The National Federation of Independent Business released is monthly Small Business Economic Trends this morning, with Small Business Optimism rising from 92.0 in November to 93.8 in December. It was the fifth consecutive monthly gain, up from 88.1 in August.

Along with the gain in confidence, the net percentage of respondents saying that the next three months are a “good time to expand” has increased to 10, its highest level since before the recession. Likewise, small business owners are also more optimistic about future sales, employment and capital spending.

Nonetheless, it is important to note that small businesses remain anxious despite these improvements. Traditionally, small businesses are experiencing strong growth once the Optimism Index exceeds 100 – a threshold that it has not surpassed since 2006. Moreover, of those suggesting that now is not a good time for expansion, poor economic conditions and an unsettling political climate are cited. The single most important problem continues to be “poor sales” followed by taxes and government regulations.

Chad Moutray is chief economist, National Association of Manufacturers.

Despite some progress in overall economic conditions since the recess, small business owners remain anxious about the economy. These concerns have had real impacts on the smaller firms’ willingness to invest in their businesses, hire additional workers, or seek additional capital.

Given that smaller businesses have traditionally led economic growth coming out of a recession, the fact that this is not happening this time around is hampering employment and economic growth. Two recent surveys have highlighted this fact.

First, the U.S. Chamber of Commerce conducted it’s annual Small Business Outlook Survey. Nearly half of small businesses, defined as those with under $25 million in annual sales, felt that economic uncertainty was their top concern. Other top challenges included fiscal efforts to address the federal deficit and debt, government regulations and the Health Care law.

In addition, 64 percent intended to keep the same number of employees over the next year, with 19 percent planning additional hiring. Interestingly, despite negative views on the national economy, almost two-third report that their own businesses are “on the right track.”

Earlier today, the National Federation of Independent Business released its Small Business Optimism Index, which fell from 90.9 in May to 90.8 in June. While virtually the same as the previous month, the index reflects continued wariness on the part of small business owners. Over half of the respondents who suggested that the next six months were not a good time to expand, said that economic conditions were the reason. The top concern remains “poor sales.”

Chad Moutray is chief economist, National Association of Manufacturers.

Budgets and deficits and debt dominated the Sunday TV news-chat shows, and the partisans brought us a mixture of principled arguments and same old talking points.

Unfortunately, Sen. Charles Schumer (D-NY) favored the latter in his appearance on CBS’ “Face the Nation.” From the transcript:

SENATOR CHARLES SCHUMER: You need to share sacrifice. And we believe that, for instance, defense cuts should be greater than Ryan proposed. You can’t– there’s waste there like everywhere else. And even more importantly there have to be revenues. If you’re going to reduce the deficit, how do you allow the oil companies to get huge subsidies? Which was based on a time when oil was seventeen dollars a barrel not a hundred? How do you give tax breaks for multimillionaires and companies that send jobs overseas and yet decimate middle class programs? So it’s got to be–
BOB SCHIEFFER (overlapping): You’re– you’re– you’re talking–
SENATOR CHARLES SCHUMER (overlapping): –fair. It’s got to be fair and across the board.
BOB SCHIEFFER: But you say it’s got to include revenues so you’re talking about raising taxes?
SENATOR CHARLES SCHUMER: Well, there are revenues in terms of oil company liabilities. There are revenues in terms of tax breaks to corporations that go all overseas. But I think many of us feel that tax breaks for millionaires is part of that shared sacrifice absolutely.

These were the same bogus arguments made against extending the 2001 and 2003 tax cuts last year, and Schumer’s attacks on “tax breaks for millionaires” are just a repeated bid for raising taxes on small business. Remember:

• More than 70 percent of manufacturers file as pass-through entities and pay taxes at the individual rate. (See here and here.)

The accusations against oil companies are also old hat, as well as representing terrible tax, energy and economic policy. A study performed by Wood MacKenzie for the American Petroleum Institute last year reported, as per API: “Raising taxes on the industry with no increase in access could reduce domestic production by 700,000 barrels of oil equivalent a day (in 2020), sacrifice as many as 170,000 jobs (in 2014), and reduce revenue to the government by billions of dollars annually.”

Sen. Schumer’s policy prescriptions are not good, but what’s interesting is that they have also proved to be bad politics. Remember how the debate extending over the 2001 and 2003 turned out in last December’s lameduck session of Congress?

