This Washington Post article about how the biggest winners of the incoming administrations plan to cut federal funding will be blue states–who typically get much less back in funding from DC than they send in taxes– is interesting.
I like the proposal of using the tax dollars not sent to preserve/ invest on a state level in public and social policies that have been/ will be abandoned on a Federal level, although I do find it heartbreaking to think of the poverty-stricken states which have been relying on Federal aid/ blue state taxes now bereft of all funds.
The bit about how blue states needing to find ways to ensure major corporations don’t leave for the more exploitative, tax haven, antitrust friendly laws likely to spring up in red states … I don’t know/ have any ideas about that. I kind of suspect that at a certain point, it relies on the values and integrity of the CEO/ shareholder board, honestly–if they value profit over community/ common unity, they’ll choose that every time. As someone clearly not of their milieu, I have no idea how they determine that moral line, or what is enough to tempt them to one side or the other when the stakes are in billions of dollars, human lives, and environmental health.
However, I have been thinking about small businesses lately. My dad was a small business owner after he retired, I’ve worked for several small business owners, and a friend just had to shutter their small business after a health care crisis due to tax costs and their inability to hire assistance. I’ve got other friends who own small businesses and decry the weight of taxes and licensing fees associated, and I know many more people who long to start a small business and have the intelligence and drive, but are fearful of the high risk.
I read an article recently about the wane in veteran-owned businesses, which is apparently a real problem. It seems veterans are most likely to hire and retain veterans–everyone else talks a good game about appreciating the military, but when you get down to it, people are afraid of people trained to kill, and are frightened of mental health disorders like PTSD.
So with fewer veterans starting businesses, there are fewer employed veterans overall–if even 100 vets right here in your town started small businesses, with 5-10 veteran employees each, that would between 600-1,000 vets employed. Think of that next time you drive past the vet begging for change on the corner.
Then, once a small business is started, the costs are a shock–even with a business plan. Ninety-six percent of small businesses are said to fail within 10 years.
From my experiences working with and for small businesses–which employ over 50 percent of the working population–they tend to be pretty nice people with good intentions, but shitty bosses with high turnover.
This isn’t malice, but a toxic mixture of stress and necessity, which leads to frustrations and resentments which more often can’t be expressed in the power dynamic of the workplace.
See, the SBO’s inventory costs don’t leave much wiggle room. SBOs don’t have the same bargaining power with vendors that big corporations do, nor do they have the production values or marketing power.
Plus, unlike major corporations, SBOs often either rent their office/ production facilities, or work from home, which means in addition to higher vendor/ inventory/ production costs, they likely pay a monthly rental fee, whereas major corporations likely own the property assets their offices/ production spaces are on.
Then, of course, the taxes and licensing fees for SBOs don’t leave much wiggle room, and that wiggle room is about to get a lot tighter.
There are a lot of reasons SBOs–who, unlike major corporate CEO/ shareholders in their wealth isolation, are actually involved members of their communities, might not pay their taxes, and they might surprise you.
Consider, first, that to classify as a nonemployer small business, you need an income of $1k or more and to be subject to Federal income taxes. Also realize that 75 percent of small businesses are nonemployer small businesses–meaning a lot of people, especially in this day and age, might not even realize they’re technically small business owners and tax dodgers.
Essentially, if an individual collects $1,000 in payments at any time over the course of the year due to sales, labor, advertising revenue, or some combination thereof, they’re technically a small business. Imagine the following scenario:
Dave and Sue have just had a kid, and since Sue makes more but they can’t afford childcare, Dave is staying home with the baby for the first few years. Bored, he starts updating his old Blogger blog and creating/ posting occasional short skits with the baby to YouTube, forgetting about the Google advertising account he’d activated years earlier.
So around Sue’s birthday in April, wanting to surprise her, he burns the midnight oil and stays up late on a freelance writing sites; earning $245 for his efforts, and splurges on a nice gift.
In June, Dave gets an email congratulating him on his increasing pageviews, and notifying him that there is $105.10 in his Adsense account. Delighted at the unexpected windfall, he naturally transfers the funds to their bank.
That September, at Sue’s urging, Dave lists several items he picked up over the summer from garage sales when he was out walking the baby. Though Sue agrees his finds of vintage tools, rock tumblers, and antique fishing reels are cool, she’s worried about Baby’s safety as he starts to creep, so Dave lists them on ebay and over the next three months makes a tidy profit of $762–just in time for Christmas!
That’s $1,112 aggregate, all with websites that report to the IRS and issued payments that Dave accepted–but to him, these were unrelated. Not a job. Not a business. Three distinct, unrelated events over the course of a year, across three different websites. There’s no real “brand”, his earnings are unrelated, and the motivations behind each payment (intentional freelance work, windfall, housecleaning) differs.
But from the perspective of the IRS, he’s now a small business owner who hasn’t filed the appropriate taxes and fees, so … doesn’t really matter.
That’s the ignorant small business tax dodger.
