Tag: small business

Feeling Queasy? Fading Fast? It’s Health Care’s New Tax Mandates

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:

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EPA’s Ozone Regulations Would Choke the Economy

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…)

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Small Business Bears a Heavier Burden of Federal Regulation

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.

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After Telling Small Business To Embrace the IRS Paperwork

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.

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Whether On Small or Medium, Tax Increases Still Do Harm

In a letter to the editor in today’s Wall Street Journal, Assistant Treasury Secretary Michael Mundaca argues against Kevin Hassett and Allan Viard’s Sept. 3 op-ed claiming that small businesses will be hit by raising individual income tax rates.  Mundaca writes:

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income… Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million.

So, what we’re quibbling with here is the definition of small-business income.  Mundaca is arguing that a small business with gross income over $1 million isn’t small.  We’ve made the point over and over that manufacturers are capital intensive – one manufacturing press alone could cost $1 million.  Frankly, a small manufacturer with only $1 million in gross income is small!

But, we’re flexible.  If it makes folks feel better, we’ll call them “medium-sized” businesses.   It doesn’t change our position though.  We think that raising taxes on a “medium sized” manufacturer with $1 million in income (which incidentally, would be a $35,000 tax increase) is a bad idea.  And we think it will hurt job creation.

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Small Business, Small Business, Small, Small, Small

From The Wall Street Journal, “Obama Tax Plan Holds Less for Small Business” (subscription):

Small manufacturers in particular may benefit given that many rely on industrial-size machinery to function. In 2009, small and midsize manufacturers invested an average of $1.4 million in factory equipment, down from $2.3 million in 2008, according to a survey of the National Association of Manufacturers, a Washington, D.C., trade group with 11,000 members.

But Dorothy Coleman, vice president of tax and domestic economic policy for the National Association of Manufacturers, warns that other new legislation that the president has proposed could thwart any relief that the equipment write-off option may provide to small companies. “Potential tax increases on businesses could neutralize the benefits of the provisions,” she says

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Targeted Tax Cuts, Across-the-Board Tax Hikes

President Obama speaks in Cleveland this afternoon to discuss the economy and offer changes in the tax law to encourage business investment and job creation. Jay Timmons, executive vice president of the National Association of Manufacturers, appeared on a Fox Business segment Tuesday discussing President Obama’s sudden flurry of economic proposals.

You have to look at all the components of the proposal, and I’m afraid we haven’t seen those yet. Taken in isolation, the President’s proposal to create 100 percent expensing for property, plants and equipment over the course of the next 18 months, to expand and make permanent the R&D tax credit, those things are good, not only for manufacturing but for businesses in general. The problem is, we haven’t seen the other shoe that’s about to drop, and that is tax increases that are likely to be part of the proposal…

The expiration of the 2001 and 2003 tax cuts will have a serious impact on the some 70 percent of the small manufacturers that file as S Corporations, paying the individual income tax rates, Timmons argued. 

“By not extending all across the board the individual tax rates, that harms manufacturing and that also hurts their ability to expand, invest and create jobs,” he said.

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Circumnetting on Taxes

The Hill, “Reid plans September showdown on extension of tax cuts“: ” Senate Democrats will hold a September showdown over trillions of dollars in expiring tax cuts passed under President George W. Bush.” 

AP covers Treasury Secretary Geithner’s speech at the Center for American Progress on Wednesday, in which he disavowed the economic value of maintaining lower tax levels, “Geithner: Extending tax cuts for wealthy a mistake.”

At Shopfloor, the  NAM’s Dorothy Coleman explains in rebuttal that the term “wealthy” also includes many, many, many small businesses and manufacturers who file as S Corporations.

AB Stoddard of The Hill mentions the NAM in this column, “Battle over tax-cut data“: “Democrats are in a corner on the tax-cut debate, and they know it. If they follow President Obama’s plan and allow tax relief for the top earners to expire, they get blamed for the ‘biggest tax hike in American history.’ But if they extend more than $3 trillion in tax cuts, most of them originally voted against in 2001, they get blamed for the biggest deficit in history.

New York Post,The people speak: Keep Bush tax cuts“: “Americans by a wide majority want to extend former President George W. Bush’s tax cuts, and more than half believe that letting them expire will further hurt the country’s shaky economy…Fifty-four percent said they wanted the Bush cuts to stay in effect, according to the Rasmussen survey of 1,000 likely voters taken Aug. 1 and 2.”

Bloomberg,New Jersey Voters Want Spending Cuts Over Higher Tax Following Budget Deal“: “New Jersey voters support lower spending over higher taxes by almost three to one after the state passed a budget which cuts funds for welfare, mental health and in-home nursing care, a survey shows. The state should ‘hold the line[' on spending even if that results in cuts to 'many' programs, according to 60 percent of the respondents to a Fairleigh Dickinson University PublicMind survey, released today [Aug. 4]. That compares with 22 percent who say the state should raise taxes to support services if necessary.”

Los Angeles Times, “San Diego to do the unthinkable: seek a tax hike

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Who’s Really Leaving Small Business Behind?

The Senate is currently debating a bill (H.R. 5297) that would extend bonus depreciation and expand a small business loan program. The Manufacturers have no problem with these provisions, and in fact, we’ve been on the record supporting both.*

Unfortunately, this isn’t enough for some folks. To be honest, it gets a little tiring to hear rhetoric claiming that we are “leaving small business behind” or that “small business is being held hostage by partisan politics.” The reality is that passing this bill at a time when small businesses are facing trillions of dollars in new taxes in less than six months is sort of like buying new furniture for someone facing foreclosure. 

In a recent survey conducted by RSM McGladrey, more than 85 percent of small- and medium-sized manufacturers said they were concerned about increased tax rates –- with 61 percent reporting they were very concerned.  By not acting, Congress will be increasing the top rates for small business owners to nearly 40 percent, increasing the estate tax to 55 percent, and nearly tripling the tax on dividend income.  One can logically ask: Exactly who is leaving small business owners behind?

* The National Association of Manufacturers joined this coalition letter and this one in support of extended bonus depreciation. The NAM is a member of the Small Business Access to Credit Coalition, which last week sent this letter to the Senate urging support for extending and improving SBA loan programs.

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Small Business Bills

Taking a break from the health care debate Saturday, the House of Representatives adopted three bills on suspension that had the words “small business” in their titles.

  • H.R. 3737, Small Business Microlending Expansion Act of 2009 (Rep. Ellsworth – Small Business)
  • H.R. 1838, To amend the Small Business Act to modify certain provisions relating to women’s business centers. Rep. Mary Fallin (R-OK) issued a news release.
  • H.R. 1845, Small Business Development Centers Modernization Act of 2009 (Rep. Schock – Small Business)

 

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