From The White House, Dec. 17, 2010, “The President Signs the Tax Cut & Unemployment Insurance Compromise: “Some Good News for the American People this Holiday Season.”

House leadership has pulled the rule for consideration of H.R. 4853, the tax compromise, over liberal Democratic members’ unhappiness with how it would deal with a separate vote on the estate tax. The confusion may delay a final vote on the bill. (Reuters, WSJ blog.)

The delay allows us the opportunity to post the transcript from last night’s PBC NewsHour, which featured a debate over the estate tax between Rep. Kevin Brady (R-TX) and Rep. Earl Pomeroy (D-ND), the chief House backer of the higher tax rates. Brady did a good job of cutting through the rhetoric. Like the manufacturers, Brady supports a permanent repeal of death tax but regards the tax bill’s provisions as a compromise.

REP. KEVIN BRADY: Well, I think the death tax is wrong, and as close to a moral — immoral a tax as we have.

There’s something wrong about family farmers, family-owned businesses working their whole life to build up a nest egg, some of them working generations to do that, and then when they die have the government swoop in and take as much as half of everything that they have earned.

I think the death tax needs to go away permanently. Short of that, I think the common ground that was reached that exempts a lot of our family farms and family-owned businesses and taxes others at a 35 percent rate, that wasn’t created, that number didn’t come up from Washington.

That came from our local farmers, our local small business people, our local newspapers and grocery store owners, who said, if you can’t eliminate it completely, this will allow many of us to survive.

So I think that common ground is what we ought to stick with. And I don’t think 45 percent — I don’t think the government deserves half of what our hardworking Americans spent their life to build up.

And … (continue reading…)

The Senate’s entire debate Saturday on extending the current tax rates to avoid raising taxes on targeted income groups was obviously important to manufacturers. The National Association of Manufacturers issued a statement from our Executive Vice President Jay Timmons, “Manufacturers Oppose Tax Increases on Business“:

Manufacturers oppose the Senate’s amendment to the Middle Class Tax Relief Act of 2010 because it would result in a tax increase for the vast majority of America’s small and medium manufacturers. The tax relief enacted in 2001 and 2003 played a key role in stimulating our economy as it repealed the estate tax and lowered both the individual tax rates and tax rates on investment. 

Yet in searching The Congressional Record’s account of the debate, we find just a single mention of the word “manufacturers.” Thanks to Sen. John Thune (R-SD) for the citation in his floor remarks, refering to medical device manufacturers, as well as the broader discussion of how the “millionaires’ tax” is really a tax on small business. Excerpt:

[Here] we are today debating what evidently has become the Democratic economic theory, which is to raise taxes to create jobs. We have seen this in play throughout the last couple of years. The cap-and-trade bill was a tax on energy. It didn’t get through the Senate because we were prepared to stop it, but it passed in the House of Representatives and was headed here. The health care bill raised taxes on medical device manufacturers and drug companies and health insurance plans, all of which is going to get passed on to small businesses in the form of higher insurance premiums. 

Here we are debating a frontal, direct tax increase on small businesses. It is the most astounding theory on how to create jobs I have ever seen–raising taxes to create jobs. That hasn’t worked in practice. The Senator from Iowa eloquently pointed out that, historically, if you go back over the past half century, not only does it not create jobs, it doesn’t generate additional revenue. As he pointed out, when you raise taxes, you don’t get more revenue. When you lower taxes, you get more revenue. Why? Because it affects the behavior of the American people. It affects investors, it affects the allocation of capital, and it affects people across this country when they know their tax rates are going to be low. (continue reading…)

Here’s latest report from Joseph Vranich, who keeps his list at The Business Relocation Coach blog.
California Companies Moving Away or Shifting Work Out Reaches New Record: 158
(for 2010 alone):

In the three weeks since my last tally, I’ve learned about another 14 companies that have left California completely or re-directed capital to build facilities out of state. The names of the 14 and justifications for listing them appear below. Today’s entry builds upon the Sept. 21 entry 144 Companies Shrink from Calif. This Year – Three Times the Total for All of 2009.….

