Crowdfunding Proposal Hits Snag

By Eliza Newlin Carney
Roll Call Staff
March 15, 2012, Midnight

As the Senate prepares to take up the House-passed Jumpstart Our Business Startups Act, a popular proposal to free up capital through “crowdfunding” has pitted consumer advocates against entrepreneurs.

The idea behind crowdfunding is simple: Instead of going to a bank for loan, a startup or small company seeking capital makes an “open call” to a community of potential small donors who pool their resources, typically on the Internet.

President Barack Obama touted the power of crowdfunding in his American Jobs Act last year and in his legislative agenda last month. Support for the concept has come from such strange bedfellows as Silicon Valley executives, artistic nonprofits, the U.S. Chamber of Commerce and associations representing self-employed, female, minority and small-business owners.

The recession “has been terribly difficult for small businesses,” said Frank Knapp Jr., president and CEO of the South Carolina Small Business Chamber of Commerce. “The loans have dried up dramatically, both for outright loans or for lines of credit. The financial institutions are gun shy now of making ‘risky’ loans.”

Knapp’s group belongs to the American Sustainable Business Council, an association that promotes corporate and social responsibility and that is pushing for crowdfunding proposals on Capitol Hill.

The broad appeal of crowdfunding helps explain why the House passed the JOBS Act by a generous 390-23 margin last week. In addition to clearing the way for crowdfunding over the Internet, that bill includes several other measures aimed at boosting small businesses and entrepreneurs.

These include measures that would relax Securities and Exchange Commission regulations on a new class of “emerging-growth companies” and for companies seeking to go public and to solicit capital through ads. Obama has signaled support for the legislation, and Senate Majority Leader Harry Reid (D-Nev.) was expected to take up the House version of the JOBS Act today and open it to amendments.

But consumer advocates, watchdog groups and some economists are raising alarms. Taken together, the JOBS Act’s various provisions represent a dramatic rollback of financial regulations that date back to the Great Depression, they argue. It would reverse protections enacted with the Dodd-Frank financial reforms, some warn.

“We’re all for channeling capital to small businesses,” said Marcus Stanley, policy director of Americans for Financial Reform. “At the same time, we have banks for a reason, as opposed to people standing on the street corner taking shares in companies. So you’ve got to strike a balance.”

Columbia University law professor John Coffee Jr. testified on Capitol Hill in December that rolling back SEC registration and disclosure requirements for companies seeking crowdfunding invites what’s known as “boiler room” fraud, in which scam artists create phantom companies and solicit investors by phone, email and other means.

Even some advocates of crowdfunding warn that the JOBS Act should not become a vehicle for throwing out too many SEC regulations. “We’re concerned about deregulating the process too much,” Knapp said. “For those who want to raise a great deal of money, there have to be safeguards for the consumer.”

The American Sustainable Business Council wrote to Senate leaders Wednesday to endorse an alternative crowdfunding bill introduced by Sen. Jeff Merkley (D-Ore.). Co-sponsored by Sens. Michael Bennet (D-Colo.), Scott Brown (R-Mass.) and Mary Landrieu (D-La.), the bill includes tougher rules than those in the House JOBS Act, such as stronger disclosure rules and a registration requirement for Internet crowdfunding sites.

The Merkley bill is said to have the blessing of such heavyweights as Google and YouTube. AOL co-founder Steve Case also praised crowdfunding this week in an interview with CEO Wire. Merkley is expected to push his approach as a JOBS Act amendment when the Senate takes up the bill.

Crowdfunding will let “small investors to pool their resources to fund promising new ventures,” he said in a statement. “At the same time, this bill protects those investors and sets fair rules of the road.”
The question for eager entrepreneurs is whether other more sweeping deregulations in the JOBS Act prove too controversial for the Senate — and the president — to swallow.

Original Article

Hope for bipartisanship and small business?

If your feet felt cold this morning, it’s because Hell has frozen over.

Last evening the U.S. House passed overwhelmingly (407-17) a piece of President Obama’s American Jobs Act.  While the Senate Republicans yesterday blocked the transportation part of the jobs bill, House Republicans and Democrats solidly supported changing Security and Exchange Commission (SEC) regulations to allow small businesses easier access to private investment. 

