.
“The stimulus package includes:
• Free software and services from Intuit valued at nearly $1,000 per small business to help them succeed. Four out of five Intuit customers agree that using QuickBooks helps their business succeed.
• $315,000 in small business grants to give entrepreneurs the extra boost needed during a tough economic climate.
• $50,000 in donations to organizations that help budding entrepreneurs get started and advise existing businesses looking to grow.
“As part of its stimulus package, Intuit will give away both totally free and special offers of its best-selling solutions that help small businesses address their most critical problems: better managing their finances, getting more customers, paying their employees accurately and on time, and more.
“The offerings, available at http://www.smallbusinessunited.com/, include:
• Totally Free Software: Save money with accounting software: Based on customer surveys, 70 percent of QuickBooks users say that using QuickBooks helps them be more profitable, and agree that it helps them get paid faster. QuickBooks Simple Start Free Edition lets users easily track money coming in and money going out. The downloadable software is easy to set up and use, and also helps businesses get ready for tax time.
• Free Year: Get more customers with free Web sites: Intuit research shows that while less than half of small businesses have a Web site, more than 95 percent want one. The Intuit Website service lets businesses quickly set up professional-looking websites to attract more customers. The package, free for the first year, includes award-winning Web site-building software with easy point and click features and design templates, Web hosting, and toll-free phone support seven days a week. Charges after the first year start at only $4.99 per month.
• Free Six Months: Save time with free payroll service: To help small businesses accurately run payroll - and avoid costly mistakes and penalties - the Intuit Online Payroll service is available for free for six months and only $9.95 per month after that for new users, a savings of more than $300 per year. Simply enter employees' hours and run payroll with just a few clicks.
• Free Service: Get incorporated with free incorporation services: With more entrepreneurs entering the market from other jobs that are no longer available, Intuit is offering free incorporation and LLC formation services from MyCorporation, an Intuit company, until July 31, 2009.
• Free Six Months: Get paid faster with free credit card processing: Finding more ways to help small businesses get paid and maintain cash flow, Intuit is offering credit card processing services free for six months through Intuit QuickBooks Online Terminal. Transaction fees still apply.
• Free Download: Manage cash flow with free retail management software: To maximize profits by tracking sales and customers, Intuit is offering its recently announced retail software, QuickBooks Cash Register Plus, as a free download, a $300 value.”
Intuit is also encouraging entrepreneurs to help each other, and you can learn how you might be able to win up to $25,000 by sharing your success story or advice by visiting http://www.smallbusinessunited.com/.
Some organizations dedicated to helping business owners and entrepreneurs are also receiving support from Intuit to help bolster their training programs and outreach. SBE Council is one of those organizations.
These are certainly challenging economic times. Yet, entrepreneurs have an opportunity to explore new ways to operate their businesses and reach new and existing customers more efficiently. The package of tools offered by Intuit’s Small Business United campaign are the type of tools that can help stimulate efficiencies, sales, creativity and focus during this tough economic period.
Karen Kerrigan, President & CEO
Monday, January 26, 2009
Death by Regulation: Is Peer-to-Peer Lending Next?
One of the more promising alternatives for accessing capital by small business owners has been the growth of “peer-to-peer lending” – arrangements where borrowers and lenders transact without the traditional intermediaries (such as banks). These networks are also known as social lending networks.
As an Inc.com article describes them: “Through peer-to-peer lending websites, small-business owners or other people seeking a loan can borrow directly from individual lenders, eliminating banks from the process. On some sites, like Prosper.com, lenders bid on the interest rate they are willing to give a borrower. On others, like LendingClub.com, interest rates are based solely on the borrower's credit history and set by the company itself.” (Read the full Inc.com article here: “Getting a Loan Just Got Harder.”)
Around 2005, this type of lending began getting traction. As credit and capital got tighter in 2007 and 2008, peer-to-peer loans really took-off. By some estimates, outstanding loans in 2007 amounted to $647 million.
Quite possibly, due to their success, as well as the positive media coverage that such lending received, the Securities and Exchange Commission (SEC) became very interested in peer-to-peer lending sites. The following October 15, 2008 New York Times piece, “Lending Alternative Hits Hurdle” by Brad Stone, goes into detail about the SEC's involvement and inquiries into peer-to-peer loans.
Of course, Mr. Madoff escaped the eyes of regulators and the media while working his ponzi scheme. Same goes regarding the misdeeds of the financial industry. But really, what watchdog couldn’t have predicted what was about to unfold in the mortgage marketplace? Individuals were qualifying for mortgages and terms they couldn’t afford. (I do feel very bad for these homeowners, and former homeowners. Yes, while they should have been aware of the “if it’s too good to be true” rule, everyone involved in peddling these loans knew better.)
Anyway, it looks like peer-to-peer lending has been ensnared within the SEC’s bureaucracy.
