What drives an entrepreneur to start a business? Is it solely about money? Or is there something more? I argue that often it is the same creative drive that compels an artist to paint, a musician to compose, or a sculptor to look at a piece of rough marble and see an angel inside. And those who understand the mind of the small business owner know why the proposed tax increase in 2011 will do more harm than good to the very people this economy needs most to create jobs.
On FBN’s Bulls & Bears recently Democratic strategist Jehmu Greene, the token liberal steak tossed into the wolf den of laissez faire commentators, uttered words to the effect that if we allow the Bush tax cuts to remain, the “rich” (I guess that’s me?) will not put the money into the economy but rather just squirrel it away “in their banks…It would not go into job creation or creating capital for small business.”
My first thought was: “In my bank? Really? How many businesses have you owned?” (To be fair she did co-found some internet venture called Urban Hang Suite which shuttered in 2003). But then I reminded myself that, like Ms. Greene herself who has been in non-profit and/or government almost her entire career, very few people in the Obama administration, from the president on down, have ever started a business. Thus they cannot understand what drives entrepreneurs to succeed. They think it is just about take-home pay.
It’s said that small business owners work eighteen hour days for ourselves so we don’t have to work eight hours a day for someone else. And often our income on a dollar/hour basis is less than the established firms we may have left to go on our own. Certainly this is generally true for those few scary years at the beginning when a myriad of mistakes are made and unanticipated events occur that prompt the principals to pay ourselves only after all other obligations have been met So why do it? Why take such risk?
First, the sense of pride of ownership and having built something from nothing is as strong in an entrepreneur as it is in the artists I alluded to earlier. This is often a foreign concept to those who have spent their lives in secure positions in academia, government, or as line workers and middle managers in huge firms and thus do they discount our passion to create something while passing judgments like Ms. Greene’s. Do not underestimate the fact that more than just money drives us to take such enormous personal risk.
Secondly, there is of course that brass ring of selling the firm and walking away with a nice pay-out in hand. Still, I know of very few successful entrepreneurs who upon a sale leave the world of business. Rather they look for new ventures. New challenges. New job creating entities. Name an artist satisfied at just one piece.
Now, our company’s value is enhanced by increased business. We have to grow in order to build our firm into a salable entity. And that usually means a larger workforce to generate more revenues. It’s no coincidence that the targeted 2% of Americans making north of $250k create 28% of the nation’s new jobs. The reason letting the tax breaks expire is an impediment to that growth is that many small business owners have their business and personal income intertwined. And as such a 5% tax on their personal income is a de facto 5% surcharge on their business. For someone making $1mm a year, that is a $50k hit to their business…two entry level employees. In the end, we are employers, not charity wards. We take the risks, it is our capital—and homes—at stake and so we will look to other ways to cut before reducing our own deserved compensation. So in order to make up the shortfall and keep an owner level with 2010 all else being equal, these two employees may get let go. Certainly an owner will put off hiring until he/she knows if they can afford new hands or not. The new mantra for small business is “don’t hire one until you need two.” Not the best recipe for getting the job creators excited about growing the payroll is it?
Before sitting down to write this I looked over my small company’s five-year projections. Always we try to gage our fixed costs. When we have some certainty on costs we can plan around them and ‘stress test’ to see how we survive in given revenue scenarios and prepare measures today in anticipation of any issues down the road. Then we can better tell, for example, how much interest we can afford each month on a loan (assuming we can get one) to bring in more capital and expand the firm—and hire people we need to get us to the next level and that much closer to that holy grail of being bought out while satisfying our desire to build something special along the way. But right now there is a big blank “N/A” on the spreadheet cells labeled “Federal Income Tax.” Until I know what to plug in there, it will be hard to move forward.
Next time you hear an economist or denizen of Wall Street talk about how the "American economy" is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that's mending is America's Big Money economy. It's comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That's partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It's essentially free money to America's Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They're merging and acquiring other companies.
And they're going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They're selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America's biggest investors are also going abroad to get a nice return on their money.
So don't worry about America's Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America's largest corporations are heading upward.
But there's another American economy, and it's not on the mend. Call it the Average Worker economy.
Last Friday's jobs report showed 159,000 new private-sector jobs in October. That's better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
Yet the American economy has lost 15 million jobs since the start of the Great Recession. And if you add in the growth of the labor force -- including everyone too discouraged to look for a job -- we're down about 22 million.
Or to put it another way, we're still getting nowhere on jobs.
One out of eight breadwinners is still out of work. Most families in the Average Worker economy rely on two breadwinners. So if one out of eight isn't working, chances are high that family incomes are down compared to what they were three years ago.
And that means the bills aren't getting paid.
