Some U.S. firms paid more to CEOs than taxes: study

Reuters
August 31, 2011

WASHINGTON (Reuters) - Twenty-five of the 100 highest paid U.S. CEOs earned more last year than their companies paid in federal income tax, a pay study said on Wednesday.

It also found many of the companies spent more on lobbying than they did on taxes.

At a time when lawmakers are facing tough choices in a quest to slash the national debt, the report from the Institute for Policy Studies (IPS), a left-leaning Washington think tank, quickly hit a nerve.

After reading it, Democratic Representative Elijah Cummings, ranking member of the Committee on Oversight and Government Reform, called for hearings on executive compensation.

In a letter to that committee's chairman, Republican Darrell Issa, Cummings asked "to examine the extent to which the problems in CEO compensation that led to the economic crisis continue to exist today."

He also asked "why CEO pay and corporate profits are skyrocketing while worker pay stagnates and unemployment remains unacceptably high," and "the extent to which our tax code may be encouraging these growing disparities."

In putting together its study, IPS chose to compare CEO pay to current U.S. taxes paid, excluding foreign and state and local taxes that may have been paid, as well as deferred taxes which can often be far larger than current taxes paid.

The group's rationale was that deferred taxes may or may not be paid, and that current U.S. taxes paid are the closest approximation in public documents to what companies may have actually written a check for last year.

$16.7 MILLION AVERAGE

Compensation for the 25 CEOs with pay surpassing corporate taxes averaged $16.7 million, according to the study, compared to a $10.8 million average for S&P 500 CEOs. Among the companies topping the IPS list:

* eBay whose CEO John Donahoe made $12.4 million, but which reported a $131 million refund on its 2010 current U.S. taxes.

* Boeing, which paid CEO Jim McNerney $13.8 million, sent in $13 million in federal income taxes, and spent $20.8 million on lobbying and campaign spending

* General Electric where CEO Jeff Immelt earned $15.2 million in 2010, while the company got a $3.3 billion federal refund and invested $41.8 million in its own lobbying and political campaigns.

Though the companies come from different industries, their tax breaks fall into two primary areas.

Two-thirds of the firms studied kept their taxes low by utilizing offshore subsidiaries in tax havens such as Bermuda, Singapore and Luxembourg. The remaining companies benefited from accelerated depreciation.

Shareholders have responded favorably when companies in which they invest keep a tax bill low through legal methods, thereby benefiting earnings. But Chuck Collins, an IPS senior scholar and co-author of the report, said that is a mistake.

"I think it's an exposure of weakness in a company if their profitability is dependent on their accounting department and not on making better widgets," he said.

In prior reports, Collins said, out-sized CEO pay was often a red flag of bigger problems to come. The IPS has been putting a pay report together for 18 years. Among those whose leaders have made the high pay list in years past, only to have their businesses falter: Tyco, Enron and WorldCom.

(Reporting by Nanette Byrnes; Editing by Howard Goller and Todd Eastham)

http://www.reuters.com/article/2011/08/31/us-usa-tax-ceopay-idUSTRE77U0KW20110831

Jobs: Part 2

In yesterday’s blog I talked about some of Dr. Douglas Woodward’s keynote address at this weekend’s South Carolina NAACP African American Economic Summit.  I discussed his latest research on the important role of small business our state and the prospects for the nation’s economy.

Dr. Woodward also made it clear that job creation is what we need.  Dr. Woodward believes that South Carolina lost its focus on creating jobs back in 2003 when Harvard Professor Michael Porter convinced state leaders to adopt a new bible for economic development centered around business clusters.  We created a whole new organization for cluster development—New Carolina, South Carolina’s Council on Competitiveness. 

It wasn’t that this cluster idea was bad, said Dr. Woodward, it was that the state lost its focus on creating jobs and instead just wanted to pursue wealth and raise per capita income.

Confused?  Let me give you a real life example of what happens in state government if the focus is on wealth creation and not job creation.

In 2005 the Legislature passed a bill amending the state’s job tax credit program.  Prior to this time only certain types of businesses (primarily manufacturing) that created 10 net new jobs were eligible for a tax credit on each new job.  The South Carolina Small Business Chamber lobbied very hard to open up the job tax credits for the first time to small businesses that created a minimum of two net new jobs.  A job was a job was a job we argued.  The House agreed and included this provision in the bill.

But the Senate then caved into the state’s big business community that argued that South Carolina should not be rewarding the creation of just any net new job but only jobs that paid far above the average per capita income in that county.  Generating wealth in the state by raising per capita income was THE goal, not creating jobs.  

Our response to this misguided economic approach was that getting an unemployed person into a job regardless of the pay would also raise the per capita income of the state.  But apparently our economic development leaders were only interested in raising per capita income from the top down, not bottom up.  Fortunately we prevailed in a House-Senate Conference Committee.