Last year supporters, including the South Carolina Small Business Chamber, of a concept called “crowdfunding” proposed by the Sustainable Economies Law Center lobbied the SEC for reducing strict registration requirements for small businesses to seek investors for security offerings up to $100,000 with $100 maximum per investor.    We felt that the onerous registration process was there to protect investors.  So if the maximum an investor could lose was only $100, then such requirements should also be minimal.

The SEC listened as did the Administration.   The President’s jobs bill included the general concept of responsibly reducing SEC regulatory burdens if investor risk was low.   And the SEC established an Advisory Committee on Small and Emerging Companies that had its first meeting Monday of this week.  On its agenda was the concept of “crowdfunding” as a vehicle for small businesses to better access capital.

Not waiting for the SEC, last evening the House passed H.R. 2930 with some amendments.  The bill takes our original “crowdfunding” proposal and dramatically raises the cap to $1 million on the amount of funds allowed to be generated through this process that would include internet and other forms of advertising. The cap on how much each individual investor can give was raised to $10,000. 

Small businesses following the “crowdfunding” guidelines would not have to register with the SEC.

Now this bill goes to the Senate and we’ll have to see if that body can also get over its partisan divide.  If it can, then a whole new opportunity for small businesses to meet their capital needs will become a reality.

Millionaire challenge

Tuesday I challenged any real business owner making over $1 million a year to contact me to discuss the proposed millionaire surtax to pay for the President’s American Jobs Act.   (A new NBC News/Wall Street Journal poll shows about 64% public approval for both the surtax and jobs plan). 

The U.S. Chamber, National Federation of Independent Business (NFIB) and the rest of the millionaire defenders club called The Tax Relief Coalition claim that 80% of taxpayers making over a million a year are “business owners”.   Since there are 4500 South Carolina taxpayers with this kind of income, that would mean that there are 3600 “business owners” making $1 million a year.  Surely one of these people could accept my challenge.

As of today, no one has contacted me and now I know why.  The numbers from the Coalition are phony (what a surprise).  According to the Tax Policy Center only 1 percent of taxpayers reporting any business income make over $1 million a year. 

So there are really only about 45 South Carolinians who could accept my challenge.  And I’m willing to bet that few if any of these 45 actually run a small business.  The rest are passive investors not Main Street business folks.

Never-the-less, the fear mongering on how increasing taxes on the very wealthy will hurt small businesses continues.  An analysis that debunks all the funny math in these arguments can be found in a piece by Zach Carter and Sam Stein in today’s Huffington Post.  Check it out.   

Millionaire defenders club

A procedural vote this week, possibly even today, in the US Senate will determine if President Obama’s American Jobs Act even gets to be debated on the Senate floor.  The bill doesn’t have a chance of passing the Senate because it, as most legislation now, can’t get the 60 votes needed to overcome a GOP filibuster.

The bill is projected to create 1.9 million jobs.  Like it or hate it, it’s still a concrete proposal to do something about the lack of new jobs.  The American public deserves a legislative debate and vote. 

The Senate Democrats changed the funding for the jobs bill to a surtax of 5.6% of any income over $1 million to attract more votes.  As an example, that would be an extra $5,600 in taxes for someone making $1.1 million.  

I predicted this move a while ago simply because it will resonate with most voters regardless of political persuasion.

But not so for the defenders of millionaires.  There is actually a new organization called The Tax Relief Coalition that apparently thinks that people making over a million a year pay too much tax.   The U.S. Chamber of Commerce and the National Federation of Independent Business (NFIB) are members of the millionaire defender club.

The Coalition claims that 80% of the 2007 taxpayers reporting more than a million dollars in income were “business owners”. 

I’ve talked about this sleight of hand statistics before when the issue was people making more than $250,000 a year.  With a million dollar income benchmark, it is even more true that the vast, vast, vast majority of these folks are only claiming some income from a business investment (they don’t run the business) or are hedge fund managers, K Street lobbyists, or some other very successful professionals.  They’re not Main Street business owners.

