Still More Taxes?

The Obama budget plan includes various tax hikes that will hurt entrepreneurs, investors, business and the economy. Those include higher personal income, capital gains and dividend tax rates on upper income individuals; keeping the death tax around; and imposing a cap-and-trade regulatory/tax scheme.

But that apparently is not enough. The March 25 Wall Street Journal reported the following:

The White House said it would launch a search for new tax revenues, as Congressional leaders moved to scale back proposed spending increases and tax cuts in President Barack Obama's ambitious budget. The Obama administration plans to create a task force to consider elimination of corporate loopholes and subsidies, tougher enforcement against tax avoidance, and tax simplification, White House Budget Director Peter Orszag said late Tuesday.

A task force to, in effect, raise more taxes – is this really what the economy needs right now?

Congress is absolutely right to be concerned about the current explosion in government spending. But are they serious? Initial congressional budget numbers indicate more posturing than serious action on reining in spending.

Obviously, government looking to suck even more resources out of the private sector is not the answer to our budget or economic woes. If too much spending is the problem – which it is – then we obviously need sharp reductions in that spending, not higher taxes.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Specter, Starbucks and Card Check

SBE Council delivered a letter to Senator Arlen Specter (R-PA) today, which applauded him for announcing his opposition to “card check” legislation – a bill that would take away the flexibility and operational authority small firms currently have to run their firms, while eviscerating employee access to a secret ballot when deciding on workplace unionization. (To view letter, please visit: http://www.sbecouncil.org/legaction/display.cfm?ID=3103). In the previous Congress, Senator Specter was a co-sponsor of the so-called “Employee Free Choice Act” and voted for cloture (which failed) to move the bill to a full Senate vote.

While some commentators now believe that “card check” is a dead issue (as Senator Specter’s support was needed for the 60 votes required to bring the legislation to the Senate floor), a compromise was recently proposed by three big businesses whose livelihood is partly tied to small business customers – Starbucks, Costco Wholesale and Whole Foods. Lanny Davis, who is representing the companies, said the purpose behind the proposal is to “trigger a conversation” between opposing sides to come up with a solution. The only thing that their engagement appears to have triggered is an avalanche of criticism from both sides – business and labor – who have roundly denounced their efforts, as well as the general proposal.

In short, the compromise continues to favor union organizing over worker and workplace choice. The plan is an interventionist measure that is tilted toward bucking up union membership through the powers of the federal government. I don’t know who is advising Starbucks, Costco and Whole Foods on their foray into these policy waters, but it certainly appears that their engagement has backfired. They have managed to alienate a wide swath of their customer base during a bad economy. So while their efforts appear to be dead, the fight against the original “card check” bill remains.

The legislation supporting the enactment of “card check” is incredibly backwards, and would expose all firms to the same cost-containment issues and operational inflexibility that is killing U.S. automakers. In an Open Letter to Congress on March 12, 2009, SBE Council spelled out its concerns when legislation was introduced in both the House and Senate:

• “The legislation supporting ‘card check’ will encourage disunity, coercion and intimidation in the workplace. Employees and business owners are already facing enormous pressures as a result of the recession. Fortunately, they are working together to develop solutions and strategies for surviving the turmoil.”

• “Under the terms of the legislation, small business owners could lose the freedom and flexibility to alter their business operations in response to market, economic and global competitive demands. The legislation would allow government arbitrators to impose binding, two-year terms on workers and employers within a very short period of time following unionization if a contract agreement is not reached. It is unimaginable that legislation mandating such command-and-control terms has been introduced given the horrible shape of our economy.”

• “Even in the best of times, U.S. small business owners require flexibility in managing costs and operations to stay competitive and nimble in our global economy. It is one of the key advantages they we currently enjoy in the world marketplace. The mandatory binding arbitration language spelled out in the proposed legislation, combined with taking away an employee's right to a private ballot will move our nation, our economy and workplaces backward.”

To read the full letter, please visit: http://www.sbecouncil.org/legaction/display.cfm?ID=3086)

With “card check” being the union bosses’ number one priority for this Congress and legislative session, the fight is hardly over. U.S. Senators and House members need to continue to hear from small business owners and entrepreneurs about the dangers of “card check” to overcome another wave of labor union activism in the coming months. And if you happen to live in Pennsylvania, please drop Senator Specter a note to thank him for boldly announcing his opposition to the current “card check” bill.

Karen Kerrigan, President & CEO

More on Tobacco Taxes in the States

The latest update on states looking to jack up tobacco taxes in the current economy from the March 21 New York Times is, to say the least, worrisome from a small retailer perspective.

The Times reported, for example, the following:

• “Budget shortfalls are pushing more than 20 states to look to tobacco for revenue, even those that have long been loath to touch cigarette taxes. In the South, where such taxes have been lower than in the rest of the country, Arkansas has nearly doubled its tax, to $1.15 a pack, and Kentucky’s will double, to 60 cents, on April 1. Increases are also under consideration in other tobacco-growing states like North Carolina, South Carolina and Georgia.”

• “In Oregon, now at $1.18 a pack, Gov. Theodore R. Kulongoski has proposed a 60-cent increase. In New Jersey, Gov. Jon Corzine is asking the Legislature for a 12.5-cent increase over the current $2.58. New York has the highest state tax on cigarettes, $2.75 a pack.”

Of course, the federal cigarette tax will rise by 62 cents in April.

One of the things being missed in this flurry to raise tobacco taxes is that small retailers suffer lost business, and the economy gets hit whenever resources are shifted from the private sector to the government.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

The House, the Constitution, and the 90% Bonus Tax

As I’ve made perfectly clear throughout my career as an economist and policy analysis, I am not a fan of government bailing out private businesses. Taxpayer dollars are thrown away, the size and reach of government expands, moral hazard is created, and the entire market system is undermined.

And of course, whenever government sticks its nose into something, along with it comes politics.

Last week, the U.S. House of Representatives served up politics at its most pandering. It voted by 328-93 to approve a 90% surtax on bonuses to employees earning more than $250,000 at companies that received at least $5 billion in government financial rescue dollars. The bill would set up the tax retroactively to December 31, 2008, and was generated in response to outrage over bonuses handed out at AIG, which has been one of the government’s biggest bailouts.

There are a good number of reasons to oppose this political fit by members of the House.

But one supersedes all others. It is plainly unconstitutional. Article I, Section 9 of the U.S. Constitution states: "No Bill of Attainder or ex post facto Law shall be passed." Quite simply, Congress cannot impose legal consequences without a trial, nor after an event took place.

Incredibly, U.S. Rep. James Clyburn, the Democratic Majority Whip, appeared on CNBC on the morning of March 23, and justified the vote by saying that they would leave it to the courts to figure out if the measure was constitutional. He actually said: “But we will respond to the American people with our votes, and that’s what we did, responded to the American people’s anger and that emotions, we voted to tax this, knowing full well that it could end up in court and may even be consider unconstitutional.”

Not a great moment in American legislative history.

And it has to make people wonder – including business owners and investors – what this Congress is capable of doing in terms of policies impacting business and our economy.

By the way, with no bailouts in the first place, we would not be having this discussion.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council