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.

Hullabaloo

Wednesday, December 01, 2010

This is CNN

by digby

Here is what CNN told me this morning about the Deficit Commission report. I swear it is a true transcript. You can check it later when it goes up on their site:

Alan Simpson: The fact is that we all know the figures and we all know the math. This is it. No more fun and games, smoke and mirrors, alchemy, cunning, trickery, CYA demagoguery and making promises we can't possibly keep.

CNN Celebrity Brooke Baldwin: I will spare you the figures and the math because it quite simply makes my eyes glaze over. But here's the situation.

The government, like your household takes in money every months and spends in on necessities, luxuries, whatever. If the money runs out, the government and many households use credit to keep on spending. And that works for a while. But at some point, if nothing changes, every dollar that comes in goes into the payment of the debt. Every other expense, food shelter, cable is cut off or paid for with more debt.

In 15 years, if nothing changes, every dollar the federal government takes in will go for social security and Medicare, the so-called entitlements. And also for the interest on the debt. There will be NO Money for anything else.

Even before that happens, the panel warns that it will drive up the cost of borrowing shrinking the government's options when it needs cash for emergencies and sending more and more of our tax dollars to other countries that hold America's IOUs.

Already foreigners own more than half of all of our debt, with China -- you probably guessed that -- leading the pack.

Now we could spend hours going through the spending cuts the panel may recommend, but with all the fuss about extending the Bush era tax cuts you might wonder how high the rates might go for you if the debt commission gets its way. And again, that's a long way off from actually happening. Bottom line, income tax rates would go down, maybe as low as 8% for the lowest earners, but exemptions, credits would go away or be sharply reduced. In fact, the federal gas tax would go quite up at 15 cents a gallon. Stay tuned for that.

Yeah, the math makes my eyes glaze over too. But that's no reason to just babble nonsense and lies and call it news. Talk about smoke and mirrors and making promises you can't keep ...

I don't even know where to start. But I'll try.

1) The government is not like your household for a million reasons, not the least of which is the fact that the world over still considers the US Treasury bond, unlike your "promise" to pay your credit card bill, to be the safest financial instrument in the world. Perhaps you think the US really is on the verge of Armageddon, but if you do then we have bigger problems than debt and we might want to shift our focus a bit. And then there's the taxing and money printing thing, which we won't even go into.

2) But be that as it may, let's stipulate that the government is incurring debt that it is going to have to pay back. Why are social security, medicare and interest the only things we're allegedly "borrowing" for? If you're going to say that "entitlements" are just a bunch of IOUs, then everything else is too --- after all, the government is funding a bunch of wars and Homeland Security and food inspections and agriculture subsidies and a million other things and I don't recall there being any rule that the first tax dollars go to paying for them and then once they're gone we borrow for the "entitlements."

And needless to say, the irony of this is so thick you need a hacksaw to get through it considering the fact that Social Security isn't, in fact, counted in to the deficit figures at all, and it shouldn't be because it has a separate revenue stream, which the government borrows from and issues those treasury bonds that all those foreign countries are lining up to buy. But hey, when you go this far down the rabbit hole what the hell's the difference.

3) The gibberish about the government not being able to borrow cheaply for emergencies is just confidence fairy nonsense --- interest rates could go up for any number of reasons, but so far, despite a global financial meltdown and this being the worst financial slump since the 1930s, they aren't. So this is just shock doctrine BS designed to make people more afraid of what might happen than what's already happening. (Meanwhile, you've got other people banging their drums against inflation, so let's just say this whole line of thought has gotten very confused -- on purpose, I might add.)

4) Then comes the nonsense about us "borrowing" from other countries. Yes the Chinese and others are buying US treasuries bonds, hence they are "lending" us money. But they aren't doing it because the US is going to them hat in hand and begging for it or because they've hatched some nefarious scheme to steal your tax dollars. They are doing it because it's a good financial deal for them. At this point, it would seem that the Chinese actually have greater faith in the US than Americans do.

5)Then there's all that icky spending cut junk (like cutting benefits for old and sick people) that we don't have hours to talk about. Whatevur. So let's get to the really important stuff -- taxes. And guess what? They're going to go down for the lowest earners and a bunch of loopholes will be cut, isn't that awesome? (Well, except for that gas tax, which she knows very well will be very, very unpopular, so it's not like we won't have anything to complain about.) No mention of the fact that for some odd reason, the commissioners also decided that it was important to cut the taxes of millionaires even more and agree to never let them get above an arbitrary figure. (What that has to do with deficit reduction is still unclear unless they have become supply-side clones, are under the illusion that this will please the confidence fairies or just want to give a little tribute to their rich friends.)But anyway, why should we care about that? Gas tax! Boogabooga!

This is what passes for mainstream journalism on this subject and it's damned scary. But it is a good explanation as to why the country is contradictory and ignorant about the economy and the deficit. Remember, this isn't FOX News, it's CNN which is where the "independents" and many liberals get their news.

I remain convinced that one of the main causes of the systemic breakdown in our human organizing functions is the dumbing down of the media. When you listen to old broadcasts of journalists and politicians, they did not sound this stupid, not even the stupid ones.

.

digby 12/01/2010 12:46:00 PM

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eric seiger do

Wednesday, December 1, 2010

Making Money on Line

Hullabaloo

Wednesday, December 01, 2010

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