Obama’s Unnerving View on Entrepreneurship

Politicians on a bipartisan basis love to talk glowingly about entrepreneurs and the businesses they build and work to grow. Unfortunately, that rhetoric too often hides a fundamental misunderstanding towards the process of entrepreneurship, or towards the economic risk takers themselves.

Those misunderstandings or hostilities usually become evident via policymaking. That is, while saying nice things about business owners, policies are imposed that raise costs for businesses, and create disincentives for entrepreneurship and investment.

Such misguided policymaking include higher taxes that diminish incentives and resources for starting up, investing in and expanding businesses; excessive regulation, which falls far more heavily on smaller businesses; high levels of government spending that drain resources from the private sector and threaten higher taxes down the road; and a lack of leadership in trying to lower the barriers to trade that reduce opportunity.

If that agenda sounds familiar, it’s because this is what entrepreneurs, businesses, their employees and investors have labored under for several years now. It’s the agenda of President Barack Obama.

Interestingly, the President let his guard down regarding his philosophy, bias and assumptions when it comes to entrepreneurship in remarks delivered on July 13.

Mr. Obama declared, “If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business -- you didn’t build that. Somebody else made that happen.”

Let’s break this down. Obviously, few entrepreneurs succeed without help from others. For example, they might have gotten a loan from an individual or a bank, or received capital from investors. And of course, no one succeeds in the marketplace without serving others, by creating or better serving various demands. But it is the entrepreneur who offers the new or improved good or service upon which a loan or investment is made, and who finds customers.

This certainly is not what the President is talking about here.

Then Mr. Obama talks of having a great teacher somewhere in your life. Well, maybe or maybe not on that one. And as for making a direct link between having some great teacher along the way to starting up and building a business is a tough one to make. After all, there are countless people who had a good teacher along the way, but had no inclination towards entrepreneurship.

The next lines reveal what the President is getting at: “Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges.” Obama is talking about government.

Now, government certainly has a critical role to play in the free enterprise system, especially establishing the rule of law, enforcing and protecting property rights, running a fair system of justice, enforcing contracts, protecting against fraud, and so on. But the President’s liberal philosophy rejects the idea that the individual and private, voluntary groups and associations come first (including private and parochial schools, by the way, with many very good teachers), with government in service to and supporting individuals and such institutions. Instead, in the leftist or Progressive view, government spurs and lays first claims on what is produced in our economy, since it’s government that “allowed you to thrive” and “invested in roads and bridges.” He misses the fundamental point that government derives its powers from the people. For good measure, the Soviet Union, for example, was excellent at spending money on building roads and bridges. But since it was a communist/socialist system, whereby government controlled all, they were roads and bridges to nowhere.

And then came the kicker from Mr. Obama: “If you’ve got a business -- you didn’t build that. Somebody else made that happen.”

In rather stunning fashion, the President takes his views to their natural conclusion, revealing his true take on entrepreneurship and the economy. It is all about government being the spark and the engine. He does not understand that economic growth and wealth creation thrive most in the freest economies on Earth. Economic growth is driven by private risk taking, i.e., entrepreneurship and investment, not by resources being taken from the private sector and spent by politicians. In the economies that thrive, such as the United States, private entrepreneurs and businesses innovate, produce and compete, with consumers, in the end, deciding what works and what does not.

Mr. Obama’s ignorance on the basics of how the economy works is not surprising. But there still is something unnerving and frightening to hear such economic obliviousness stated so plainly by the President of the United States.

Make no mistake, if you own a business, you did make that happen. It’s you that take the incredible risks, and work to serve others. That is an endeavor worthy of praise and thanks, certainly not denigration or diminishment by the President.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

Obama, Small Business and Taxes

On July 9, we heard a lot from the White House about tax cuts, including for small businesses. Was any of this rooted in actual, sound tax and overall economic policies, or was it simply a case of political spin?

Unfortunately, but not surprisingly, it was the latter. In particular, when you read the material on the White House’s website, it’s overwhelmingly rhetoric rooted in class warfare politics.

President Obama’s emphasis was on extending for a year the Bush tax cuts for those earning less than $250,000, and pushing the idea that only three percent of small businesses would face tax increases under this plan.