In South Carolina there are 4500 taxpayers reporting over a million dollars in income.  If the Coalition is correct, then there should be 3600 “business owners” in this income category. 

I challenge just one of these “business owners” making over a million a year to contact me to discuss this issue.  Just one.   Please!!!!

Let upper-end Bush-era tax cuts expire

By Frank Knapp, Jr.
The Hill's Congress Blog
September 21, 2011

 

President Obama’s call for cutting the deficit by $3 trillion includes the roll back of the Bush-era tax cuts on the top income tax brackets, a move expected to bring in about $800 billion over the next 10 years.

As expected the defenders of the wealthiest two percent of taxpayers, such as Speaker John Boehner, trotted out their bogus criticism of the proposal saying that it hurts small businesses, the “job creators”.

First, the data clearly shows that only 2 to 3 percent of tax filers reporting some income from a small business have family incomes of over $250,000 a year, the filers who would be impacted by the proposal. This minority of “small business owners” consists largely of very successful attorney’s, physicians, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country’s wealthiest millionaires.  An incremental tax increase on these Americans will not affect the number of employees they hire one bit.

But while the critics of President Obama’s plan are disingenuous as to who it would impact, at least they continue to remind the public that most net new jobs are in fact created by small business.  Now if they would only support proposals that directly target small business for assistance.

When the President announced his jobs plan earlier this month, my reaction was, “Finally, a jobs plan that actually helps the largest jobs-producing sector to create jobs—small business.”

It was not just another trickle-down proposal for job growth.  The American Jobs Act would infuse money into Main Street by putting more dollars in the hands of consumers, cut payroll costs for small businesses to help their bottom line and reward small business with tax credits for hiring the unemployed especially veterans.

Tax credits for small businesses creating jobs is a particularly sound government policy.  It’s not a tax cut for big business and cross your fingers that they will hire.  It’s a tax credit that a small business gets only if it hires a new employee under specific conditions.  No hiring, no expenditure of government funds.  This is a common sense job creation proposal.



Unfortunately, Mr. Boehner did not endorse any of these proposals to help small business in his subsequent speech at the Economic Club of Washington. In fact, Mr. Boehner disparaged the proposed job tax credits for small businesses saying that this would make reforming the “tax code more complex”.

It is time for Congress to put actions behind their loving praise for small business and quit holding us up as a shield to protect the wealthiest individuals and corporations.

Hands-on small business owners are not Lloyd Blankfein of Goldman Sachs who received $800,000 last year due to the upper-end Bush-era tax cuts; or Rex Tillerson of Exxon Mobil who netted $1.454 million in 2010 because of the tax cuts; or Rupert Murdoch of News Corporation who saved $1.2 million last year from the controversial tax cuts.

The CEO’s of the biggest multinational corporations are just some of this country’s wealthiest people who the President is asking to sacrifice just a little more so that the small business owners of the local retail shops, plumbing companies and restaurants can have more customers and create more jobs.


Mr. Knapp is the President and CEO of The South Carolina Small Business Chamber of Commerce.

Source:

http://thehill.com/blogs/congress-blog/labor/182961-let-upper-end-bush-era-tax-cuts-expire

Cash flow and job tax credits

In my blog on Monday, I made the following observation about the job tax credits within the President’s proposed American Jobs Act.

Tax credits are taken when tax returns are prepared, not at the time of hiring.  If a business doesn’t have the capital to do the initial hiring, the tax credit months later won’t do them any good.

Therefore, small business must have access to lines of credit and loans for the job-creating tax credits to succeed.  We must step up our efforts to prod financial institutions to provide access to capital for small businesses qualifying for these tax credits.

Apparently I am not the only one to have indicated concern about the tax credits not being available but only once a year.  Cash flow for small business is always a major issue.  Getting a financial incentive later doesn’t help you if you can’t afford to hire today. 

Yesterday Karen Mills, the head of the U.S. Small Business Administration, was reported by the North Carolina News Network to have heard the same concern when she talked to small businesses.

