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starbucks4ever (97.41)

Small Business is a myth

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September 22, 2010 – Comments (18)

Finally, a good article in Yahoo Finance. And also let's not forget the thousands of fraudulent businesses - all of them are very small.  

http://finance.yahoo.com/career-work/article/110775/time-to-stop-worshiping-small-businesses;_ylt=ArBYlwoleBmQvIvn7BpreaS7YWsA;_ylu=X3oDMTFmNGc0bjh2BHBvcwMzBHNlYwNleHBlcnRPcGluaW9uRHluYW1pYwRzbGsDbGV0c3N0b3B3b3Jz

18 Comments – Post Your Own

#1) On September 22, 2010 at 1:47 PM, ChrisGraley (29.76) wrote:

One of the worst and most incorrect articles I've ever read.

It's wrong on about every talking point.

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#2) On September 22, 2010 at 1:53 PM, eldemonio (98.92) wrote:

Rex Nutting penned that article?  He think he starred in a few dozen pornos back in the 70s.

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#3) On September 22, 2010 at 2:01 PM, starbucks4ever (97.41) wrote:

ChrisGraley,

Maybe you will at least agree with some of the punctuation marks in the article?

:) 

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#4) On September 22, 2010 at 2:06 PM, dargus (89.36) wrote:

The article is right on every talking point. I'm not going to offer any evidence, just state it as fact.

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#5) On September 22, 2010 at 2:30 PM, Melaschasm (56.93) wrote:

I think that article was poorly written. 

1.  The author complains that the government defines 'small business' to include some not small companies, but does not provide an alternative definition of small.  Nor does he provide compelling evidence that the government is using the wrong definition.

2.  He makes a very good point when claiming that it is new start ups which create jobs.  However, he does not evaluate the effectiveness of 'small business' programs in helping new businesses succeed. 

3.  He says that taxes have no effect on small or new business creation, growth, or success.  This is obviously false.  If you put a 100% tax on all profits of small or new companies, almost no new companies will be created.  He also ignores the important detail that many small/new companies are cash constrained.  If the government takes more of their cash, they have less to invest in people and equipment.

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#6) On September 22, 2010 at 4:03 PM, ChrisGraley (29.76) wrote:

Punctuation was ok zloj.

;)

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#7) On September 22, 2010 at 4:34 PM, ChrisGraley (29.76) wrote:

I believe that the tax we are talking about is for incomes over $250,0000. That would seem to suggest a small business to me.

Tax rates don't matter

Do I really need to argue here?

If employing more workers increases my profits by $10,000 a year to $260,000, that's good for me, even if I have to pay Uncle Sam $300 more than I would have under the old rates. I'm still well ahead of where I'd be if I hadn't expanded.

This would be a correct statement if the tax burden was not an extra $8,500 to $18,900 for that extra $10,000.

If I hire more workers, my business costs will increase. I'll have to pay their wages and benefits, train them, and buy the materials and the equipment they need. In order to turn a profit, I need to be able to sell the goods or services they produce for more than the cost of employing them.
If I cannot sell their product for more than it costs, I won't make a profit and I shouldn't hire them. My decision is based on two factors: Costs and revenues.
Notice that the decision does not depend on my tax rate. I pay taxes on the profits I receive, not on the costs of doing business.
If employing more workers increases my profits by $10,000 a year to $260,000, that's good for me, even if I have to pay Uncle Sam $300 more than I would have under the old rates. I'm still well ahead of where I'd be if I hadn't expanded.

Funny, when you get the math right, the sillyness of the above statement shines through. So not only do I take a big risk and worry about all of the above, the end result could be less money in my pocket and not more.

As far as the study about age vs size, I wonder what the age of the average small business is vs the age of the average corporation?

As far as innovation being the only way to create jobs, apparently the author is not familar with growth.

The article is pure garbage.

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#8) On September 22, 2010 at 4:50 PM, dargus (89.36) wrote:

I think the point the author was trying to make is that small changes in tax rates don't matter much. Obviously a 100% tax rate would cause some strange things to happen, such as most small businesses failing to report any profit at all.