This was nothing new from President Obama. And again, the obvious question is: Why raise taxes on anyone, especially in a long-struggling economy?

After all, as noted in a July 2010 analysis on some of the President’s proposed tax increases, the nonpartisan Joint Committee on Taxation reported the following on higher personal income tax rates: “The proposal also results in increased marginal tax rates on upper income taxpayers (as is provided for by the present-law sunset of EGTRRA), which will correspondingly reduce incentives for these taxpayers to work, to save, and to invest. Opponents of this latter aspect of the proposal often note that many small businesses, and a large fraction of small business income, will be adversely impacted by an increase in the top two tax rates. The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President’s proposal, and that 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent.”

It’s worth repeating: 50% of net positive business income will be directly impacted by these higher tax rates.

For good measure, a 2008 analysis from the Treasury Department pointed out: “About 81 percent (about $27.3 billion) of the total $33.8 billion in tax relief this year from lowering the top two tax rates will be received by flow-through business owners.  Individuals with more than 30 percent of their income from flow-through businesses receive 44 percent (or about $15.0 billion) of the total tax relief from lowering the top two tax rates.” Those entrepreneurs will be hit by the Obama tax increase.

How can any of this possibly be good for small business and the economy?

Consider also that the biggest challenge for small businesses is to get the capital needed to grow. That capital comes from investors. And it’s higher income investors that have the resources to undertake such ventures. And those include angel investors, who often are successful business owners who reach out to support and invest in start-ups.

Again, how could raising taxes on such individuals possibly be beneficial to the entrepreneurial sector of our economy?

The President, of course, chooses not to address such issues. Raising taxes on upper income earner is a political strategy, again rooted in class warfare, that cannot be justified on the basis of sound economics.

In the end, one must ask: Where would these resources be put to the best use? Is it better to leave them in the private sector, where entrepreneurship, innovation, economic growth and job creation occur? Or, is it best to take such resources from those who earned them, and hand those dollars over to politicians?

On the President’s proposal, an analysis on the White House website proclaims: “This should be one of those rare moments where everyone in Washington can agree.” Indeed, this is a moment where agreement should be strong. But not in favor of the President’s proposal. Instead, agreement should stand in favor of making the 2001/2003 tax relief measure permanent as a start, and then building by implementing pro-growth tax and regulatory relief that will spur risk taking and the economy forward.

Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council.

President Obama's State of the Union Speech and Small Business

Beltway pundits and observers say that President Barack Obama will strike a conciliatory tone in his State of the Union (SOTU) speech tonight. There will be a call for unity, and an emphasis on the economy and creating jobs.

"Competitiveness" will be the President's new buzz word, but how will he propose to improve U.S. competitiveness? Will he call on Congress to spend more - on education, alternative energy and other programs? Or, will he focus on the heavy weight of taxes, regulations and the nation's debt that are dragging the economy and U.S. businesses down?

In a recent Politico.com special focusing on SOTU and what the President should outline in his speech to the nation, I suggested he fully embrace and advance pro-business policies as this is the only path to robust economic growth and job creation: "Obama must acknowledge that the U.S. operates in a highly competitive global environment. We are falling further behind, with no thanks to the regulatory and anti-business legislative frenzy of the past year and a half. This must come to an end. Thankfully, America still has the most innovative and productive people in the world. The administration must harness this potential -- not punish people for being, or wanting to become, successful."

In SBE Council's view, improving U.S. business competitiveness means President Obama must address the following items:

Tax Reform and Certainty: A shifting tax code with the potential for tax increases in 2012 does not instill full confidence in investors and the private sector. A commitment by President Obama to address this tax mess and lock in a pro-growth, globally competitive tax system is critical to entrepreneurs and their innovative and job creating capacity. A pro-growth tax system will strengthen U.S. competitiveness and put our economy on sound footing for sustained growth.