Then there’s the idealogical small business tax dodger–the libertarian or conservative who supports smaller government and fewer taxes. After decades of political campaigns and politicians who have successfully painted all taxes as inherently evil and undesirable, the idealogical SBO chooses to conduct as many of their transactions in cash as possible, out of the deeply held belief that taxes are an infringement on the personal freedoms of themselves, their clientele, and their employees, so they’re trying to run as much of the business “off the books” as possible. I have mostly run into this with home-garage auto/ motorcycle repair and beauty shops, but there must be other industries it pervades, too.
Then there are the educated professionals–doctors, lawyers, accountants, etc–who set up small firms and practices, and think they’re doing everything by the book. My dad, one of this class of small business owner, once told me the biggest issue bedeviling this community is how enamored they are of their own intelligence. Too often, they–especially the lawyers and accountants– fall prey to the fallacy that their education is more than sufficient to meet all the legal and financial challenges posed by running their business, and they will make the right/ necessary decisions free of enticement blunders. So they try to “save” on unnecessary expenses, like hiring an accountant or investing in payroll, and it costs them in the long run when the IRS does an audit.
SBOs are on citizen boards and the PTA. They volunteer in community events and donate funds to local causes. They live and shop in the same community they do business in, and they know people’s names and stories. They have enmities, friendships, and shared local histories. They’re not faceless corporations, intentionally dodging taxes through the canny use of offshore havens– or by writing off of billions in business losses while retaining far more in personal wealth–in order to consolidate wealth and drain local communities.
Major corporations regularly utilize tax havens, billion dollar write-offs, and collect millions in payments from the Federal government despite refusing to invest in the working class, stealing from pension funds, not cooperating with government programs intended to assist working class Americans, damaging the environment, and devastating local communities–but its the SBO who will be subjected to tighter tax scrutiny.
So, basically, SBO have higher costs than major corporations when it comes to inventory/ production, office space, taxes, and licensing. Oh, and of course–insurance protection, especially for doctors.
They can’t make it back in overhead–gotta stay competitive, and while customers are willing to give a little leeway for the higher costs of local business, money talks, and if prices are too high, it’ll talk those customers right over to the competition.
That leaves pretty much one place for SBO to cut costs: Employees.
So that’s what happens. That’s why there are 22.5 million nonemployer small businesses–businesses who officially don’t employ anyone (but from personal experience growing up with such a SBO as a parent, I can tell you that just like in Bob’s Burgers, family is the employees. I was answering phones, scheduling appointments, and filing papers instead of someone being paid for the position.)
Right now, we have a system that discourages new entrepreneurs from even starting a business in the first place; that keeps far too many of the SBO’S who do try from employing others in the community due to the prohibitive payroll taxes and fees associated with hiring employees; and which de-incentintivizes even the larger and more successful small businesses from investing in their staff, because that’s counterintuitive to everything we’ve been taught about business and financial success.
So I’ve been wondering lately how a sort of, like … a tiered tax incentive plan would work. I’m thinking something kind of similar to the child tax credit for families, except for small business owners and employees earning a living wage.
The idea would be to encourage investing in employees through training, retention, wages, and benefits, and to make all those things more affordable/ accessible to employers by creating more financial wiggle room in their accounting.
So a tax credit/write off that amereolates the associated payroll tax per employee paid a living wage would be one step to addressing that. It should not apply if the employee is not paid a living wage, though–the employee can’t invest back in the economy without a living wage.
There should also be tax credit/ write-off incentives tied to employment length–like, if an employee has been with a SBO 2 years, that SBO qualifies for a “job security” write off–if, four years later, they’ve retained the employee, the value of the write off increases, and so on every two years until a cutoff of X years or Y amount. So the longer an employee is with a SBO, basically, they larger a write off they can accrue–which encourages the SBO to invest in training, good pay, and cultivating respectful work environments, because it benefits them.
And if there aren’t already SBO write offs/ tax credits available for things like employee training programs, having HR, providing benefits, and offering employer donations to employee pensions or 401ks, then there really should be.
I think if blue states do begin to see their pocketbooks swell as Federal funding is cut, they should definitely look to small, local businesses and ways to incentivize them to hire employees and invest in their training, wages, and retention.
Just one thing–because of those idealogical/ libretarian type SBO, any such effort would need to be explicitly about opting in and rewarding those who choose to participate, while having a neutral effect on those who eschew it.
No fines or punishments or investigations started of those who don’t participate. Like if an nonemployer SBO decided not to hire paid employees, but keep relying on kids and spouse as unpaid labor, or preferred to hire “under the table” and pay with cash, that would be illegal–but the fact they’re reporting X income, while not reporting paid employees or claiming the ELWC shouldn’t be the cause of a potential labor investigation.
And if there’s a SBO who wants to do it the way they always have–hire employees at minimum wage and pay the full associated payroll tax; eschewing the ELWC because they’re opposed to the living wage on political principle or something–that should absolutely be their call. No fines or anything like that should be rolled out to deter decisions like that.
Personally, I think such businesses would not last long, especially as area wages rise and their employees leave to find greener pastures of their own accord. But they should be allowed to try.