While we all would like more high-paying jobs in our state and pursuing clusters can yield rewards, we must get back to focusing on creating JOBS.  As Dr. Woodward’s research has clearly pointed out, we should start focusing on the business sector that is creating the most net new jobs already—our small businesses.

Jobs: part 1

Over the weekend I was asked to speak at the African American Economic Summit sponsored by the South Carolina NAACP at Claflin University.  The topic of my panel was “Factors Driving the Current Economy”.  The keynote address was given by Dr. Douglas Woodward, Director of Research at the University of South Carolina’s Moore School of Business.

Last week Dr. Woodward and USC released a study analyzing job creation in South Carolina from 2004 to 2008.  The study confirmed what small business advocates have been saying for a long time.  Small businesses create most net new jobs in our state.  The study primarily looked at businesses with fewer than 20 employees and found that just this group of small businesses alone, representing only 26 percent of all businesses in the state, accounted for 51% of all net new jobs. 

I asked Dr. Woodward if he could run the numbers on businesses with 100 or fewer employees (our definition of a small business) to see the job generation ability of small businesses overall.

Within the less than 20-worker businesses there appears to be a small percentage of “high impact” firms that really drove economic expansion in the years studied.  Unfortunately, according to Dr. Woodward, South Carolina doesn’t do a very good job of keeping these fast-growing businesses in the state. 

In my opinion this simply reflects the abysmal job the state does in promoting the growth of small business in general.  If you don’t pay attention to all our small businesses, no wonder the ones with biggest growth potential get away.

Dr. Woodward had a lot to say about our state and national economic outlook.  He’s not optimistic and even suggested that a double-dip recession was possible.  The reason for his negative outlook was the partisan gridlock that will probably prevent the federal government from launching any new stimulus programs or monetary policy to create the jobs we desperately need.  If we think the economy is bad now, Dr. Woodward says just wait until all the stimulus money is out of our economy. 

Tomorrow:  Where the state’s economic development efforts went off track according to Dr. Woodward.

Health insurance meetings start Monday in Charleston

Benefits of Healthcare Reform on Small Businesses Focal Point of South Carolina Listening Tours

New Small Business Health Plan Rolls Out

Free events beginning Aug. 29 open to all small businesses; chance for entrepreneurs to learn about new law and share ideas about how to implement it in South Carolina.  Plus information on new small business health plan.

Columbia, South Carolina, Aug. 25, 2011—The South Carolina Small Business Chamber of Commerce (SCSBCC), in conjunction with small business advocacy organization Small Business Majority, will host interactive events starting August 29 on healthcare reform’s benefits to South Carolina small businesses and the state’s role in implementation.

Also at the meetings details of a new small business health plan will be announced.  The SCSBCC has partnered with the Carolina Care Plan to offer a highly competitive health insurance for small businesses.  Plan benefits and rate information will be available at the meetings.

The free events, which are open to all small business owners, will feature a panel of small business experts and advocates discussing the topics in the new law most relevant to small businesses. These include small business tax credits, the state’s work setting up a health insurance exchange, wellness grants and cost containment. It will also give small business owners a chance to provide the panel ideas and suggestions on how to proceed with implementing healthcare reform in South Carolina. A question and answer period will follow the panel discussion.

“There have been many reforms to our healthcare system over the past year, both nationally and in South Carolina,” said Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce. “It’s important that small business owners hear about how many of the new healthcare law’s business-friendly provisions can help, and also for them to tell us what the state can do to make healthcare reform work for them.”  

Additional panelists include Jessica Stone, outreach manager at Small Business Majority and Lee Long with Gibson & Associates.

 “We believe it’s important for small business owners in South Carolina to learn more about healthcare reform and how it affects them,” said Small Business Majority CEO John Arensmeyer. “This interactive dialogue is a great way for them to get the information they need to take advantage of and comply with key provisions of the new law, and for us to get feedback on their thoughts and concerns.”

“The new health plan is just another one of our efforts to help make this employee benefit more affordable for small businesses,” said Knapp.