Five enterprises represent the type of operations coveted by many California politicians — “green” companies — namely DayStar Technologies, Vetrazzo, SMA America LLC, Enfinity Corp., and Power-One. Those companies have opted for Georgia, Arizona, Colorado and an apparently as-yet-undetermined “overseas location.”

But wasn’t California supposed be the goldenest of golden states for environmentally sensitive companies? If the incentivizing, subsidizing, speechifying and blandishments fail to keep companies from abandoning the state — or establishing their new operations elsewhere — what does that suggest about the federal government pursuing the same policies?

California’s unemployment rate in September was 12.4 percent.

More from Jan Norman, The Orange County Register’s columnist on small business:

• Calif. can’t compete with Texas, study says
• 14 companies added to ‘leaving California’ list
• Can Calif. compete for relocating companies?”

Here’s the website of “Yes on 23,”, the California Jobs Initiative, to suspend California’s global warming mandates until the state’s economy and employment recover.

In a news release, Lucy Dunn, President and CEO of the Orange County Business Council said:

Very simply, if we don’t pass Proposition 23, businesses will be forced to lay off workers so that they have the money to pay for expensive new state rules and regulations. California alone shouldn’t bear the brunt – or the cost – of fighting global warming. As a single state, we can’t solve global climate issues, and we certainly shouldn’t put people out of work at such a difficult economic time.

The Patient Protection and Affordable Care Act, the new health care law, is sickening small business with its requirement that companies file IRS 1099 forms to report every purchase 0f $600 or more. Yes, that’s a lot of reporting, a lot of paperwork.

Reuters has a good report on the ins and outs of this stomach-churning provision, “1099 tax rule may bring big pain to small business“:

Who will it affect?
It will affect all businesses, including sole proprietors, consultants, self-employed people and freelancers, who are considered businesses for tax purposes, but may not think of themselves that way. It also will apply to charities and other tax-exempt organizations. The National Taxpayer Advocate, based on Internal Revenue Service data, figures that it will affect 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, 1 million charities and other tax-exempt organizations, and likely more than 100,000 federal, state and local government entities. All told, that’s more than 38 million taxpayers and taxpaying entities.

The story notes the NAM’s concerns, especially as the law will create all sort of disparate record-keeping and reporting requirements — an exemption for credit card purchases, but not cash?

“It’s a headache, there are increased costs, and I think there is also significant concern about how they will implement it,” says Dena Battle, director of tax policy at the National Association of Manufacturers, one of the business groups that has pushed for repeal. “Any time you have these ‘tax gap’ provisions, there are gigantic unintended consequences.”

Earlier Shopfloor posts:

• Senate Votes to Continue IRS Paperwork Nightmare
• The Only Fix for this Filing Burden is Repeal
• Get Rid of This Business-Crushing IRS Filing Mandate

The Small Business Administration’s Office of Advocacy report we cited below , “The Impact of Regulatory Costs on Small Firms,” did not take into account the Bush Administration’s 2008 ozone regulations (reducing the ambient air quality standard to 75 parts per billion), nor the Obama Administration’s proposed regulations, which could lower the standard to 60 ppb.

It’s safe to say those regulations will be expensive. Bet small business gets hit the hardest.

From The Oil and Gas Journal, “Proposed ozone standard would devastate US economy, API warns“:

WASHINGTON, DC, Sept. 21 — A US Environmental Protection Agency proposal to reduce the national primary ozone standard to 60 ppb from 75 ppb would devastate the US economy by forcing most of the country to meet stringent standards which now are imposed of its most heavily populated areas, the American Petroleum Institute warned.

“We all know that EPA cannot consider economics in considering standards,” Howard Feldman, API’s director of regulatory and scientific affairs, said in a Sept. 21 teleconference with reporters. “But it cannot ignore them. There’s a real cost and real significance to this.”

The story builds on the NAM-API co-sponsored report, “Economic Implications of EPA’s Proposed Ozone Standard (ER-707. The analysis by Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist, concluded:

• GDP would be reduced by $676.8 billion in 2020 (in 2010 dollars), an amount that represents 3.6 percent of projected 2020 GDP in the baseline case (2.5 percent annual GDP growth);
• Total U.S. job losses attributable to a 60 ppb ozone standard are estimated to rise to 7.3 million by 2020, a figure equal to 4.3 percent of the projected 2020 labor force;
• Together, annual attainment costs and reduced GDP in 2020 would total $1.7 trillion.