 

Chris, how do you figure the tax burden on an extra $10,000 equates to somewhere between $8,500 and 18,900? Are you assuming all profits below $250,000 will be taxed at the higher rate once you cross $250,000? It doesn't work that way.

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#9) On September 22, 2010 at 5:15 PM, starbucks4ever (97.41) wrote:

I cannot deny that a 189% income tax rate implied by ChrisGraley would be too much of a burden on small business :)

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#10) On September 22, 2010 at 5:27 PM, outoffocus (22.83) wrote:

Chris, how do you figure the tax burden on an extra $10,000 equates to somewhere between $8,500 and 18,900

I believe he is referring to the cost of the employee, not the cost of revenue as a whole.  Remember, small businesses dont just pay taxes on income, they must pay their share of the employee's taxes as well as salary and benefits.  For the sake or argument, if you hire an employee and pay him $10000 a year in salary and benefits, and he generates $12000 in income thats great.  But when you are paying an extra $3000 in taxes or you are forced to spend and extra $2000 a year for government mandated benefits for that employee but he still generates the same $12000 income, suddenly hiring a new employee doesnt meat the cost benefit test.

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#11) On September 22, 2010 at 6:32 PM, dargus (89.36) wrote:

The CBO believes that salary and benefits are substitutable. If I end up paying extra money for required health care, I offer a lower salary. You will be paying the payroll tax regardless of the income tax increase, so I don't see how that is relevant to this comparison.

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#12) On September 22, 2010 at 6:37 PM, starbucks4ever (97.41) wrote:

dargus, there are different ways of seeing. When you need to save 2% of income, you will start seeing things that the rest of the world does not see :)

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#13) On September 22, 2010 at 7:32 PM, devoish (98.57) wrote:

Starting a new business is the last frontier left to us. Without new companies and new ideas creating new jobs, our economy would stagnate and die. - rex nutting - is that really his name?

earlier this morning i read a post concerning drug trials and a new company with new ideas. I have also read about old companys with new ideas, creating new jobs. So if all you want out of life is 50 years of work, who cares where it comes from? new business, old business, big business or small. Or for that matter government.

If I hire more workers, my business costs will increase. I'll have to pay their wages and benefits, train them, and buy the materials and the equipment they need. In order to turn a profit, I need to be able to sell the goods or services they produce for more than the cost of employing them. - Rex, is that really his name, Nutting

One thing that jumps out at me is that you guys are passing economics but failing life. The assumption that the only reason, especially a small business owner, has to hire employees is to increase revenues beyond that employees costs is silly. If my $250k is costing me 70 hours each week I may hire someone at a loss but to buy back 20 hours of my life. Maybe in addition to building the better steel girder, i would like to watch my kids play soccer, or race my 35' boat, or train my terriers, or ski in the Alps. You get the point.

Disregarding the concerns of higher life forms, changing the Government mandated costs of an employee, does not affect my hiring decision. All my competitors have the same costs, so if my hamburger is truly better, then i will have more business, and will need that employee. If not, the market will tell me.

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#14) On September 22, 2010 at 7:33 PM, devoish (98.57) wrote:

If not, the market will tell me. - Devoish

The hamburger market, not the stock market.

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#15) On September 22, 2010 at 7:47 PM, whereaminow (20.94) wrote:

If my $250k is costing me 70 hours each week I may hire someone at a loss but to buy back 20 hours of my life. Maybe in addition to building the better steel girder, i would like to watch my kids play soccer, or race my 35' boat, or train my terriers, or ski in the Alps. You get the point.

And you are free to do that.  You won't be in business too long, but you are more than welcome to try. 

Someone with that mentality is better off working in a low pressure job for someone else, rather than owning a business.  Don't mistake me. This is a value free judgment.  I don't think owning a business makes you a better person than being content with a job. 

But a business owner with that kind of attitude risks not only his business but the jobs of everyone working for him.