According to a recent Washington Post poll, more than half of all Americans -- 53 percent -- are worried about making their mortgage payments. This is many more than were worried two years ago, when the Great Recession hit bottom. Then, 37 percent expressed worry.
Delinquency rates on home loans are rising. Distressed sales are up as a percent of total sales.
Most people in the Average Worker economy own few shares of stock, if any. Their equity is in their homes. But with all the delinquencies and distressed sales, the housing market has a glut of homes for sale. As a result, home prices are still dropping. So the net worth of most Americans is still dropping.
And even though interest rates are falling, most people in the Average Worker economy can't refinance their homes. They can't get home equity loans. Banks don't want to lend to the Average Worker economy because people in it are considered bad credit risks. They still owe lots of money, their family incomes are down, and their net worth has fallen.
And according to the Reuters/University of Michigan survey of American consumers, expectations about personal finances are at an all time low.
Inhabitants of the Big Money economy are celebrating Republican wins last week. They figure financial regulations will be rolled back, environmental regulations will be canned, the Bush tax cut will be extended to the top 1 percent, and it will be harder for workers to form unions.
Inhabitants of the Average Worker economy aren't so sure. The economy has been so bad they're angry at politicians. They showed their anger at the ballot box. They took it out on incumbents.
But if nothing changes in the Average Worker economy, there will be hell to pay.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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What drives an entrepreneur to start a business? Is it solely about money? Or is there something more? I argue that often it is the same creative drive that compels an artist to paint, a musician to compose, or a sculptor to look at a piece of rough marble and see an angel inside. And those who understand the mind of the small business owner know why the proposed tax increase in 2011 will do more harm than good to the very people this economy needs most to create jobs.
On FBN’s Bulls & Bears recently Democratic strategist Jehmu Greene, the token liberal steak tossed into the wolf den of laissez faire commentators, uttered words to the effect that if we allow the Bush tax cuts to remain, the “rich” (I guess that’s me?) will not put the money into the economy but rather just squirrel it away “in their banks…It would not go into job creation or creating capital for small business.”
My first thought was: “In my bank? Really? How many businesses have you owned?” (To be fair she did co-found some internet venture called Urban Hang Suite which shuttered in 2003). But then I reminded myself that, like Ms. Greene herself who has been in non-profit and/or government almost her entire career, very few people in the Obama administration, from the president on down, have ever started a business. Thus they cannot understand what drives entrepreneurs to succeed. They think it is just about take-home pay.
It’s said that small business owners work eighteen hour days for ourselves so we don’t have to work eight hours a day for someone else. And often our income on a dollar/hour basis is less than the established firms we may have left to go on our own. Certainly this is generally true for those few scary years at the beginning when a myriad of mistakes are made and unanticipated events occur that prompt the principals to pay ourselves only after all other obligations have been met So why do it? Why take such risk?
First, the sense of pride of ownership and having built something from nothing is as strong in an entrepreneur as it is in the artists I alluded to earlier. This is often a foreign concept to those who have spent their lives in secure positions in academia, government, or as line workers and middle managers in huge firms and thus do they discount our passion to create something while passing judgments like Ms. Greene’s. Do not underestimate the fact that more than just money drives us to take such enormous personal risk.
Secondly, there is of course that brass ring of selling the firm and walking away with a nice pay-out in hand. Still, I know of very few successful entrepreneurs who upon a sale leave the world of business. Rather they look for new ventures. New challenges. New job creating entities. Name an artist satisfied at just one piece.
Now, our company’s value is enhanced by increased business. We have to grow in order to build our firm into a salable entity. And that usually means a larger workforce to generate more revenues. It’s no coincidence that the targeted 2% of Americans making north of $250k create 28% of the nation’s new jobs. The reason letting the tax breaks expire is an impediment to that growth is that many small business owners have their business and personal income intertwined. And as such a 5% tax on their personal income is a de facto 5% surcharge on their business. For someone making $1mm a year, that is a $50k hit to their business…two entry level employees. In the end, we are employers, not charity wards. We take the risks, it is our capital—and homes—at stake and so we will look to other ways to cut before reducing our own deserved compensation. So in order to make up the shortfall and keep an owner level with 2010 all else being equal, these two employees may get let go. Certainly an owner will put off hiring until he/she knows if they can afford new hands or not. The new mantra for small business is “don’t hire one until you need two.” Not the best recipe for getting the job creators excited about growing the payroll is it?
Before sitting down to write this I looked over my small company’s five-year projections. Always we try to gage our fixed costs. When we have some certainty on costs we can plan around them and ‘stress test’ to see how we survive in given revenue scenarios and prepare measures today in anticipation of any issues down the road. Then we can better tell, for example, how much interest we can afford each month on a loan (assuming we can get one) to bring in more capital and expand the firm—and hire people we need to get us to the next level and that much closer to that holy grail of being bought out while satisfying our desire to build something special along the way. But right now there is a big blank “N/A” on the spreadheet cells labeled “Federal Income Tax.” Until I know what to plug in there, it will be hard to move forward.