To register and find additional details about the events, click on the corresponding link below:

Monday, Aug. 30

Location: Berkeley Electric Co-op Johns Island District Office, 3351 Maybank Highway, Johns Island, SC 29455

Time: 6-8pm

To register: http://www.smallbusinessmajority.org/news-and-events/details/0811_charleston_flyer.pdf

Tuesday, Aug. 30

Location: ILA Union Hall, 1142 Morrison Drive, Charleston, SC

Time: 8-10am

To register: http://www.smallbusinessmajority.org/news-and-events/details/0811_charleston_flyer.pdf

Tuesday, Sept. 6

Location: Midlands Tech Harbison Theater, 7300 College Street, Columbia, SC

Time: 6-8pm

To register: Contact Sheila Starkey at Sheila@scsbc.org or (803) 252-5733

Tuesday, Sept. 13

Location: West Columbia City Hall, New Brooklyn Room, 200 N 12th Street, West Columbia, SC 29169-6458

Time: 6-8pm

To register: Contact Sheila Starkey at Sheila@scsbc.org or (803) 252-5733

Tuesday, Sept. 27

Location: Greenville County Library, 25 Heritage Green Place, Greenville, SC

Time: 6-8pm

To register: Contact Sheila Starkey at Sheila@scsbc.org or (803) 252-5733

About Small Business Majority

Small Business Majority is a national nonpartisan small business advocacy organization founded and run by small business owners and focused on solving the biggest problems facing small businesses today. We speak for the nearly 28 million Americans who are self-employed or own businesses of up to 100 employees. Our organization sponsors scientific research that guides us to understand and advocate on behalf of the interests of small businesses across the country.

 

Scare tactics continue

A new survey was released this week about how medium and large businesses will deal with employee health insurance in 2014 when the Affordable Care Act really kicks in.  Here was the kind of headline that appeared across the country.

Survey: 1 in 10 employers expects to drop health coverage

All the ACA haters are out there shoving the headline in their constitutents' faces saying, "See, I told you Obamacare is bad." 

Fortunately, some reporters like The State's Kristy Eppley Rupon actually got other opinion and analysis for their stories.  She included my input.

But Frank Knapp, chief executive officer of the S.C. Small Business Chamber of Commerce, said the surveys are “scare tactics” meant to get politicians to reconsider the Affordable Care Act.  He said 97 percent of the S.C. employers have fewer than 50 employees and, therefore, are not obligated to offer health insurance. Those that offer insurance do so as a way of competing for labor, he said.  “We are all competing for quality employees,” he said. “One of the ways to do that is to offer a benefit that your competitor doesn’t offer.”

Rupon also got some more impartial expert comment.

Former insurance executive Bob Laszewski said he was surprised that almost one in 10 companies already is planning to drop health coverage. Dropping coverage would expose the companies to potential payroll-tax headaches and fines. It also would result in a steep pay cut for employees if their employers didn’t raise their pay.  “Dropping coverage is going to be very difficult for these (companies) to do,” predicted Laszewski, a consultant who was not involved with the studies.

Rupon concluded her piece with the best caution from the survey authors themselves on how to interpret the survey results.

Towers Watson’s Randall Abbott said the survey results should be seen as a snapshot of how companies are thinking now. They can’t be viewed as a final decision because there are still many unresolved variables.

Report: Majority of Congress with no education in business

The Hill
8/23/11

By Mike Lillis

Almost 80 percent of lawmakers have no academic background in business or economics, even as Congress grapples with deficits, unemployment and other economic issues of tremendous complexity, according to an independent analysis released Tuesday.

The Employment Policies Institute (EPI) found that only 8.4 percent of lawmakers majored in economics or a related field, while just 13.7 percent studied topics related to business or accounting.

"This research suggests that our elected Representatives may want to dust off their Econ 101 textbook (if they have one) before trying to tackle weighty questions about the impact of taxes, spending, and debt on our economy and the labor market," EPI's release warns.

Most Capitol Hill lawmakers (55.7 percent) focused their studies on government, law or the humanities, EPI found, while 11.5 percent majored in science- or technology-related fields.

The report arrives as Congress continues to joust over deficit reduction, spending cuts, tax reform, and the role of the federal government in pulling the country out of a prolonged jobs crisis.

Republicans argue that the size of government – combined with enormous levels of federal spending – have contributed both to the recent recession and the slow pace in pulling out of it. They want to cut taxes, slash spending and scale back regulations they say are strangling private sector job creators.

Democrats, on the other hand, see the government playing an active role in bolstering the economy. They're pushing proposals designed to create jobs by increasing infrastructure spending, lending a lifeline to states and hiking taxes on corporations that outsource jobs.

Michael Saltsman, a researcher at EPI, was quick to concede that the lack a formal background in economics or business does not automatically preclude lawmakers from making informed choices about economic policy.

"There are plenty of people who have done it well," Saltsman said.

But given the intricacy of the economic issues lawmakers are tackling this year, a formal introduction to those topics "would certainly help them to evaluate these things better," Saltsman added.

In crunching its figures, EPI excluded nonvoting members, such as those representing Guam and the District of Columbia. The group also did not take into account those lawmakers without business or economic degrees who nonetheless launched business careers.

