Frugal Café Blog Zone

Posted By Vicki McClure Davidson on January 29, 2010

I’m in total agreement with Pres. Obama’s plan to give tax breaks to small businesses. I was in agreement with it from the get-go. However, since he’s been merely talking about doing this since LAST MARCH, I’m not holding my breath just yet. POTUS has said plenty in the past year that he’s not followed through on nor started the machinery rolling on. And, let us hope that these tax breaks are for much more than just for rehiring or creating new positions. These alone will help a bit, but won’t solve a huge percentage of the problems that small businesses across the nation face.

Obama said during his State of the Union address that he would be focusing more on jobs and the American economy. Good. He should have been doing that all along. The Democrat party’s major loss in the Massachusetts Senate race may have pushed the tax breaks to the front burner. Today, the president is touring about Baltimore, where he promised again to launch tax breaks for small businesses.

From Baltimore Sun, Breaking news updates from Obama’s visit to Baltimore:

“Now’s the perfect time for this kind of incentive because the economy is growing but businesses are still hesitant to start hiring again,” he said. He added that he would happily discuss other ideas with Congress. “I’m open to any good ideas from Democrats or Republicans,” he said, and noted that some lawmakers have proposed tax breaks similar to those he touted today. “The key thing is it’s time to put America back to work.” He also repeated his State of the Union riffs about the worst of the storm being over and the bank bailout being unpopular but necessary.

Before his remarks, Obama was shown around the Chesapeake Machine Co., which was opened in 1981 and produces custom industrial equipment including machinery that makes solar panels. The president was in a dark suit, white shirt and blue tie, wearing a U.S. flag pin in his lapel and a BlackBerry on his belt. He put on a pair of blue protective glasses that looked more like designer shades. He was shown around by Terry Sims, the company’s president and owner, and Joe Sedlak, the operations manager. He greeted workers with a jaunty, “Hey guys” or “What’s going on, guys.”

Among the dignitaries in attendance: Transportation Secretary Ray LaHood, Gov. Martin O’Malley, Sen. Barbara Mikulski, Reps. Elijah Cummings and John Sarbanes, and City Council President Stephanie Rawlings-Blake, soon to be sworn in as the next mayor.

This pro-Obama plug in the Baltimore Sun is interesting:

Obama defended his strategy but conceded officials mistakenly believed unemployment would go no higher than “the 8 percent range.” He also said that many of the jobs were lost in December, January and February of 2009, before he took office or before any of his programs took effect. Obama told the Indiana Republican, “I’m assuming you’re not faulting my policies for that.”

“Blame game” AGAIN? Beg pardon, sir, but you WERE in office in February 2009. Unemployment has risen drastically since then. Unemployment was at 7.6 percent in February. It is still in the 10 percent range.

Here’s what unemployment percentages looked like for 11 months of last year under Obama’s presidency:

Bureau of Labor Statistics, Jan - Nov 2009 unemployment percentages

Now, I’m no trained economist, but this looks like it IS Obama’s problem, no matter how much he still enjoys denying it. The unemployment rise was partially influenced by the decision of Congress to go nuts and fund billion-dollar bailouts and launch an outrageous stimulus/porkulus bill that had about 9,000 earmarks in it. While those were launched initially under Bush’s watch, the House and Senate had its majority of Democrats to push the agenda on the president’s platter, and Obama as a senator voted for them.

So, yes, Bush is partially to blame because he signed the go-aheads on those bills, but he was advised by Democrat majority leaders. Bush is not alone on these decisions, Obama, just like you’re trying to say you’re not alone on them, either. It goes both ways. With the escalating push for government spending during and following the housing bubble crash, our economy went into a tailspin, stocks plummeted, and while many small businesses went belly up, others have had to layoff workers and are proceeding with caution in hiring. If people aren’t working, they hold back on spending, and if they hold back on spending, businesses that are still afloat aren’t growing. If they aren’t growing, there is NO need to hire new people. And a tax break for hiring isn’t much of an incentive if your small company is struggling and can’t justify bringing on new workers for work that isn’t there. Small businesses have, for the past decade, been responsible for about 70 percent of new jobs in America.

Successful small business owner and writer Jay Goltz wrote this excellent article for the New York Times, Why the Payroll Tax Break Won’t Create Jobs:

I just read a proposal from Senators Charles Schumer and Orrin Hatch in The New York Times that is meant to give private companies incentive to hire people who have been out of work for 60 days.