API’s Feldman raises another an angle we hadn’t considered: Unreasonably stringent ozone rules represent yet another move again U.S. energy security, including the tremendous promise shown by natural gas development of such areas as the Marcellus Shale: “Clearly, natural gas drilling is increasing across the country, and we expect that to continue…As more of it moves into areas such as Pennsylvania which would not meet these new standards, it would require extra costs and controls. The states also would have to offset these emissions.”

Earlier posts: (continue reading…)

The Small Business Administration’s Office of Advocacy has just released a new study, “The Impact of Regulatory Costs on Small Firms,”  again confirming what employers already know: The marginal costs of federal regulation fall more heavily on small business.

The main point:

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008. Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008. By comparison, the federal regulatory burden exceeds by 50 percent private spending on health care, which equaled $10,500 per household in 2008. While all citizens and businesses pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $8,086 per employee in 2008. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).

In bullet form, the key findings:

• The annual cost of U.S. federal regulations in 2008: $1.75 trillion
• Regulatory costs on small business per employee in 2008: $10,585
• Regulatory costs on large business per employee in 2008: $7,755
• Percentage of U.S. national income expended on federal regulations: 21 percent
• Federal regulations plus tax receipts as percentage of national income: 35 percent

This is the SBA Office of Advocacy’s fourth edition of the study, and it reflects the burdens after eight years of the Bush Administration, under which federal regulations soared. (See James Gattuso, Heritage Foundation, “Red Tape Rising: Regulatory Trends in the Bush Years,” published in March 2008.) The Obama Administration has only stepped up the pace of federal regulations, with the most obvious examples being the expanded economic control imposed by the Imperial EPA.

Rep. Sam Graves (R-MO), ranking member of the House Small Business Committee, noted other examples of burdensome pending regulations in his news release reacting to the SBA report, “Graves: New SBA Report Confirms Government Regulations Unfairly Burden Small Firms“:

This report clearly illustrates the heavy burden that federal mandates place on small businesses.  As I have said before, piling unfair costs on the entrepreneurs who have lead our economy in the past is counterproductive and will only serve to drown job creation.  Adding insult to injury, this data does not take into account the new wave of regulations that are about to hit entrepreneurs, such as the 1099 reporting rule and other health care mandates, regulations in the financial reform law, and potential new EPA rules.

The Senate on Wednesday told business owners to spend their money on IRS paperwork instead of hiring employees when it rejected the Johanns amendment to repeal Section 9006 of the new health care law, which requires that businesses track and report any dealings with vendors that exceed $600 by filing an IRS Form 1099.

The Senate then invoked cloture on the small business finance bill, H.R.5297, Small Business Jobs and Credit Act.

Senate Majority Leader Reid commented: “This is an important piece of legislation. It is the most significant thing we have done since the stimulus bill was passed to create jobs.”

Sen. Mary Landrieu, Chairman of the Senate Small Business Committee, said she was introducing a bill to repeal Section 9006 with different “pay fors” than proposed in the Johanns amendment.

We are going to repeal I am going to file a bill right now to take care of it. We are going to repeal
1099. We are not only going to repeal the portion that was put in by health care–which was not done intentionally, but there are sometimes unintended consequences. Anybody around here who thinks they can write perfect pieces of legislation–they cannot. When you do something wrong, you should correct it. We are going to correct it.

But in addition, my bill that I am going to file right now is going to repeal the $600 requirement that has been in the law for 62 years, and we are going to raise that threshold to $5,000, clean up the way small businesses have to report, and do something good for small business in America. …[snip]

I have heard small businesses in my State, and I know we made a mistake on this 1099 and we are going to fix it. But it does not have to be fixed this morning. It doesn’t even go into effect for a year and a half.

Goodness knows small business reporting could stand a good clean up, but with respect — uncertainty. UNCERTAINTY! Businesses considering expansion or new hiring can gain no confidence about their future costs from a Congress that may or may not take up the issue sometime in the future, possibly. The IRS reporting requirement hangs like the Sword of Damocles over small business.

Sen. Landrieu’s new bill is S. 3777, to amend the Internal Revenue Code of 1986 to increase the threshold amount subject to information reporting at source. The text is not yet available.