Source:
http://thehill.com/homenews/news/177897-report-three-fourths-of-congress-has-no-education-in-business-economics

SBA under attack

When the federal government was bailing out big banks, Wall Street’s corporate America, Fannie and Freddie; one important federal financial program stayed solvent—the Small Business Administration. 

The SBA’s primary job is simply to encourage private financial institutions to make small business loans that they might otherwise not do.  The SBA accomplishes this by guaranteeing up to 85% of the loan, which reduces the risk to the private lenders.   If the loans are repaid, the taxpayers aren’t out any money. 

So it is amazing that during the recent great recession that tanked the economy, you didn’t hear cries from the SBA that it was going under.  You would think that a program this successful in helping promote small business growth would earn it some respect and even the pledge from Congress to beef up the program.  But just the opposite is happening.

There appears to be a well-coordinated effort to strip the SBA of all funding.  Two days after the conservative-leaning Rasmussen Report released a most probably-skewed public opinion poll claiming that 58% of the public wants to end the SBA, an opinion editorial calling for the same appeared in free-daily conservative rag The Washington Examiner.  The next day the Wall Street Journal reported on both.   (This is how the conservative media pushes an issue into the main stream.)

In the op.ed Tad DeHaven, a budget analyst with the libertarian Cato Institute, says that encouraging private financial institutions to make small business loans isn’t necessary. 

Obviously Mr. DeHaven has no experience as a small business owner.  His idealistic “think tank” views are great for a salaried employee who doesn’t have to worry about his or his employees’ next paychecks.

Capital markets have developed effective private solutions such as credit scoring to overcome the asymmetry of information between lenders and borrowers.  Besides, small businesses with sound business plans and solid prospects should be able to raise debt and equity capital through private means.

Yet, there will be plenty of similarly “principled” members of Congress who buy into this dangerous “eyes wide shut” business philosophy and will encourage the budget deficit Supercommittee to axe the SBA.

But as Bob Coleman, editor of the Coleman Report, pointed out last month in a speech at the 2011 Mid America Lender's Conference in Fort Worth the SBA did not need a bailout and the program resulted in almost $10 billion in loans to Main Street in the 4^th quarter of 2010.  That is a tale of success, not a reason to terminate.

Entrepreneurship ranking explained

This is a follow-up to last Friday’s blog on the ranking of South Carolina on entrepreneurship.  The ranking was less than flattering but I said that someone needed to dig into exactly how the rankings were made.

Friday afternoon I interviewed Michelle Abraham, Director of the South Carolina Small Business Development Center.  She had talked to one of the authors of the report and shared the insights with my radio audience. 

As I expected things aren’t as bad as the ranking implies.

Listen to my 13-minute conversation with Michelle to hear for yourself by clicking here. 

Houston, we might have a problem

According to a report released  by the University of Nebraska-Lincoln, South Carolina ranks last in entrepreneurial activity—down from 43^rd last year.

The 2010 State Entrepreneurship Index evaluated a state’s percentage growth and per capita growth in business establishments, its business formation rate, the number of patents per thousand residents, and the gross receipts of sole proprietorships and partnerships per capita.

Last?  Don’t panic.  Nothing has changed other than a report has been made public.  We don’t know exactly how the Index weighed the factors but we need to find out and learn from it.

But before some partisans start pointing fingers (as I’m sure they will) at their pet complaints about the state as the cause of the ranking, we can rule at least one thing.  State regulations didn’t play a part in it.

Yesterday I talked with Monty Felix, chairman of the South Carolina Small Business Regulatory review Committee.  This committee came into existence in 2004 for the purpose of reviewing state regulations to determine if they are too much of a burden on small business.  If this 11-member volunteer committee feels that they do pose an unnecessary burden on the small business community, it has the authority to intervene and seek alternative methods of achieving the goal of the regulation without harming small business.

Monty told me that over the past 7 years his committee has reviewed about 300 proposed regulations and identified only 10 that raised their concern.  The committee worked with the state agency promulgating these new regulations and satisfactorily resolved the issues.

So let’s not hear any politicians scream that state regulations are hurting entrepreneurship.  We should find out on what measurements we fared poorly and address real problems.

Here’s a change—Action instead of talk

Once again we are hearing the popular political refrain about small business being crucial to leading us out of the current economic malaise.  Yesterday President Obama announced his proposal that he believes will boost rural, small business economic development.

According to a Bloomberg report  the President’s plan will include:

(E)xpanded loan programs run by the Small Business Administration through a $1 billion investment fund aimed at luring private capital, job search and training services, and increased access to health care and technology.

(T)he Navy and the departments of Agriculture and Energy will invest as much as $510 million in a program aimed at producing biofuels for aircraft and ships. The plan, part of the administration’s energy strategy, will benefit rural areas, according to Agriculture Secretary Tom Vilsack.