As Inc.com reports: “In November, the SEC filed a cease-and-desist order against San Francisco-based Prosper Marketplace, which runs Prosper.com, ruling that the loan notes being offered on the site were securities and needed to be registered with the commission. Prosper had stopped facilitating new loans the previous month in anticipation of the ruling, and to start the registration process to set up a secondary marketplace where lenders could package and sell loans to each other. Prosper also reached a $1 million settlement with the North American Securities Administrators Association, the membership organization for state securities commissioners. As a result, another peer-to-peer startup, New York-based Loanio, decided to do the same in November, only a month after launching. London-based Zopa.com also closed its U.S. peer-to-peer lending site in October.”
The SEC says it protecting the lender-investor, and that they don’t want to harm innovative new practices in the marketplace. "Generally, we are always cognizant of new companies trying to do something innovative," said Laura Josephs (as quoted by Inc.com), an assistant director with the commission's enforcement arm who led the case against Prosper. "It's in nobody's interest to stomp out innovative products," she added.
Well, the bottom line is that Lending Club is the only peer-to-peer site “left standing.” The sad story here, of course, is that functioning, transparent and upright entities that are providing small business owners and new entrepreneurs with alternative tools for financing (and perhaps other innovative services to come) are getting caught up in outdated SEC rules and laws. No doubt, the frenzy to preemptively go after bad actors like Madoff is playing a big role in this crack down as well.
The current situation just goes to show how dysfunctional and archaic the financial regulatory system has become. Similar to Washington’s response in the wake of the Enron and MCI scandals, Congress ushered in Sarbanes-Oxley (SOX). Entrepreneurs and small public companies got hurt by SOX (and look how well it performed in making big public companies more accountable and transparent to shareholders!), and now entrepreneurs are getting the hit again.
The SEC may be doing its job, but isn’t there a faster, flexible way they can do it without hurting entrepreneurs and innovation in the financial system industry?
Karen Kerrigan, President & CEO
As an Inc.com article describes them: “Through peer-to-peer lending websites, small-business owners or other people seeking a loan can borrow directly from individual lenders, eliminating banks from the process. On some sites, like Prosper.com, lenders bid on the interest rate they are willing to give a borrower. On others, like LendingClub.com, interest rates are based solely on the borrower's credit history and set by the company itself.” (Read the full Inc.com article here: “Getting a Loan Just Got Harder.”)
Around 2005, this type of lending began getting traction. As credit and capital got tighter in 2007 and 2008, peer-to-peer loans really took-off. By some estimates, outstanding loans in 2007 amounted to $647 million.
Quite possibly, due to their success, as well as the positive media coverage that such lending received, the Securities and Exchange Commission (SEC) became very interested in peer-to-peer lending sites. The following October 15, 2008 New York Times piece, “Lending Alternative Hits Hurdle” by Brad Stone, goes into detail about the SEC's involvement and inquiries into peer-to-peer loans.
Of course, Mr. Madoff escaped the eyes of regulators and the media while working his ponzi scheme. Same goes regarding the misdeeds of the financial industry. But really, what watchdog couldn’t have predicted what was about to unfold in the mortgage marketplace? Individuals were qualifying for mortgages and terms they couldn’t afford. (I do feel very bad for these homeowners, and former homeowners. Yes, while they should have been aware of the “if it’s too good to be true” rule, everyone involved in peddling these loans knew better.)
Anyway, it looks like peer-to-peer lending has been ensnared within the SEC’s bureaucracy.
As Inc.com reports: “In November, the SEC filed a cease-and-desist order against San Francisco-based Prosper Marketplace, which runs Prosper.com, ruling that the loan notes being offered on the site were securities and needed to be registered with the commission. Prosper had stopped facilitating new loans the previous month in anticipation of the ruling, and to start the registration process to set up a secondary marketplace where lenders could package and sell loans to each other. Prosper also reached a $1 million settlement with the North American Securities Administrators Association, the membership organization for state securities commissioners. As a result, another peer-to-peer startup, New York-based Loanio, decided to do the same in November, only a month after launching. London-based Zopa.com also closed its U.S. peer-to-peer lending site in October.”
The SEC says it protecting the lender-investor, and that they don’t want to harm innovative new practices in the marketplace. "Generally, we are always cognizant of new companies trying to do something innovative," said Laura Josephs (as quoted by Inc.com), an assistant director with the commission's enforcement arm who led the case against Prosper. "It's in nobody's interest to stomp out innovative products," she added.
Well, the bottom line is that Lending Club is the only peer-to-peer site “left standing.” The sad story here, of course, is that functioning, transparent and upright entities that are providing small business owners and new entrepreneurs with alternative tools for financing (and perhaps other innovative services to come) are getting caught up in outdated SEC rules and laws. No doubt, the frenzy to preemptively go after bad actors like Madoff is playing a big role in this crack down as well.
The current situation just goes to show how dysfunctional and archaic the financial regulatory system has become. Similar to Washington’s response in the wake of the Enron and MCI scandals, Congress ushered in Sarbanes-Oxley (SOX). Entrepreneurs and small public companies got hurt by SOX (and look how well it performed in making big public companies more accountable and transparent to shareholders!), and now entrepreneurs are getting the hit again.
The SEC may be doing its job, but isn’t there a faster, flexible way they can do it without hurting entrepreneurs and innovation in the financial system industry?
Karen Kerrigan, President & CEO
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