It is a well-intentioned, bipartisan attempt to jump-start hiring, and there are expectations that President Obama will propose something similar in his State of the Union address. The senators pitch their plan as simple and straightforward, and so it is: Any company that hires a worker who has been unemployed for at least 60 days will not have to pay the 6.2 percent FICA match for that employee for the rest of 2010. That, the senators point out, will encourage companies to act fast: “A $60,000 worker hired on Feb. 1 will save a business about $3,400 in taxes, while that same worker hired on May 1 will save it about $2,500.”

But as a small-business owner, I see one problem: It won’t work.

I don’t know if this is basic economics, basic capitalism or basic common sense, but businesses hire people to do work. Businesses don’t hire people if they don’t need them, whether there’s a tax break or not. If companies don’t have work for new hires to do, they aren’t going to hire them even if they’re on sale for 6.2 percent off. Or even 20 percent off.

Suppose, you might ask, a company is on the fence about hiring someone? Would the incentive make a difference in that case? That’s a fair question. Here’s how I look at it: I might consider adding a new salesperson because my company appears to be getting busier. And if I do hire a new person, the Schumer-Hatch plan might save me $1,500 in taxes by the end of the year.

But if in two months I realize that business is not in fact coming back as quickly as I had thought, and I need to lay off this person, I will likely end up paying out $5,000, $10,000, or even $20,000 in unemployment taxes for the person I hired and then laid off. Keep in mind, I will have saved only about $240 in FICA taxes because the new employee will have worked only two months. You don’t need a Harvard M.B.A. to see that the disincentives far outweigh the incentives. The only result of this bill would be to give away federal tax dollars to companies that were going to hire people anyway.

[...]

Again, I appreciate the fact that this is a well-intentioned, bipartisan proposal. But I wonder if the senators included any small-business owners in their discussions. I have a hard time believing I’m the only one who would raise this issue. Anyone who has been in business for a while knows that when you throw money at a problem, you frequently end up having the same problem — but less money.

From Bloomberg:

The proposal, which the president is seeking as part of a jobs bill in Congress, would give businesses a $5,000 tax credit for each new hire this year and reimburse the 6.2 percent Social Security tax for wage increases beyond inflation. Obama said the measures will help 1 million small businesses add employees or raise pay…

With U.S. employers having shed more than 7 million jobs since the start of the recession in December 2007 and the national unemployment rate at 10 percent, the president is putting emphasis on steps to boost hiring even as the government faces a budget deficit forecast to be $1.35 trillion this year.

The president is confronting approval ratings hovering at 50 percent or less and voter anger over the bailouts of companies like Citigroup Inc. and General Motors Co. Obama’s health-care agenda has stalled in Congress, and elections in November to determine control of the House and Senate may slow action by lawmakers.

Obama is announcing the plan, which he outlined in his Jan. 27 State of the Union address, at an event in Baltimore before speaking at an annual meeting of congressional Republicans.

[...]

The tax provisions being announced today would be capped at $500,000 to ensure that small businesses receive the bulk of the credits. Companies that reduce their payrolls in 2010 would be ineligible for both the hiring credit and wage bonus, according to an administration fact sheet.

From Business Owner’s ToolKit: Congress Leaves Tax Breaks in Limbo for 2010:

So preoccupied is the leadership in the Senate with its massive health care restructuring effort that routine, yet essential, legislative work on important tax matters has been ignored. As a result, dozens of tax provisions benefiting individuals, businesses and charities — tax provisions that Senate leaders claim they support–were allowed to expire on December 31, 2009. Tax extender legislation, as it is called, never came up for consideration in the Senate.

The House passed the Tax Extenders Act of 2009 (H.R. 4213) on December 9, providing a one-year extension of more than 50 tax breaks that expire at the end of 2009 before lawmakers left town for winter recess. The Senate, on the other hand, preoccupied with its all-consuming health-care wrangling, was unable to find time to address the tax package. Downplaying their failure to act, Senate Finance Committee leaders announced that they plan to move forward with a $30 billion package for tax extenders early in 2010.

Categories: Business & Economy, Government, Media & Communication, Social and Political Climate
Tags: Baltimore, Barack Obama, Congress, Democrat, economic recession, Jay Goltz, job, jobs, Maryland, Obama, Obama budget, political, politics, Senate, small business, tax breaks, unemployment