What makes me have more hope that this talk about helping small businesses is not just more political pandering is that the Administration doesn’t need Congress to put his proposals into action.  The President can just shift some existing funds around in the agencies he controls. 

This mean that these programs, while still not the big job creation programs we need, can actually come to fruition to help some small businesses.  Plus, since the effort won’t add a dime to government spending, our federal-budget watchers should be appeased.

Big business heal thyself (before it's too late)

It’s time for business to start creating jobs says Joe Nocera in his opinion editorial in the New York Times today.  He’s not talking about small business.  We’d love to start hiring again to meet incremental consumer demand but there is no access to capital for us.

Nocera is talking about BIG BUSINESS.  The companies he says “are hoarding cash while reporting record profits.”

With all their cash, companies shouldn’t be waiting for Congress to give them tax incentives to hire people. They should be trying to jump-start the economy — and fend off another recession — by making investments, and hiring workers, that will lead to renewed prosperity.

The problem, according to Nocera, is that these giant businesses are wed to “short-term profits instead of long-term good of the country.” 

It’s not a new love of socialism that Nocera proposes for corporations.  It’s the reality that their long-term financial health is directly tied to the long-term health of our economy.  And because our government has been made impotent to do much of anything thanks the success of the crazed minority’s rule of the majority, only big business can save itself by creating jobs, according to Nocera.

But what if they don't?  What if big business continues its myopic fixation on today's profits?  What if Congress and the President cannot deliver any effective job creation program?

Then that's what next year's elections will be all about.  Every member of Congress that continues to say NO to an immediate approach to creating jobs and only says yes to cutting spending needs to have opposition in the primary or general election.   

Protecting small business WC premiums

Below is the text of my presentation to the South Carolina Workers' Compensation Commission public hearing today.
----------------------------------------------------------------------------

We appreciate the opportunity to be heard on the issue of  “Maximum Allowable Payments to Medical Practitioners”. 

The South Carolina Small Business Chamber of Commerce is a 5000 plus member advocacy organization.  We have a long history of promoting an effective and efficient Workers’ Compensation System that helps our injured workers receive the proper and timely health care and benefits they need to return to their jobs as productive workers. 

As champions of this needed process we have also been staunch guardians of legislative, judicial and Commission decisions that would unjustifiably increase costs and thus business premiums.

Today we are here to oppose the proposal to amend Regulation 67-1302(A), which requires the Commission to use a relative value scale and a single conversion factor when establishing maximum allowable payments for medical services provided by medical practitioners.

We support a fee schedule that is based on an objective, scientifically-based analysis of medical costs such as Medicare’s Resource-Based Value Scale (RBRVS) that the Commission presently uses. 

Proposing to eliminate the use of the RBRVS and single conversion factor without proposing a comparable national data-driven replacement process is a recipe for an all-out assault on the limited-resourced Commission by well-financed special interests seeking to increase their compensation.

The end result of amending the Regulation as proposed will be much higher workers’ compensation insurance premiums for South Carolina businesses with no improvement in healthcare outcomes for our injured workers and their employers. 

The Commission has invested much time in making sure that the present medical services compensation system is fair to all parties—businesses, providers and workers.  Amending the Regulation and allowing multiple conversion factors will undermine this delicate balance and drive up system costs at a time when workers’ compensation loss costs, and thus premiums, are in decline.

Illinois Dems weigh in on job creation and deficit reduction

With all the national attention being focused on the nation’s lack of jobs and deficit reduction, this week two Illinois U.S. House members put forward their plans to help the country.  Both have some great ideas.

Yesterday, Representative Mike Quigley released his 60-step blueprint he hopes the new Congressional deficit reduction Supercommittee will follow.  His plan calls for reducing deficit spending by $2 trillion over the next ten years and includes:

--$700 billion in savings by reducing U.S. troops in Europe, Iraq, Afghanistan and other Asian
   countries
--allowing the federal government to negotiate with pharmaceutical companies for drugs   
   purchased through Medicare
--raising the income level subject to Social Security payroll tax
--cutting subsidies to oil companies
--closing corporate offshore tax haven loopholes
--ending tax credits for vacation homes

On Wednesday, Representative Jan Schakowsky released a proposal that she says will create 2.2 million jobs over the next two years at a total cost of $227 billion.  The following jobs would be created under her plan:

--400,000 construction and 250,000 maintenance jobs for public school rehabilitation improvements
--100,000 jobs for youth between the ages of 16 and 25 to work on conservation projects on public
   lands
--250,000 par-time jobs for college students under the Federal Work Study Program
--300,000 teachers, 40,000 new police officers, and 12,000 firefighters
--40,000 health care providers for underserved rural and urban areas
--100,000 early childhood care and education jobs
--750,000 jobs to do housing rehab, weatherization, recycling and rural conservation

Deficit reduction achieved

We’ve found the solution to decreasing the country’s deficit spending—more revenue!