David in Qatar

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#16) On September 22, 2010 at 11:03 PM, ChrisGraley (29.76) wrote:

dargus, I was simply thinking about a business where the company employs the small business owner. That business pays a tax on profit, a corporate payroll tax and in most states, the same taxes at the state level in addition to $3900 income tax paid by the small business owner in the 39% tax bracket on the same $10,000 income.

devoish, I have to give you credit for being half right. In my youth, I couldn't pay an employee to do part of my job if I wanted to. No one was willing to do what I would do for anywhere close to the same price that I would do it for. Later in life, I was able to pay for others to do some of the minor things that I did and I was able to pay them less than I made at a now much higher wage to do so. 

I would never employ someone at a loss though, I don't mind making less of a profit, but an employee employed at a loss won't be an employee for long. I'm not doing that employee any favors.

You are 100% right about figuring out your own quality of life and the value of family time over extra income. Quality of life was a much bigger consideration as I got older. I only work longer than a 40 hour work week now when I'm filling in for someone else that has a life event or I feel that the situation needs my attention.

Disregarding the concerns of higher life forms, changing the Government mandated costs of an employee, does not affect my hiring decision. All my competitors have the same costs, so if my hamburger is truly better, then i will have more business, and will need that employee. If not, the market will tell me. 

This is not true at all. If it was true, I would totally agree with paying employees more than what they may be worth. The problem is that in a global marketplace, there isn't just one government. All my competitors don't have the same costs. It's the reason that we are a service economy now, instead of an economy that innovates and excels at a high growth rate. We can only compete with ourselves and the rest of the jobs get exported overseas. Your hamburger may taste better than the competition and the employee handing the burger to the customer may be employed by you, but that burger will be imported from China unless raising the cow here is cheaper than raising the cow there. I'm a huge fan of consumerism, and I don't mind a whole boatload of regulations to control the quality of a burger sold here, because in that case, our government can dictate what other countries do, We have a captive market, but that market is deteriorating with our lack of job creation. Unless we change our focus on encouraging economic growth, other countries will focus on selling products to China instead of selling products to the U.S. They are growing and we are shrinking.We are shrinking because we want to shut down our economic engine to reward under-achievement on the grounds of fairness. Hungrier countries reward achievement because it's economic fairness in their eyes. 

We actually have workers that are willing to outperform the rest of the global competition.They are gun-shy though and won't even try if they don't think their efforts will be rewarded. It's the fault of both government and business, but they don't believe that they will be rewarded for their efforts.We need to get back to basics. We need to reward achievement. Achievement grows the economy. 

I get a bunch of people asking me how to succeed, but when I tell them to do what I did, they think I'm lying to them. It's no lie. Sacrifice early, spend less than what you make, and reap the rewards later in life. If you sacrifice early in life, you can afford to make the quality of life choices that devoish proposes later in life.

 

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#17) On September 23, 2010 at 6:16 AM, devoish (98.57) wrote:

If you sacrifice early in life, you can afford to make the quality of life choices that devoish proposes later in life.

You made that sound guaranteed. The only guarantee you get by sacrificing early in life is that you sacrificed the early part of your life.

Right now lots of Americans who feel like they worked hard, and did a good job are screwed by the reduction of their pensions, 401k's and are being threatened with the loss of Social Security.

Know anyone who expects the rest of us to sacrifice then and sacrifice later?

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#18) On September 23, 2010 at 9:29 AM, ChrisGraley (29.76) wrote:

It's sad devoish but it everyone thinks that they worked hard in life, but few actually did.

 Right now lots of Americans who feel like they worked hard, and did a good job are screwed by the reduction of their pensions, 401k's and are being threatened with the loss of Social Security.

That's sad too, but people that depend on others for prosperity, (especially the government) should expect that someone else may not have their best interests in mind.

Know anyone who expects the rest of us to sacrifice then and sacrifice later? 

Chavez and Castro come to mind.

Want a guarantee? Death and taxes fit the bill. The rest is about the odds. The only way to change your odds is with hard work and smart decisions. 

 

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