Next time you hear an economist or denizen of Wall Street talk about how the "American economy" is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that's mending is America's Big Money economy. It's comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That's partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It's essentially free money to America's Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They're merging and acquiring other companies.
And they're going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They're selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America's biggest investors are also going abroad to get a nice return on their money.
So don't worry about America's Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America's largest corporations are heading upward.
But there's another American economy, and it's not on the mend. Call it the Average Worker economy.
Last Friday's jobs report showed 159,000 new private-sector jobs in October. That's better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
Yet the American economy has lost 15 million jobs since the start of the Great Recession. And if you add in the growth of the labor force -- including everyone too discouraged to look for a job -- we're down about 22 million.
Or to put it another way, we're still getting nowhere on jobs.
One out of eight breadwinners is still out of work. Most families in the Average Worker economy rely on two breadwinners. So if one out of eight isn't working, chances are high that family incomes are down compared to what they were three years ago.
And that means the bills aren't getting paid.
According to a recent Washington Post poll, more than half of all Americans -- 53 percent -- are worried about making their mortgage payments. This is many more than were worried two years ago, when the Great Recession hit bottom. Then, 37 percent expressed worry.
Delinquency rates on home loans are rising. Distressed sales are up as a percent of total sales.
Most people in the Average Worker economy own few shares of stock, if any. Their equity is in their homes. But with all the delinquencies and distressed sales, the housing market has a glut of homes for sale. As a result, home prices are still dropping. So the net worth of most Americans is still dropping.
And even though interest rates are falling, most people in the Average Worker economy can't refinance their homes. They can't get home equity loans. Banks don't want to lend to the Average Worker economy because people in it are considered bad credit risks. They still owe lots of money, their family incomes are down, and their net worth has fallen.
And according to the Reuters/University of Michigan survey of American consumers, expectations about personal finances are at an all time low.
Inhabitants of the Big Money economy are celebrating Republican wins last week. They figure financial regulations will be rolled back, environmental regulations will be canned, the Bush tax cut will be extended to the top 1 percent, and it will be harder for workers to form unions.
Inhabitants of the Average Worker economy aren't so sure. The economy has been so bad they're angry at politicians. They showed their anger at the ballot box. They took it out on incumbents.
But if nothing changes in the Average Worker economy, there will be hell to pay.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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Live Blog: President Obama's <b>news</b> conference – CNN Political <b>...</b>
President Obama will hold a previously unscheduled news conference on Tuesday at 2:20 p.m. likely focusing on the compromise with Republicans on tax cuts, the White House announced. Check back here for CNN's live blog of the press ...
Hulu plans its own entertainment <b>news</b> show, but will anyone watch?
As Peter Kafka at MediaMemo reports, Hulu is currently casting for a presenter for the show which will be published daily, taking a 'Daily Show'-style satirical approach to the latest entertainment news. Hulu (backed by US TV giants NBC ...
Steve Lopez: Dodgers divorce ruling good <b>news</b> for fans who want <b>...</b>
Around my office, the reactions were nearly unanimous recently when it came time to decide whether to keep our shares in a Dodgers season-ticket plan. One guy had the good sense to opt out; the rest of us saps, who...
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What drives an entrepreneur to start a business? Is it solely about money? Or is there something more? I argue that often it is the same creative drive that compels an artist to paint, a musician to compose, or a sculptor to look at a piece of rough marble and see an angel inside. And those who understand the mind of the small business owner know why the proposed tax increase in 2011 will do more harm than good to the very people this economy needs most to create jobs.
On FBN’s Bulls & Bears recently Democratic strategist Jehmu Greene, the token liberal steak tossed into the wolf den of laissez faire commentators, uttered words to the effect that if we allow the Bush tax cuts to remain, the “rich” (I guess that’s me?) will not put the money into the economy but rather just squirrel it away “in their banks…It would not go into job creation or creating capital for small business.”
My first thought was: “In my bank? Really? How many businesses have you owned?” (To be fair she did co-found some internet venture called Urban Hang Suite which shuttered in 2003). But then I reminded myself that, like Ms. Greene herself who has been in non-profit and/or government almost her entire career, very few people in the Obama administration, from the president on down, have ever started a business. Thus they cannot understand what drives entrepreneurs to succeed. They think it is just about take-home pay.
