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MAKING CENTS OUT OF THE NEWS
Blog #40
(October 22nd, 2009)
PLEASE DON’T PLUCK THE GOLDEN GOOSE!
By Tom McAllister, CFP®
I am concerned for the owners of U.S. private businesses – and therefore for the economy in our country.
Fresh in my memory is the period, back in the late 1970s and early 1980s, when federal income taxation on “unearned income” was as high as 70%. An enormous amount of energy and creativity was being spent by owners of businesses to avoid this onerous level of tax. Personally I profited greatly from clients’ concerns. In fact, my newly formed company, McAllister Financial Planning, was established in 1975 in part to address this very tax planning issue. Yet, despite the fact that helping clients with legal tax avoidance strategy played an important role in building my own business, I believed then - and still believe - high taxes on self-employed private businesses are counterproductive for our economy.
Jean Baptiste Colbert, the French minister of finance under King Louis XIV, remarked that harvesting goose feathers ''consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest amount of hissing.'' Recalling that famous quote, I cannot help thinking that the Congress and the Obama administration, with their promises to “tax only the rich,” risk alienating the most productive segments of our society. Several changes recently proposed by the administration would, in my opinion, dramatically impact the future of private business in the U.S..
It is a widely known fact - the majority of new jobs in our U.S. economy are generated by small privately owned businesses. Small business, according to U.S. Government Info, provides jobs for over half the nation’s private workforce. Small to mid-sized enterprises, those with fewer than 500 employees, are the ones that drive the economy to new heights and ameliorate the effects of recessions. Even when heavily stimulated by government bailouts and giveaways, large businesses and government employers lag in job creation. Private entrepreneurs, by contrast, look for opportunities in difficult times. These entrepreneurial enterprises are the ones that lead as the economy recovers.
True, in January of this year, the Strengthening Our Economy Through Small Business Innovation Act of 2009 was introduced, extending the Small Business Innovation Research program through year 2022, and the Small Business Technology Transfer program through 2023.
At the same time, just as private business is poised to assume a leadership role, that sector of our economy faces severe challenges. In addition to a shortage of expansion capital, the threat of increased taxation on business earnings is daunting. Uncertainties abound regarding future regulatory changes in health care, energy, and union membership qualifications. Property values of business real estate are being affected by the lack of lending on the part of the banks.
As individual small business owners contemplate expansion and innovation, the many threatening obstacles -and those already in place – are reason for hesitation. It is puzzling that our politicians do not see the damage they are doing to the engine that has the power to propel our economy out of recession. There’s an old adage to the effect that “He who hesitates is lost”. Much, in fact, can be lost if our country’s leaders persist on paths that cause hesitation on the part of private entrepreneurs.
Please, President Obama, Ms. Pelosi, and Mr. Reid, don't over-pluck our "golden geese"!
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