Small businesses do it again on jobs

Small businesses once again led the charge in creating new jobs in February.  According to the Bureau of Labor Statistics, 227,000 new jobs were created last month, higher than what economists had anticipated and following 243,000 being added in January.  This is third month in a row of over 200,000 new jobs being added to business payrolls.

Small businesses (1-49 employees) according to the ADP National Employment Report were the number one job creators once again, being responsible for 50% of all new nonfarm private sector jobs.  Medium size businesses (50-499 employees) added 40.7% of the new jobs and big business (over 499 employees) only added 9.3%. 

While all business size categories added jobs, small businesses added 9% more jobs that they did in January.   In spite of the inability to access capital for growth, small businesses are getting the job done.  Just think what we could do if more credit and capital were available to us.

Procurement codes need small-business bulldogs

State Senator Jake Knotts of Lexington County, South Carolina, is angry. 

Recently a school district in his county gave the contract to build a new school to a big Chinese general contractor that had the low bid.  Senator Knotts shares the outrage of many of his constituents.  While a local architectural firm is being hired to draw the plans and supervise construction, only one other in-county business is being brought on board the project.  The rest of the construction services appear to be going to U.S. businesses outside the county and state.   

But the main concern for the Senator is the Chinese general contractor, and rightfully so.  We can expect to see the steel, concrete, furniture and other goods needed for the contract being imported from Chinese manufacturers.  Millions of local tax dollars will flow back to China draining much needed cash from our local, state and national economies. 

Senator Knotts, who has a reputation as a legislative bulldog, wants to change the procurement code to give locally-owned businesses an advantage in the bidding process for government construction contracts.

For many years, the South Carolina Small Business Chamber of Commerce was concerned about the State procurement code, not because of China, but because we did not feel that in-state small businesses were getting their fair share of contract work.  After many years of lobbying, in 2009 the Small Business Chamber of Commerce (co-founded by Senator Knotts), the state’s General Assembly passed legislation that increases the chances that South Carolina small businesses will receive more state government contracts for their goods and services.  However, this procurement change did not apply to construction contracts, which have traditionally been solely based on low bid.

But the problem for small-locally owned businesses in government contracts isn’t just a local and state issue.  The largest government purchaser of goods and services, the United States federal government, is also a concern.

According to the American Small Business League (ASBL) Congress passed the Small Business Act in 1953 that set a goal of awarding 23% of all federal contracts to small businesses each year.  Sounds good doesn’t it.

So what small businesses have been the beneficiaries of this Congressional effort?  ASBL looked at the data from the Federal Procurement Data System and found these “small business” federal contractors in FY 2011:

Apple-IBM-Microsoft-Chevron-Shell-Sony-Siemens-Toyota-Coca Cola-Wells Fargo-Bank of America-Citigroup-General Electric-PepsiCo-Ford Motors-Home Depot-Xerox-JP Morgan Chase-Ernst & Young-PriceWaterhouse Cooper-Raytheon-Hewlett Packard-Panasonic-CVS-Verizon-Time Warner-Boeing-Disney-Comcast-Lockheed Martin-AT&T-Rolls Royce-British Aerospace-General Dynamics

ASBL says that these big businesses get away with being counted as small business contractors by the federal government and every year they siphon off billions of tax dollars intended for real small businesses “due to fraud, abuse and loopholes”.  ASBL lays the blame for this outrage primarily on the U.S. Small Business Administration and Department of Justice, for failing to enforce procurement laws; and on outdated carve-outs for special interests.

This problem has apparently existed for years with calls for Congress to act not having much success. 

Sounds like small businesses need a bulldog in Congress on this procurement issue.  How about it, Senator Knotts???

Expanding healthcare to more childen....finally!

Congratulation to South Carolina Governor Nikki Haley and state Health and Human Services Director Tony Keck.  Their proposal to add an additional $29 million in the Medicaid budget for children’s healthcare appears to be a done deal both in the House and Senate.  This is a dramatic turnaround from the Mark Sanford administration.

Back in 2007 the South Carolina Small Business Chamber, S.C. Appleseed Legal Justice Center, S.C. Fair Share and AARP-SC were fighting to increase the cigarette tax in an effort to generate funding for a program to help make health insurance more affordable for small businesses and to expand the number of children eligible for Medicaid from those in families of  up to 150% of poverty to up to 200% of poverty.  The latter proposal survived and the General Assembly put about $29 million in the budget to provide healthcare services for an additional 70,000 to 100,000 children.