It’s said that small business owners work eighteen hour days for ourselves so we don’t have to work eight hours a day for someone else. And often our income on a dollar/hour basis is less than the established firms we may have left to go on our own. Certainly this is generally true for those few scary years at the beginning when a myriad of mistakes are made and unanticipated events occur that prompt the principals to pay ourselves only after all other obligations have been met So why do it? Why take such risk?
First, the sense of pride of ownership and having built something from nothing is as strong in an entrepreneur as it is in the artists I alluded to earlier. This is often a foreign concept to those who have spent their lives in secure positions in academia, government, or as line workers and middle managers in huge firms and thus do they discount our passion to create something while passing judgments like Ms. Greene’s. Do not underestimate the fact that more than just money drives us to take such enormous personal risk.
Secondly, there is of course that brass ring of selling the firm and walking away with a nice pay-out in hand. Still, I know of very few successful entrepreneurs who upon a sale leave the world of business. Rather they look for new ventures. New challenges. New job creating entities. Name an artist satisfied at just one piece.
Now, our company’s value is enhanced by increased business. We have to grow in order to build our firm into a salable entity. And that usually means a larger workforce to generate more revenues. It’s no coincidence that the targeted 2% of Americans making north of $250k create 28% of the nation’s new jobs. The reason letting the tax breaks expire is an impediment to that growth is that many small business owners have their business and personal income intertwined. And as such a 5% tax on their personal income is a de facto 5% surcharge on their business. For someone making $1mm a year, that is a $50k hit to their business…two entry level employees. In the end, we are employers, not charity wards. We take the risks, it is our capital—and homes—at stake and so we will look to other ways to cut before reducing our own deserved compensation. So in order to make up the shortfall and keep an owner level with 2010 all else being equal, these two employees may get let go. Certainly an owner will put off hiring until he/she knows if they can afford new hands or not. The new mantra for small business is “don’t hire one until you need two.” Not the best recipe for getting the job creators excited about growing the payroll is it?
Before sitting down to write this I looked over my small company’s five-year projections. Always we try to gage our fixed costs. When we have some certainty on costs we can plan around them and ‘stress test’ to see how we survive in given revenue scenarios and prepare measures today in anticipation of any issues down the road. Then we can better tell, for example, how much interest we can afford each month on a loan (assuming we can get one) to bring in more capital and expand the firm—and hire people we need to get us to the next level and that much closer to that holy grail of being bought out while satisfying our desire to build something special along the way. But right now there is a big blank “N/A” on the spreadheet cells labeled “Federal Income Tax.” Until I know what to plug in there, it will be hard to move forward.
Next time you hear an economist or denizen of Wall Street talk about how the "American economy" is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that's mending is America's Big Money economy. It's comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That's partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It's essentially free money to America's Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They're merging and acquiring other companies.
And they're going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They're selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America's biggest investors are also going abroad to get a nice return on their money.
So don't worry about America's Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America's largest corporations are heading upward.
But there's another American economy, and it's not on the mend. Call it the Average Worker economy.
Last Friday's jobs report showed 159,000 new private-sector jobs in October. That's better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
Yet the American economy has lost 15 million jobs since the start of the Great Recession. And if you add in the growth of the labor force -- including everyone too discouraged to look for a job -- we're down about 22 million.
Or to put it another way, we're still getting nowhere on jobs.
One out of eight breadwinners is still out of work. Most families in the Average Worker economy rely on two breadwinners. So if one out of eight isn't working, chances are high that family incomes are down compared to what they were three years ago.
And that means the bills aren't getting paid.
According to a recent Washington Post poll, more than half of all Americans -- 53 percent -- are worried about making their mortgage payments. This is many more than were worried two years ago, when the Great Recession hit bottom. Then, 37 percent expressed worry.
Delinquency rates on home loans are rising. Distressed sales are up as a percent of total sales.
Most people in the Average Worker economy own few shares of stock, if any. Their equity is in their homes. But with all the delinquencies and distressed sales, the housing market has a glut of homes for sale. As a result, home prices are still dropping. So the net worth of most Americans is still dropping.
And even though interest rates are falling, most people in the Average Worker economy can't refinance their homes. They can't get home equity loans. Banks don't want to lend to the Average Worker economy because people in it are considered bad credit risks. They still owe lots of money, their family incomes are down, and their net worth has fallen.
And according to the Reuters/University of Michigan survey of American consumers, expectations about personal finances are at an all time low.
Inhabitants of the Big Money economy are celebrating Republican wins last week. They figure financial regulations will be rolled back, environmental regulations will be canned, the Bush tax cut will be extended to the top 1 percent, and it will be harder for workers to form unions.
Inhabitants of the Average Worker economy aren't so sure. The economy has been so bad they're angry at politicians. They showed their anger at the ballot box. They took it out on incumbents.
But if nothing changes in the Average Worker economy, there will be hell to pay.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
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