Burdensome Regulation: President Obama outlined a new regulatory strategy last week. If he is genuine in his desire to reduce regulatory costs and uncertainty, the White House needs to rein in the regulators. Presidential memorandums, executive orders and edicts are all fine and good, but unless President Obama intervenes in a variety of damaging rulemakings currently underway at EPA and Labor (for example) businesses and our economy will get hit with significant costs and U.S. competitiveness will be damaged for the long term. Other examples include: The tidal wave of regulations that will come with implemention of the new financial overhaul law, which have the potential to dramatically impact the availability and cost of credit. The FCC continues to insist on regulating broadband and the Internet even though they have not sufficiently presented any evidence of market failure. The Department of Education is hastily imposing restrictions on career colleges that will jeopardize job opportunities for young people, while harming the availability of skilled workers needed by U.S. employers. No doubt, President Obama will highlight his "business-friendly" regulatory initiative in the SOTU speech, but following through will be what counts for business and our economy.

Energy: Is President Obama going to allow our energy industry to actually produce energy? The regulators have gone wild, and they keep toying with America's energy producers. Whether its coal, oil or natural gas, federal regulators keep changing the rules of the game. Pending regulatory action is a major barrier to investment and development. In the meantime, jobs are being destroyed (or not being created) and energy prices keep moving higher. Higher gas and energy prices will undermine economic recovery.

Changes to the health care bill: President Obama must acknowledge that many parts of his health care law are flawed, burdensome and must be changed. If this was not the case, then why are so many corporations and labor unions requesting (and being granted) waivers from key regulatory provisions? Beyond repeal of expanded 1099 reporting, the President needs to revisit the regulations that will not allow us to keep the health coverage we currently have (as promised), ones that are driving health coverage costs higher and destroying competitive and affordable choices in the marketplace (like HSAs and mini-medical plans), and the mandates that will hoist more costs on businesses and individuals (the employer and individual mandate.) The new health care law is a jobs destroyer. His plans and hopes to fix the economy will go nowhere unless he supports overhaul of the recently enacted health care law.

We expect that references to entrepreneurs, small businesses, innovation and competitiveness will get a fair amount of airtime in tonight's state-of-the-union speech. But will the substance of President Obama's speech align with small business needs and boost confidence enough to spur investment and job creation?

Karen Kerrigan, President & CEO

Message to President Obama: Your policies are not creating jobs

Small business owners have led the U.S. out of previous economic downturns, but it’s not working out that way this time around. An August 19 Wall Street Journal article, which reported on jobs data released the previous day, wrote “Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs.”

Business of all sizes slashed a net 200,000 jobs in the fourth quarter (adding 6.6 million jobs and shedding 6.8 million.)

The piece continued:

“Companies with 50 to 249 workers made 17.8% of all job cuts in the fourth quarter, and nearly the same percentage of job gains. Midsize companies, with 250 to 999 employees, added 9.9% of new jobs and accounted for 10% of job losses.

The largest companies, those with 1,000 or more employees, hired a larger share of workers than they let go. These firms, which employ about 38% of all workers, accounted for 18.3% of all job gains versus 17.7% of job losses.”

As I said in a media release last week in response to the hike in jobless claims, which was the basis for a story in The Hill newspaper about the failure of the President’s economic policies:

"There is little to no confidence among small business owners that Washington knows what it is doing, or understands how business functions. The relentless push for higher taxes and intrusive regulation in every sector of our economy is the reason why this recession will be prolonged. On top of a host of misguided policies that are punishing job creation and investment, we have a dangerous spending mentality that threatens U.S. competitiveness and mid to long-term economic growth. The size and scope of government is becoming a major drag on our economy."

Congressional leaders and the Obama Administration had an opportunity to implement the policy ideas and needs of small business owners. They did the exact opposite. Unfortunately, the bad news will keep pouring in and may get worse if their tax hikes, cap-and-trade bill and additional spending programs are enacted. Washington needs to stop burdening small businesses and the private sector. Congressional leaders and the President are crushing the resourcefulness of our entrepreneurs.

Karen Kerrigan, President & CEO

SBE Council Chief Economist on President Obama’s Speech on Economy

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement in response to President Obama’s December 8 speech on the economy:

“The President correctly emphasized the importance of small business to economic growth and job creation. Unfortunately, his policy measures either come up woefully short, or are actually pointed in the wrong direction.