Governor Sanford then vetoed that part of the budget but we were successful in having that veto overridden.  The story should have ended there…but it didn’t.

The Sanford administration and his HHS director actively worked against adding these children to the Medicaid program by refusing obvious measure to let parents know about the program and throwing every roadblock they could in front of parents and organizations who tried to have the newly eligible children enrolled in the program.  Who knows where the millions set aside for the program went but it certainly wasn’t used as intended by the Legislature.

For 5 years these children went without the Medicaid for which by state law they were legally eligible. For 5 years the uncompensated healthcare these children did receive helped push insurance premiums up on individuals and small businesses.  For 5 years the working parents of these children were less productive on the job because of sick children whose illnesses could have been preventive with proper healthcare.  All of this because Governor Sanford and his Director of HHS knew better that the General Assembly and caring more about shrinking government instead of the health of our needy children and health insurance costs for the rest of us.

But while Governor Haley, Tony Keck and the Legislature appear to be all on board with funding and implementing this Medicaid expansion, they should drop their rhetoric that they are doing it because of the new federal health care law, the Affordable Care Act. 

There was no “ObamaCare” back in 2007.  This Medicaid expansion program for children was passed by a Republican House and Senate.  It is the law.  State officials need to stop blaming President Obama for a worthwhile healthcare program that we worked for and our South Carolina Legislature passed 5 years ago. 

Groundhog says....

The economy is getting better.  I don’t have to rely on the monthly jobs reports, the next being this Friday, to tell me that.  I can just look at my fax machine.

Prior to the Great Recession, I would receive probably 1 or 2 unsolicited faxes a day promoting vacations, loans, insurance, etc.  When the economy went into the tank, that all stopped.  Those hawking these mostly shady offers weren’t getting a return on their investment.  The gullible or desperate couldn’t be enticed with these “too good to be true” offers.

But several months ago I started getting one of these fax offers a week.  Then more recently two would come in per week. 

This morning I had two great opportunities waiting for me on my fax, one for affordable life insurance and the other for health insurance.  The economy is picking up speed. 

Want another grass roots economic indicator?  Yesterday I was talking to a guy who works in the rent-to-own car business.  He told me that he now has to recover about 5 cars a month from customers not paying.  Last year he was having twice as many cars recovered. 

I’ll let the experts give us their economic forecasts.  But my “groundhog” indicators are predicting an earlier than expected economic recovery.

Help for retirement planning

Here’s a startling statistic.  One in three small-business owners aren’t prepared for retirement.  USA TODAY reported last week that the American College surveyed small-business owners and found that about a third of the owners “do not have a personal or business-sponsored retirement plan such as a 401(k), a SEP IRA or deferred annuity. 

We might be an optimistic lot but this isn’t good.  We will stop working someday (or at least slow down).  So your income from the business will also stop or slow down.  And if you’re counting on financing your retirement from selling your business, ask the owners who tried that over the last 4 years. 

One of the reasons small-business owners aren’t prepared according to Gary Kushner, CEO of a human resources consulting firm, is that setting up a 401(k) for the owner (and employees) is a big challenge that most owners don’t feel they have the knowledge and time to do.

If you’re a small-business owner in South Carolina, the Small Business Chamber is riding to the rescue. 

Within the next few weeks we will have a new member benefit plan that will let small businesses join a 401(k) Multiple Employer Plan that will offer the employer and employees a menu of over 40 brand name money market funds.  By combining with other small businesses through the Small Business Chamber’s 401(k) Plan our members will find reduced set up, recordkeeping and administrative service charges.  Our members will save $200 up front and another $200 every year of the plan.  Plus, a professional will make setting up a plan simple. 

If our members are only interested in a solo 401(k), our program through Complete Investment Management and plan administrator My Benefits, LLC, can help there also.

If you can’t wait to find out more, email me at sbchamber@scsbc.org and we’ll be in touch. 

Owing a small business is truly an opportunity to dramatically improve your own personal wealth.  Don’t throw it all away from a lack of planning, saving and investing.