According to a report yesterday from the U.S. Treasury Department, the federal government decreased deficit spending by 6% ($70 billion) in 2011 to date compared to the same period in 2010.  If we continue to do that for the rest of the year that will mean we reduced the anticipated deficit by $120 billion in 2011--all due to more revenue coming in and not from cutting any spending that will hurt Main Street’s economy.

Extend this trend line out for the next decade and we will have cut the projected federal deficit by $1.2 trillion.  All the Congressional  deficit-reduction supercommittee, scheduled to find $1.5 trillion in reduced spending over the next 10 years, needs to do is find some additional revenue. 

No problem.  Make the multinational corporations pay their taxes by ending offshore tax have abuse or let the Bush tax cuts on the wealthy expire and “poof” the job is done.    

But there is another way we can do even more deficit reduction as the Treasury news indicates—create more revenue by creating jobs.  More people working means more workers paying taxes. 

That’s exactly why U.S. Representative John Larson of Connecticut wants to create another “supercommittee” for job creation.  He plans to do this next month by introducing an amendment to the legislation creating that other supercommittee.   

More jobs also mean more consumers for our small businesses.  That’s what we really need to grow our economy back to a balanced budget.

Identifying real small-business owners

Remember the big fight late last year over extending the Bush tax cuts on the wealthiest Americans.  Those wanting to keep the cuts argued that small business owners would be hurt because many or most of them had individual taxable incomes of over $200,000 or joint incomes of over $250,000.  Tax these people more and they’ll stop creating jobs.

Those of us who argued that very few (possibly only 2 or 3 percent) of real small business owners made that kind of income pointed out that the federal government needed the additional revenue either to fund job-creation or reduce the deficit.  I described the vast majority of upper income folks who Bush tax cut supporters claimed were small business people this way:

Very few of them are what most would consider small business owners. They include partners in large corporate law firms, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country's wealthiest millionaires -- all of whom claim some business income and thus are counted in IRS eyes as small businesses. These aren't "mom and pop" businesses, says Adam Looney, senior fellow at the Brookings Institution.

Now a report from the U.S. Treasury looks to better define exactly who is a small business person.

According a story in The Hill today by Bernie Becker, under the usual criteria anybody who reports pass-through income on their personal taxes was considered a small business person.   Using this definition in 2007 there were 34.7 million small-business owners.

So how many of these 34.7 million were not really small business-owners as we know them?  To look at that Treasury developed two methods to ferret out the small-business imposters.  One way was to say that more than $10 million in “small business” income or deductions kicks you out of the small business category.  This culled out 14.7 million pretender small-business people—those the proponents of keeping the Bush tax cuts for the wealthy love to claim are just your average Main Street business folks. 

When the Treasury defined a real small-business person as one who claims at least 25 percent of their adjusted gross income from a small business, only 12.9 million taxpayers remained. 

The fight over keeping the Bush tax cuts (set to expire at the end of next year) for the top two income brackets will start again with the new Congressional “Supercommittee” that is to address deficit reduction.  These new Treasury definitions and data will hopefully dispel the bogus arguments for keeping them.

Why only small business can save America

January 8, 2011
USA Today

By Steve Strauss

The bad news is all around us and never seems to end. If it's not Tea Party Republicans who somehow, shockingly seemed willing to allow the country to go into default before they would accept even the most basic of revenue increases, it's a president who seems unable to match his legislative ability to his previous soaring rhetoric, sharp mind and historic promise.

And that's for starters.

Unemployment remains far too high, hovering near 9%. The deficit is all too real and getting bigger. China is emerging as a global power, and taking the lead in creating green energy solutions - the clear, big playing field of this new century.

Here at home, Gen X and Gen Y'ers seem resigned to living in a country that was not as great as the one they were born into, and my generation - Baby Boomers - are only too happy to collect our benefits.

What are we to do?

Entrepreneurship is the answer. Small business to the rescue. Foster startup fever.

In America, small business has always been The Answer. More than 99% of businesses with payrolls in this country are small businesses, according to the Small Business Administration, and those small businesses historically employ more than half of all workers and create 80% of new jobs.

Small business is, and always has been, the engine that moves the country forward. So if the stagnant political class really wants to get this country moving again, and help reassert our rightful place as the most innovative, entrepreneurial, industrious place on the globe, they need to start enacting policies and programs that do one thing - help small businesses and entrepreneurs.

What we need is a comprehensive 21st Century Entrepreneurship Act.