So we said to them what's the most important thing you need and they said a tax credit that comes into my hand week by week, month by month, I don't want to wait until the end of the year, I have more cash so I can go out and market more, get more business so I can go out and hire that next person

I am trying to track down the story on this.  Is the Administration intending to allow small businesses to take the proposed tax credits for hiring the unemployed throughout the year? 

This is a critically important issue.  If the answer is yes, the jobs tax credits will be much more effective in creating jobs.  If not, then it’s back to my comments from Monday.

I’ll let you know.

We need customers

The Census Bureau reported yesterday that the United States now has 46.2 million people living below the poverty line—up 2.6 million people since last year.  Median household incomes fell below 1997 levels. 

No wonder the biggest threat to small business is the lack of customers, not taxes or regulations. 

Last week I told you about a McClatchy Newspaper survey that indicated that taxes and regulations were not holding back small businesses.

Kathleen Madigan, blogger for the Wall Street Journal (champion of the concept that regulations and taxes are the root of all evil) is on board with the lack of demand being the number one issue for small business.  She acknowledges that President Obama’s American Jobs Act seeks to increase consumers for business. 

Now we just need Congressional Republicans to get on board too.

Read Ms. Madigan’s blog below.

Small Business Hangs ‘Demand Wanted’ Sign

By Kathleen Madigan
Wall Street Journal
September 13, 2011

"Nobody knows the trouble I’ve seen.” That’s the song small-business owners around the U.S. are singing. But it isn’t regulation, tax policy or credit constraints causing the woes. It’s the lack of customers.

The widely watched survey of small businesses done by the National Federation of Independent Business shows optimism in August was the lowest since July 2010 when the recovery last hit a soft patch. The drop to 88.1 was the sixth consecutive decline — a record string of declines in the index.

The NFIB bleak view isn’t one dark cloud in a blue sky. Half of respondents to an August survey done by Newtek Business Services are pessimistic about the outlook, and 69% don’t plan on hiring over the next 6-12 months.

Small business-owners are worried because sales are falling and there’s no pickup in sight. The NFIB index covering sales expectations for the next three months is at its lowest since the recession.

Falling sales expectations are bad news for the jobs outlook because companies are not going to add workers if they do not think demand will increase as well.

Jonathan Basile, director of economics at Credit Suisse, points out the NFIB’s sales-expectations index is 10 points below its current hiring index. A negative spread between sales and current employment is rare, he says, and the gap has not been this large since the last recession.

What happened back then when demand kept falling? Small businesses cut jobs with a vengeance, as indicated by the NFIB survey as well as the tally of small-firm employment done by payroll processor ADP.

For now, hiring plans are still slightly positive. But if small businesses do not see more customers coming through the doors or ordering on-line, don’t expect the hiring index — currently at 5 — to stay above 0 for long.

President Barack Obama‘s jobs plan tries to answer the demand challenge by putting more money into workers’ pockets (by expanding the Social Security withholding cut) and by initiating construction projects.

Republicans, however, are voicing opposition to any new spending programs, so that aspect of the bill looks dead.

It seems more likely that the tax cut will go through. Yet it isn’t a sure thing that workers — scared about getting laid off — will spend the money. Higher savings, while a long-run economic positive, mean less demand now when the recovery needs it.

Small businesses have hung out the “Demand Wanted” sign. Until that need is satisfied, however, they won’t be posting a “Help Wanted” sign in the window.

Job tax credits can work

This evening President Obama submits his American Jobs Act to Congress.  According to a story in The Hill most economists from Moody’s Analytics to the Economic Policy Institute think that the plan, if passed, would add about 2 percent to the GDP growth next year.

The big concern Wall Street is voicing is that the plan is not big enough to really move the economy.  Even worse, the fear is that Congressional Republicans won’t even allow this much job-creating effort to pass. 

But let’s assume that the GOP at least agrees to the tax credits for small businesses that hire the unemployed.  (Click here to see my interview with a local TV station on the subject.)

But passing the tax credits is only the first step necessary for this part of the plan to actually result in jobs.

