Justin Velez-Hagan
+ FollowDemocrats Dense on Small Business
Democrats still don’t know what it takes to encourage small business hiring and growth.
During a recent Latino Business Summit, Senate Democrats touted successful legislation such as the HIRE Act, which reduced payroll taxes and provided a $1000 tax credit as a way to prompt hiring.
These Democrats must have never owned a business.
Ultimately, it costs, on average, 1.5-2 year’s salary to hire a new employee. A few thousand dollars is a drop in the bucket and will not affect most business owners’ decision to hire.
Speakers also promoted programs that will increase access to capital as well as contracting and procurement opportunities.
Again, Democrats just do not get it.
Although most businesses claim that access to capital is their number one reason for not growing, the truth is the number one reason they don’t grow is for a lack of business (most small businesses looking for capital, want to invest in marketing). Capital is out there and, frankly, it’s prevalent if you have a business model that works.
I am often contacted by investor groups who want to find businesses worth investing in. What’s the catch? They want to see profits and the potential for significant future growth. Unfortunately, these greedy investors want to be sure they get a long-term return on their money.
All of the other programs mentioned during the summit involved federal contracting and procurement opportunities. Opportunities to work with the federal government are great, if you work for or plan to work with the federal government. The majority of American businesses do not.
More than 10 prominent Senate Democrats gave remarks that promoted the President’s American Jobs Act. Which is interesting considering they couldn’t find the clout to pass it earlier this week. Among the benefits to the Act is a 50% reduction in payroll tax for both employers and employees through the coming year, as well as relatively small tax credit incentives for the “long-term” unemployed and veterans.
Veterans deserve all the help we can offer. But, for the same reasons I mentioned above, these incentives will not be enough to encourage substantial business growth.
So, as a small business owner, what will make me hire a new employee?
First, reduce the bureaucratic process required to open a business. I recently turned down an opportunity to develop a business in an economically impoverished location because the average length of time it would have taken to cut through the red tape was five years. No thanks. I’ll take my business elsewhere.
Secondly, guarantee my future tax rate and keep it low. Yeah, this is the Republican mantra. But it will work.
While putting together a five-year pro forma for my business plan (which every investor requires, at a minimum) I have to figure out what my profits will be. Democrats are always discussing how to raise my business and personal taxes, which increases the risk that my projection will not be accurate. This not only concerns my potential investors, but it scares me as well.
Republicans, on the other hand, are “threatening” to lower my taxes. Even if I were guaranteed a tax rate that is level and clear over the next five years, I would be much more willing to invest, expand, and hire.
Why do Democrats have such a hard time understanding what drives a small business to hire and grow? No one really knows. But perhaps it doesn’t help that among the nearly 40 small business owners in Congress (excluding professional practices such as doctors and lawyers), according to the New York Times, only a couple are Democrats. Only one is a Democratic senator.
As the old saying goes, “it takes one to know one.” Perhaps Democratic senators will need a few more than just one before they understand what will really make a small business hire.
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7 Responses to Democrats Dense on Small Business
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adeyemo1 says:
Justin Velez-Hagan: You are partially right about the HIRE Act but you are not aware that the HIRE Act was authored by Senator Schumer of New York; a Democrat and Senator Orrin Hatch of Utah; a Republican. So do more research before you post things on the internet.
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Anonymous says:
I believe he suggested that Democrats "touted" the HIRE act during this so-called Summit. Orrin Hatch doesn't seem to have been there. Perhaps you should read a full sentence before you make an ignorant comment.
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What is the ignorant comment? I apologize for making the ignorant comment.
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If your explanation for the reason why businesses aren't growing is because of a lack of consumer demand, tax incentives — incl. credits, rebates, abatements, and subsidies — wouldn't increase demand at all. They would only reduce overhead, and then a nominal amount for a short period of time.
Job creation is rarely a linear, dollar-for-dollar process. Let's say an auto detailing franchisee looks to open a new location. The annual net income at the existing location is $30,000; the annual tax liability is 11%, or $3,300. The franchisee projects the new location's time to break even at 18 months and 3 months' start up costs to equal $17,400. It would be more expedient and less financially risky for the franchisee to capitalize start-up costs by leveraging equity in the first location than to take it directly from last year's profit, or attempt to reduce costs at the first location by the same amount.
A competent entrepreneur can assemble/organize capital in manner such that cash flows ramp up to cover outlays faster and more efficiently than tax incentives can be realized.