Want to lower the unemployment rate? Cultivate small business startups and you will.

Want more tax revenue? Foster entrepreneurial growth and you will get it.

Want to see America create the Next Big Thing? Help small business and just watch where it leads us.

The last great boom, during the Clinton administration, created more than 20 million jobs, and many of those came from startups that grew. In 1992, hardly anyone had ever heard of the Internet and no one knew what an Amazon.com was. Today that company, started out of Jeff Bezos' garage, employs about 30,000 people. In 1992, Starbucks was a regional business with about 100 stores. Today it is a public company worth more than $27 billion, and it has more than 6,500 stores.

Was there ever a better friend to small business, someone who believed in the power of free enterprise, more than Ronald Reagan? As he said in a May, 1988 speech to students at Moscow University: "The explorers of the modern era are the entrepreneurs, men with vision, with the courage to take risks and faith enough to brave the unknown. These entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States."

The great economic growth during the Reagan administration was similarly fueled by a commitment to, and fostering of, entrepreneurship.

So what does "promoting small business and entrepreneurship" mean? What does it look like?

I am privileged to be a member of the board of the World Entrepreneurship Forum. This global think tank has spent a lot of time considering what governments can and should do to promote entrepreneurship. They include:

"Reform Regulations: To promote a truly entrepreneurship-centered business climate, reform tax and regulatory environments so as to make it easier, faster, and less costly for entrepreneurs to set up enterprises.

"Create Entrepreneur-Friendly Institutions: Introduce entrepreneurship-friendly support institutions that provide technological knowledge, market information, business know-how, certification services, access to capital, and other essential business support.

"Understand Entrepreneurship: Make it known that entrepreneurs are positive agents of social change, wealth creation, transparency, sustainability, and innovation."

A comprehensive 21st Century Entrepreneurship Act would include tax reform, and regulatory ease. It would include, as SBA administrator Karen Mills recently wrote, immigration reform so we can again attract the best and brightest entrepreneurs and engineers to our country. It would increase access to capital. It would help more startups start up. It would foster business incubators and programs like Business Matchmaking.

And it would require something that those in Washington have forgotten about, something that cannot be legislated, but cannot be ignored: It would require pulling together for the common good and the promise that is America.

I, like many Americans, am disappointed in both the president and Congress. But I still hold out hope, because I know what is possible, what we can do together. So to our leader, I say: Mr. President, tear down these walls!

Ask an Expert appears Mondays. You can e-mail Steve Strauss at: sstrauss@mrallbiz.com.An an index of Strauss' columns is here. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is Get Your Business Funded: Creative Methods for Getting the Money You Need. You can sign up for his free newsletter, "Small Business Success Secrets!" at his website —www.mrallbiz.com. Follow him on Twitter at http://twitter.com/stevestrauss.

Hire a vet

This past Friday President Obama challenged business and industry to hire and train 100,000 unemployed veterans or their spouses before 2014.  The President pointed out that there are one million unemployed veterans today with a 13.3% jobless rate for post 9/11 veterans.

To move the challenge along, the President has proposed the following tax credits:

Returning Heroes and Wounded Warrior Tax Credits: A new Returning Heroes Tax Credit for firms that hire unemployed veterans (maximum credit of $2,400 for every short-term unemployed hire and $4,800 for every long-term unemployed hire) and a Wounded Warriors Tax Credit that will increase the existing tax credit for firms that hire veterans with service-connected disabilities who have been unemployed long-term (maximum credit of $9,600 per veteran) and continue the existing credit for all other veterans with a service-connected disability (maximum credit of $4,800).

If this is the first you’re hearing about this, you must be from the small business world.  Just look at who was standing with the President for the announcement—Humana, the U.S. Chamber of Commerce, Microsoft, AT&T, Hewlett-Packard, Walmart, Lockheed Martin and Honeywell. 

The statistics are very clear.  Small businesses create the most net new jobs.  So where was anybody on the Presidential stage last Friday who truly represented small business?

Oh, the press release claims that the U.S. Chamber will use its network to spread the word to the rest of us.  Even though there are many national small business organizations in this country that would be pleased to support the President in this effort, this administration (and to be fair every administration) just can’t seem to be bothered dealing with them directly when it comes to a high-profile media event.  Instead it turns to the one business organization that on issue after issue demonstrates that it doesn’t represent America’s small businesses.

Trickle-down economics doesn’t work and neither does trickle-down appreciation for small business.

Jobless benefits equate to your job

If you’re breathing a sigh of relief with the new jobs numbers showing employment rose 117,000 and unemployment dipping to 9.1%, forget it. All of the good in these numbers came before the debt ceiling deal was inked.