Look who pays less in taxes than Buffett and Romney

The Hill's Congress Blog

By Scott Klinger, tax policy director, Business for Shared Prosperity

03/01/12 03:12 PM ET

Corporations pay a lower effective tax rate than Warren Buffett and Mitt Romney, but you wouldn’t know it from all the complaints that our corporate tax rate puts our country at a competitive disadvantage. Last year, U.S. corporations paid just 12.1 percent of their earnings in federal corporate income taxes. Buffett’s tax rate is 17.4 percent; Romney’s reported 2010 tax rate was 13.9 percent.

The corporate tax system is riddled with loopholes and subsidies that do create competitive problems, but not the ones CEOs are talking about. Our broken tax system blesses U.S. multinational corporations with lots of loopholes that enable them to pay less in taxes than Main Street businesses. It allows large companies, even those in the same industry, to pay vastly different tax rates. It has starved our government of revenue, adding to the pressure for deep budget cutbacks rather than the investments needed to rebuild our crumbling infrastructure, educate our children and support the innovation needed for economic success.

President Obama has called for corporate tax reform that is “revenue neutral” – using any revenues gained from closing loopholes and ending subsidies to pay for lowering the statutory corporate tax rate and extending or introducing other tax breaks. The problem with “revenue neutral” tax reform is that it locks in the corporate share of our government’s bills at historically low levels. Tax reform that results in GE paying more and Wal-Mart paying less is not a step forward.

Contrary to common perception, U.S. corporations pay far less toward the cost of public services and infrastructure than they did in decades past, and less than foreign competitors pay in their countries today. In the 1950s, corporate federal income taxes accounted for nearly one-third of federal government revenue; in 2011, corporate taxes accounted for less than 8 percent.
U.S corporate profits account for more than 10 percent of GDP, a 50-year high. Federal corporate income taxes collected as a percent of GDP are at a 50-year low.

U.S. corporate tax revenues as a percent of national GDP are lower than all but one industrialized country – Iceland. U.S. corporate taxes accounted for 1.2 percent of U.S. GDP in 2009, compared to 2.3 percent among the 26 industrialized nations of the Organization for Economic Cooperation and Development (OECD) that collect and report tax data.

Meanwhile, U.S. multinational corporations are reporting record levels of profits to shareholders. And their balance sheets are loaded with record levels of cash – more than $2 trillion at last count.

President Obama's tax framework addresses important issues such as curtailing the abuse of offshore tax havens, but the devil is in the details. For example, a proposed minimum global tax could reduce the incentive of U.S. multinationals to disguise domestic profits and shift them to low or no-tax corporate tax havens around the world. But if the rate, now unspecified, is set too low it could become a permanent tax break for U.S. multinational corporations whose accountants are expert at assigning expenses to the domestic side of the ledger for U.S. tax deductions while assigning profits to the “foreign” side. And it doesn’t take a large rate gap between the corporate tax rate and a minimum global tax to produce large tax savings for corporations with revenues in the billions.

One way Congress could address closing loopholes right now is through the Cut Unjustified Tax Loopholes Act introduced by Senators Carl Levin of Michigan and Kent Conrad of North Dakota. It would crack down on offshore tax haven abuses and close tax loopholes that encourage corporations to move jobs abroad.

The challenge of corporate taxes and competitiveness is not that rates are too high, but loopholes, preferences and subsidies make corporate tax collections far too low. Rather than focusing on revenue neutral corporate tax reform which locks in corporate tax revenues at bargain-basement levels, President Obama would be wiser to insist that all profitable U.S. corporations – big and small – are expected to pay their fair share of taxes.

Big businesses want all the benefits of government spending – from government contracts, a publicly educated workforce, transportation networks and courts to enforce property rights, to scientific research they are happy to commercialize, and bailouts in the billions. Their increasing unwillingness to pay for the public services and infrastructure that underpin our economy is the real threat to America’s competitiveness.

Click here for original article

Scott Klinger is tax policy director of Business for Shared Prosperity, a national network of business owners, executives and investors.

Crocodile tears of insurance industry

The crocodile tears were flowing at yesterday’s South Carolina Senate Banking and Insurance Subcommittee that was hearing two bills supported by the South Carolina Small Business Chamber of Commerce (SCSBCC). 

One bill, S.31, would simply require all proposed workers’ compensation loss cost rate adjustments (increases and decreases) to be subject to a hearing before a judge if the States’ Consumer Advocate and organizations like the SCSBCC want to challenge the proposals.  The current law appears to deny such transparency if an aggregate rate decrease is requested.  But a recent Court of Appeals ruling shot that SC Department of Insurance (DOI) interpretation down.  S.31 would codify the Court of Appeals ruling.