“Reducing capital gains taxes and extending write-offs of capital spending are needed steps. Unfortunately, the President’s ideas here are targeted, temporary and conflicted. The economy needs substantive, permanent tax relief that boosts incentives for entrepreneurship and investment. For example, permanently reducing individual and corporate capital gains tax rates to 10% and indexing gains for inflation, and offering all businesses the write-off option would make sense. But the President not only is offering temporary measures, but also is pushing a variety of tax increases that would negatively affect entrepreneurs and investors, including higher personal income and capital gains tax rates. That’s confused economics.

“President Obama also called for creating ‘a tax incentive to encourage small businesses to add and keep employees.’ Such additional mucking with the tax code is a dubious endeavor, and would be unnecessary if broad, pro-growth tax and regulatory relief were being implemented.

“Finally, the President’s emphasis on more government spending on infrastructure and ‘clean energy’ will do nothing to boost the economy, while expanding opportunities for government to waste taxpayer money. Obviously, that’s not good for the economy.”

Small Business Congratulates President Obama

In a moving and historical ceremony, President Barack Obama and Vice President Joe Biden took the oath of office at a time when the nation faces many challenges and uncertainties. None-the-less, President Obama's inaugural address was hope-filled and encouraging as it reminded Americans that our nation has overcome many extraordinary challenges in the past. The Small Business & Entrepreneurship Council (SBE Council) congratulates President Obama and Vice President Biden and pledges to work with the Administration in their efforts to advance policies that leverage the national assets and strengths the President referred to in his address.

In his speech, President Obama noted our deep national assets, as well as market opportunities that continue to exist for U.S. goods and services: "We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished."

SBE Council President & CEO Karen Kerrigan noted that entrepreneurs are in tune with this thinking, and the President's optimism: "Small business owners and entrepreneurs are the individuals President Obama so described in his speech - those who are the 'risk-takers, the doers, the makers of things.' Indeed, more than ever, our nation needs the innovative activity, the hard work and energy that small business owners bring to the economic recovery table," commented Kerrigan.

She added, "They are and remain the 'men and women obscure in their labor, who have carried us up along the long, rugged path towards prosperity and freedom,' as President Obama so eloquently described in his speech."

SBE Council is hopeful that President Obama will keep these words in mind as he considers his policy options and priorities over the next several months. Small firms are struggling, and they require policies that enable capital formation and access; health care reform initiatives that give them more choices in the marketplace while lowering costs; regulatory policies that are sensible and that do not impose new cost burdens; opportunities to access overseas markets; a workforce that is skilled and flexible; and an economic climate that supports investment, and business growth.

Karen Kerrigan
President & CEO

Give Small Biz a Seat at the Table

There is no doubt that President-elect Barack Obama is a very smart man. I am someone who enjoys watching success in action, and I was very impressed by the precision, polish and penetration of his campaign. Yes, one can argue that there were many outside factors that presented insurmountable barriers to a McCain victory (I happen to disagree), but there's something to be said for that old saying -- you know..."preparation meets opportunity" -- that played out in Obama's road to victory.

So, I congratulate President-elect Barack Obama, and Vice President-elect Joe Biden.

Since Mr. Obama is a very sharp man, it would be wise move to bring the perspective of entrepreneurs into consideration as he develops his new Administration's priorities. He still needs to put specifics behind some key proposals, and it just makes sense to know what is going to hurt, or help, small businesses. After all, our nation has become increasingly dependent on the small business sector for job creation, new innovations and technological break-throughs, and renewing urban and rural communities when larger companies move overseas or go bankrupt.

The Obama agenda is very aggressive, and a fair number of the proposals could have a negative impact on the small business sector. From taxes, to health care reform and regulatory initiatives, the inclusion of entrepreneurs in the policy development process-- in my opinion -- will help produce better results in such policies.

In the end, the consideration of small business needs will only accelerate the capacity for our sector to innovate, create jobs, invest and provide our workforce with the health care, salaries and other benefits that they so richly deserve.

America is full of hope today, so let's be hopeful that the new President will offer small business owners and entrepreneurs a voice at his policy-making table.

Karen Kerrigan
President & CEO