Tuesday, July 26, 2011

Beware politicians protecting "small business"

Here we go again. Every thorny issue facing Washington—from financial reform to taxes to the current debt ceiling debacle—eventually becomes framed as doing what is right for small business. Which would be fine, if it weren't so often just a flimsy cover for a Big Business agenda. The latest example: House speaker John Boehner's rebuttal speech on raising the debt ceiling (to pay for expenses that Boehner and his fellow members of Congress have already approved, it bears repeating).

Boehner sprinkled his address with references to small business. Referring to President Obama's plan to cut spending while also closing corporate tax loopholes and letting tax breaks expire for the nation's wealthiest citizens, he said: "Having run a small business, I know those tax increases will destroy jobs."

Not so, according to some business leaders. As the American Sustainable Business Council, a coalition of business networks, pointed out in a letter to Boehner
"Please understand that not all business leaders agree with many of the points you make daily in the name of defending the private sector. It is inaccurate to lump together large and small business—and businesses in every sector of the U.S. economy--as if
all of our interests were exactly the same. Some might see this as a strategy to use the halo of small business to camouflage the excesses of big business."
The Council goes on to state that many business leaders believe raising revenue must be part of the solution, and that government services are critical for economic health.
"Cuts to programs for the young, old, disabled and unemployed will hurt not only our customer base, limiting their capacity to buy our products, but our nation as a whole. Further, we disagree with the perspective that any tax increase destroys jobs. We believe that there are important distinctions to be made between good taxes and bad taxes, between incentives that create jobs and real value for the economy and those that don’t. There are expenditures that are critical to improving productivity and the nation’s infrastructure and those that are a waste of money. Removal of certain subsidies for mature industries, in our view, does not constitute a tax increase but rather a smart business decision. This is how we run our companies – moving resources towards areas of greatest need in a constantly changing marketplace. "
The letter, written by executive director David Levine, points out that during the 1980s, Reagan raised taxes many times while  unemployment continued to fall. Ditto Clinton in 1993. And that corporate taxes as a share of federal receipts are at an historic low—all facts Boehner conveniently omits.

The Council raises two other important concerns: that the largest corporations rarely pay the statutory tax rate —after all, that's what their armies of accountants are for. Instead, the tax burden falls to small businesses who, despite creating almost all net job growth, are left footing the bill. And second, that job creation is the number one priority, so reduced tax rates should encourage jobs to be created here at home, not shipped overseas.  The Council's recommendations are a sane counterpoint to the shrill voice of the multinational-dominated Chamber of Commerce (although it would like to preserve Big Business tax breaks, even the Chamber insists the deficit ceiling must be raised).

Will Boehner take note? He may have once run a successful small business, but his sympathies seem to lie more with the deep-pocketed corporations that are filling his campaign coffers (and the Tea Party freshman that have hijacked the Republican party). Consider the following:

Three of the Speaker's five biggest funders this year are employees of three Wall Street firms: the hedge fund Paulson & Co., Moore Capital Management of New York, and Cantor Fitzgerald, reports Boston.com.

Securities and insurance firms were among his top donors last year,  according to the Sunlight Foundation. (The Sunlight Foundation, a nonpartisan organization that advocates for more transparency in government,  provides several handy tools to do your own sleuthing, by the way).

Not to pick on Speaker Boehner—he's just using the standard playbook for politicians these days. But when you hear an argument wrapped in the patriotic banner of small business, consider carefully the source.

Tuesday, July 12, 2011

Science can be crowdfunded, too

Interesting story today in the Times about scientists turning to crowdfunding to finance their research. Now there's an experiment to watch...

Credit Unions Want to Lend

Credit unions are expanding their business lending to fill a void left by banks. As USA Today reports: "Over the past year, credit union business lending is up 5%, while bank business lending is down 3% — a decline of about $95 billion, according the Credit Union National Association." So what do banks do? They fight a proposal that would allow credit unions to lend more to small businesses, naturally.

Right now, commercial lending by credit unions is limited to 12.5% of their total assets - a threshold that many credit unions are reaching. Bills in the House and Senate would raise the limit to 27.5% of assets, which credit union officials figure could unleash $13 billion in new small business lending in the first year.

The bankers argue that lifting the ceiling on commercial lending would put credit unions, which are tax-exempt and subject to different regulations, on unfair footing. Well, let's take a closer look.

Credit unions are exempt from federal income tax because they are non-profit cooperatives: owned, controlled by, and managed on behalf of their members. As such, they are governed by elected directors who serve as unpaid volunteers. Like other cooperatives, they distribute excess earnings back to members in the form of better rates and lower fees. Bank profits, in comparison, largely go to fat bonus payouts for execs and dividends to outside shareholders - you can bet Jamie Dimon is not returning it to you, dear customer! Capital standards for credit unions are more strict than banks, one factor that explains why relatively few were affected by the leverage-fueled meltdown of 2008. Credit unions are also constrained in how they can raise money. By law, they are barred from issuing stock, so the only way for credit unions to accumulate capital is through earnings - that is, the old fashioned practice of making good loans.  

If banks think credit unions have it so good, Mark Wolff, a spokesman for the Credit Union National Association,  urges them to go ahead an become a credit union. "You'd have to stop paying your directors, your CEO would have to take a steep pay cut... but hop on board!" Somehow, he told me, "they never seem to take us up on it." 

Wednesday, July 6, 2011

Slow Money NYC

My piece on the recent Slow Money Entrepreneur Showcase is in the current edition of Edible Brooklyn!

Friday, July 1, 2011

Profits over People

The Economix blog today reports on a devastating new report  by Northeastern University that shines a light on the lopsided economic recovery that has showered profits on large corporations while workers continue to be squeezed.

Here it is in black & white: Since the recovery began in June 1999, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth — a situation the researchers call unprecedented. Keep that in mind next time you hear corporate executives and their lobbyists complaining of unfair policies. You can download a pdf of the report, "The Jobless and Wageless Recovery," here.