Small businesses must also know the tax credits exist.  Most small business owners don't have the luxury of following tax law so it will be very important for the media and advocacy organizations for small business to make a solid effort to educate the public.

But the education effort shouldn’t just be about this new federal tax credit for hiring the unemployed.  States might have their own job tax credits to add to the job-creation incentive mix.

In South Carolina we were successful in changing our job tax credit law in 2006 to (for the
first time) include small business hires.  As an example, a small business of any kind in a rural area can get a $4000 tax credit if they hire at least 2 net new jobs.  Add the American Jobs Act and the state tax credits and you have a combined $8000 per employee and even higher if other state conditions are met.  That is a pretty big incentive for many small businesses that are paying around $12 an hour.

One final ingredient is necessary for these tax credits to do their job-creating work. 

Tax credits are taken when tax returns are prepared, not at the time of hiring.  If a business doesn’t have the capital to do the initial hiring, the tax credit months later won’t do them any good.

Therefore, small business must have access to lines of credit and loans for the job-creating tax credits to succeed.  We must step up our efforts to prod financial institutions to provide access to capital for small businesses qualifying for these tax credits.

If all these conditions are met, will every small business increase hiring?  Of course not.  But those businesses that are trying to make a hiring decision based on a slight increase in demand vs. new employee costs will be more inclined to hire.

Providing financial incentive to encourage job growth on Main Street will help start the economic turnaround.  Continued stalemate in Congress definitely won’t do it.

Pass this jobs bill

Finally, a jobs plan that actually helps the largest jobs-producing sector to create jobs—small business.

Advocates for small business were thrilled to hear President Obama speak these words last night.

Everyone here knows that small businesses are where most new jobs begin….So for everyone who speaks so passionately about making life easier for “job creators,” this plan is for you.

No more trickle-down proposals for job growth.  The American Jobs Act would infuse money into Main Street by putting more money in the hands of consumers, cut payroll costs for small businesses and reward them for hiring the unemployed especially veterans.

The tax credits for small businesses creating jobs is a particularly sound government policy.  It’s just not a tax cut to big business and cross your fingers that they will hire.  It’s a tax credit that a small business gets only if they hire.  No hiring, no expenditure of government funds.  It’s a pay to play plan government should use more often.

While there is more that needs to be said about how to make the President’s plan work, I’ll leave you with the following statement from my friend John Arensmeyer, CEO of the Small Business Majority.

President’s Jobs Speech Recognizes the Path to Recovery Starts with Small Business

Statement by John Arensmeyer, CEO, Small Business Majority:

Sept. 8, 2011

President Obama’s speech today on the American Jobs Act underscores the fact that all roads to a brighter economic future start with small business. We applaud the president for highlighting the need to cut taxes for small businesses and offsetting those cuts by closing corporate tax loopholes, which do no harm to small firms. Additionally, his focus on putting middle class Americans back to work and boosting their spending power is imperative for our entrepreneurs, as they are small businesses’ primary customers. We have an employment problem, and small businesses create 65 percent of all new jobs. Spotlighting small business will help create a cycle of prosperity that directly benefits the economy by putting America back to work.

However, there is more to do. We encourage lawmakers to develop and support programs that will provide small businesses with the cash flow they need to keep their doors open, pursue new business opportunities and hire more workers, and urge them to support small business innovation, which fuels economic expansion.

Implementing policies that help small businesses get credit, hire and put people to work will not only help unemployment, it will reduce government spending and boost revenue. Fewer unemployed workers means government needs to spend less on social programs and unemployment benefits.

We cannot emphasize enough the need for Congress to act quickly to secure small businesses in their traditional role as job creators, and as a result, get our economy back on the right track. Congress needs to put aside partisan bickering to focus on what really matters. We urge lawmakers to rise above the gridlock that has gripped them for too long and put the public good above politics.

Small Business Majority is a national nonpartisan small business advocacy organization focused on solving the biggest problems facing America’s 28 million small businesses. We conduct extensive opinion and economic research and work with small business owners, policy experts and elected officials nationwide to bring small business voices to the public policy table.