Thoughts from a small businessmans desk: Who really is going to pay for mandated minimum wages? As this question that has not been answered by either side, an essay for those of who are not in small business. Please dont judge..just consider how difficult it already is to sustain a small business and what course you would choose. As many of you are intimately aware, I am keenly focused on the future of young people and the impact that any legislation has on their ability to enter the workforce. So within the context of this post, I thought I would pass on a view of mandates and their impact on young people from the perspective of small businesses already over burdened by local, state and federal governments, as well as the fourth estate: the regulatory bodies that each level of government creates and the costs/penalties that each are empowered to impose/collect. More often than not we act as though the interests of all businesses are the same, and that their abilities to adapt are easily passed on to consumers or as regulatory changes are made, easily adapted by operators. Unfortunately this is not only fallacy, but in the real world, big business interests are only supportive of small business to the extent that it furthers their own interests. And their ability to absorb change by far exceeds small business. For example, within the context of the current wage debate, consider five (of many) variables: wages can be averaged out between stores located in different states; contractual bulk purchasing of products yield significant differences in unit costs for the items that are manufactured and sold; marketing expenses are spread across multiple units; access to capital is not a viable option for small business; and any increase in mandated expense is in reality more often a personal income tax to the owner of a small business in the form not only of the tax/fee but also of the cost in complying with the regulatory burden. Small business lacks the resources; large corporations have entire departments to compartmentalize human resources, tax, and other regulatory costs. While these may seem to be, in and of themselves, daunting challenges, again consider them in light of the fact that small business is competing for the same consumer as large, well funded corporations that understand intuitively that each small business that fails makes available to them the revenue that is no longer spent at their competitors businesses. Taxing authorities are not concerned by this fundamental because they understand that the pool of income that is taxed remains constant in the sense that their rake or percentage is the same, whether drawn from the many or the few. Mandated wages actually increase revenue flow to government and large business through withholding, premiums and other multipliers. What is problematic to me is the transformation that these policies have on local and state economies. Small business income stays within the local economy. Small business people are from the local economy. And during every political cycle, small business owners are praised as the primary generators of jobs. But if the average income for a restaurant in Maryland is 4% and the Retail Sales Tax alone is 6%, how would you read the reality if you were in this position? Hmmm. Hardly fair from our perspective. Government does not include the failures of small self employed people in their statistics. In an industry that measures a high failure rate; no one considers the financial and personal losses of the very small business people praised during the electoral cycle as the generators of jobs and practitioners of the American Dream. I might add that frequently the failure extends beyond the loss of the business: to the loss of home, bankruptcy and indentured servitude to the punitive penalties and interest that accrues as the final stage failure forces people to hold on by whatever means possible. So where does that leave the highly touted small business employment generators, the risk takers, those who believe in the American Dream? Fair question..one I wish more proponents of mandated wages would ask. I know this is a lot to take in, but it is a concern. The future of Maryland depends on legislators who are able to support entrepreneurship and job creation. Now imagine waking up tomorrow and receiving this letter: All Businesses Must Comply with New Tax Regulations in 2014 Dear , The IRS has released regulations that create new rules related to the acquisition, production and improvement of tangible property. These regulations, commonly referred to as tangible property regulations or repair regulations, are meant to help taxpayers distinguish between currently deductible repair and maintenance expenses and expenditures that must be capitalized and depreciated for tax purposes. Among other things, these rules require taxpayers to make elections on their tax returns and will likely require accounting method changes. In order to ensure that you are in compliance with the requirements of the new regulations, not missing an opportunity to reduce your tax liability, or increasing your chances of an IRS audit, Aronson recommends you take the following actions: Review your current written capitalization policy and conduct an analysis to determine if revisions are necessary. If a written policy does not exist, one should be drafted. Review your current and historical treatment of improvements and repair and maintenance expenses to determine the impact of the new regulations, including: small taxpayer safe harbor, unit-of-property standard, and routine repairs and maintenance exception. Review your improvements and disposals for 2013 and determine if early adoption of the temporary regulations could lead to significant tax savings on partial dispositions of previously capitalized expenditures. Determine which of the many potential accounting method changes are applicable and calculate the appropriate adjustments and related tax consequences. If applicable, evaluate your current accounting processes and systems for compliance. These regulations present an opportunity for you to proactively address your current accounting methods for tangible property, develop a plan to simplify long-term compliance, take advantage of favorable provisions and develop strategies to implement the required changes strategically with minimal cost and impact. Failure to do so may lead to IRS adjustments upon examination and, potentially, the imposition of interest and penalty. Wow. Can you appreciate the complexity of these new regs? What would this mean to you, the start-up or small business. And when the entry level wages are indexed to CPI, how would you deal with the consequences? Weve lost one million teen jobs nationally in the last decade. Where is an initiative to get kids working, to give them the opportunity to learn real world skills. Statistically, it is virtually non-existent in minority communities. Tragically, as technologies are accelerated and applied to further reduce labor costs, those wage earners between the mandated minimum and $25/hour will ultimately be the group that bears these costs. Raises will not be forthcoming to those who have earned them; that income will be transferred to mandated positions and benefits already under pressure from the ACA will be shifted. There is no free lunch and I fear there will be an extraordinary backlash as the nation eventually de-leverages itself from the debt that we have accumulated, inflation accelerates and indexed minimums further eliminate jobs. Stagflation is a brutal master. So while I fear that I have grossly violated Facebook etiquette by going long, you know it is with sincere intent. Chip
Posted on: Thu, 06 Mar 2014 01:23:48 +0000
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