The other bill, H.3111, would simply require all workers’ compensation insurance companies selling policies in the state to put the latest loss cost and loss cost multiplier rates approved by the state into effect within 120 days.  Presently there is no requirement to do so.

As logical as these bills are, the lobbyists for the insurance companies were there to tell the Senators and a crowded room how over-regulated workers’ compensation had become.  We were told that it is such a difficult and time consuming process for the companies to defend the rate adjustment proposals compiled by their rating organization, the National Council on Compensation Insurance (NCCI). 

The best regulation for this insurance to guarantee the lowest premiums for businesses, they said, was for competition to run free.  And, they suggested, if we have to have any regulation of the insurance industry, it should be after a rate adjustment has been put in place—a system called file and use.  Only then could the Consumer Advocate challenge the new rates in court.

Oh, and one insurance lobbyist expressed concern for the DOI saying that the department couldn’t possibly respond quickly enough to individual company rate changes and meet the 120 day implementation schedule in H.3111.

This last objection died quickly when the DOI testified that they saw no problem meeting the required deadlines.  DOI was obviously not going to be a part of that insurance industry charade.

When I testified in support of S.31, I addressed the insurance lobbyists’ objections and suggestions.

Here are the facts.  Around 2002 the South Carolina General Assembly deregulated the loss cost multiplier, the part of the premium calculation consisting of profit and all other insurance company expenses except for the actual claim payments (loss cost).  The Legislature was told at that time that this deregulation would keep premiums down because of free market competition.  Sound familiar?

But of course, that didn’t happen.  The loss cost multiplier for all companies grew dramatically after that adding over $200 million in excess premiums to the system according to estimates of one influential state Senator, Glenn McConnell, after the SCSBCC brought the problem to his attention.  In 2007, the law was changed to re-regulate the loss cost multiplier, which then started coming down for all companies along with premiums.  Pretending that competition resulting from deregulation of the workers’ compensation insurance industry, or of any insurance for that matter, doesn’t protect the consumers from winking and nodding greed.  Case closed.

But as for the industry’s complaint that defending proposed rate adjustments in court is too hard and time-consuming for them, I have a suggestion—only ask for rate adjustments you can justify with the data and it will be less likely to end up in a court fight.

In 2005, the NNCCI proposed an average 32.9% increase in workers’ compensation insurance loss cost rates. The SCSBCC went to Court with the state’s Consumer Advocate to fight this increase and propose only a 12.7% increase. The SCSBCC was the only business organization to fight the big increase in court. On Oct. 3, 2006, the Court issued an order supporting much of the position of the SCSBCC and Consumer Advocate.  The Court ordered only an 18.4% increase, a 44% reduction from the industry proposed hike.

In December 2007, NCCI once again requested an increase in workers’ compensation loss costs of an average of 23.7%. And once again, the SCSBCC was the only business organization to intervene to oppose the increase. In May 2008, NCCI, the Consumer Advocate and the SCSBCC reached an agreement with NCCI and DOI for a 9.8% increase thus saving at least $130 million in premiums for small businesses.

The workers’ compensation insurance industry has an atrocious track record on rate increase requests. A file and use system the industry also proposes would simply let companies lock in excessive rates and force the Consumer Advocate to claw them back ­– a process that would take months. It is a terrible idea for small businesses.

But surely there is no need for the Consumer Advocate and organizations like the SCSBCC to intervene in a proposed rate reduction.  Oh, yes there is.

After the colossal failure of the 2005 and 2007 giant rate hike requests, NCCI proposed an average rate decrease of 0.3 percent in 2009.  But an average means that some individual classes went own and other went up—in this case almost half of the individual rates went up.  SCSBCC and the Consumer Advocate should have had the right to intervene in this proposed average decrease not only to challenge the individual rate increases within the filing but also the proposed decreases.  Based on our 2005 and 2007 experiences, we fully expect that the decreases should have been greater—we just didn’t have the opportunity to demonstrate this in the court.  S.31 corrects this problem.

The Senators on the subcommittee gave S.31 and H.3111 favorable reports and sent them to the full committee where the fight against the insurance industry and their tears will resume.