As I’ve explained before, all the initial deficit reduction, about $1 trillion, will come out of reduced government spending and a big part of that will likely be no longer extending unemployment benefits. That’s money pumped directly into Main Street and our small businesses.

Read the CNBC report by Jeff Cox below and instead of sighing with relief you’ll be holding your breath to see if Congress and the White House care more about their re-elections or the nation's economy.  They're politicians so I'm not optimistic.
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Recession Seen Looming as Jobless Benefits End

By: Jeff Cox
CNBC.com Staff Writer

August 04, 2011

The likely loss of unemployment benefits for 3.71 million Americans in a few months will only add to an economy edging ever closer to recession, according to analysis that puts the chances of another downturn at better than 1 in 3.

Bank of America Merrill Lynch economists say the ending of benefits for the so-called "99ers"—those who have exceeded their normal benefit allotment and are on an emergency compensation program through the end of the year—will slow the economy even further. The term comes from a previous extension to 99 weeks of eligibility for benefits.

When the long-term unemployed hit the same point several months ago, Congress stepped in with an extension. But that may not come now.

"We do not expect them to get extended," BofAML economist Joshua Dennerlein wrote in a note to clients. "This will act as a hit to income, hurting consumption growth in the first half of the year."

More importantly, this "hit" comes at a time when BofAML thinks the economy—already battered by rising unemployment and a Depression-level housing market—is very fragile. Another shock, the bank argues, could send it into recession .

In fact, chances of the U.S. economy entering another recession, the firm says, are now 35 percent, about double from a forecast it issued during the spring. Recession is often defined as two consecutive quarters of negative gross domestic product growth.

"It would take a modest worsening in financial conditions, falling oil prices and rising unemployment. None of these are extreme scenarios," economist Michelle Meyer writes in a separate note. "We argue that after a series of sucker punches earlier this year, the economy is only one shock away from falling into recession."

The good news is that the recession likely would be "mild since the economy already is very lean," specifically citing the 8.8 million jobs sliced during the previous recession and only 1.8 million rehires.

Ominously, though, a recession could trigger a number of unexpected events, with Meyer specifically citing "a muni crisis" where state and local governments, which have been cutting costs aggressively, would face more intense pressure from a new recession that could lead to bond defaults. This is in part the scenario put forth from banking analyst Meredith Whitney, who has been widely reviled for her forecast of a wave of muni defaults.

Meyer said her economic team's "baseline"—or most probable—forecast is no recession. But growth will remain slow and "still feel like a recession to many."

The forecast falls in line with others who believe a second full recession—rather than a double-dip—is on the way or in fact already here.

"It is evident that we will be going into another recession—I think at this point it's only a question of whether it has already begun—with the levels of output, employment and income all lower now than they were prior to the last contraction phase," Gluskin Sheff economist and strategist David Rosenberg said in a note.

Rosenberg said he has "pegged a U.S. recession as a virtual certainty" and warned investors to plan accordingly.

He recommends a mix of risk hedging—shorting low-quality and buying high-quality stocks—and using an income-equity distribution with low correlations to the stock market. He also backs high-yielding corporate debt from companies with solid balance sheet, gold and mining stocks, and commodities, particularly raw food and energy.

"The economy and risk assets typically hit a speed bump in a recession," he said. "That much is true, but investment ideas and opportunities within the market can still flourish even in a bear phase or a correction—cash should not have to be an option."

Investors were fleeing to safety during Thursday's market rout, pushing bond prices sharply higher and the stock market off more than 3 percent as talk spread of a looming recession. The Standard & Poor's 500 officially entered correction phase of a 10 percent decline from its recent high, although it recovered somewhat later in the day.

"Price declines of 5 percent or more aren't reason enough to signal recession, as there have been eight times as many of these as there have been recessions since WW II," Sam Stovall, chief equity strategist at S&P, said in a note. "But unrelenting price declines that are accompanied by weaker-than-expected GDP, ISM (manufacturing) and jobs data add to existing concerns."

Those concerns are manifesting themselves in portfolios, where a return to diversification and stock picking is likely to occur after more than two years of a highly correlated market where asset classes and individual stocks all moved in unison.

"Our advice in the last couple of months has been really pushing the notion of diversification and rebalancing which sounds like plain old vanilla advice," Liz Ann Sonders, chief strategist at Charles Schwab, said in an interview. "Correlations are starting to come down. There's more differentiation now."

Sonders said she too worries about the economy but believes the U.S. is more likely to muddle through than hit an actual recession.

"On our most optimistic day we didn't see anything close to robust growth," said Sonders, who in previous interviews had speculated a return to a "Goldilocks" economy where growth was not too fast or not too slow. "No matter how you slice it, it's not a robust picture."

© 2011 CNBC.com

http://www.cnbc.com/id/44019660/