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There has been a lot of talk about tax plans lately over which plan would be best to move the economy forward and generate job growth. Here are what the two candidates are proposing:
- Increase taxes on businesses and individuals making more than $250,000 a year. Decrease taxes on those currently paying taxes and making less than $250,000 a year.
- Give government checks to people who are working but that are not currently paying taxes. (This is between $500-$1000 and is called the Making Work Pay tax stimulus on the Obama website.)
- Leave tax rates basically where they are for individuals.
- Decrease the corporate tax rate.
The Issues With Each Plan
First off, let us assume that tax policy needs to strike a balance between raising revenue for the government and allowing the economy to grow and thrive. You have to find the proper balance or you will run into trouble. If taxes are too high then the economy stagnates. If they are too low then the government doesn't have enough revenue to fund its operation (how much revenue the government should need and how they should use it is not within the scope of this post).
With that assumption, lets look at each plan. McCain would like to lower taxes on corporations. The real question is, would this lead to an increase in job growth? If the government lets businesses keep more of their money will they use it to:
- Create more jobs
- Invest in the business, or
- Enrich their executives
If the money is solely used to increase income for their principle owners and executives then many will say, "Hey, they are getting a tax break just so that they can keep more and more money. That isn't fair. They should pay more in taxes since they have more excess income." John McCain is going to claim that they will use that money to pay for new jobs and grow the economy, but there is no guarantee that will happen.
Obama's policy assumes that all business profits will be used to enrich the owners and executives, and since they have more than they actually need, they should shoulder a higher tax burden, thus "paying their fair share". But by taking their profits at a higher rate you are also preventing small businesses from using that excess money to hire new employees or reinvest in their business.
Small businesses account for 60-80% of new job growth (this is taken from the SBA) so how tax policy affects small businesses is very important (FYI - a small business in this case is any business with less than 500 employees). What if we could set up a tax policy that actually encouraged small businesses to use their profits to hire new employees? I believe there is a way to do this that would be a compromise between the two candidate's plans and would produce dramatic job growth. I am going to call it the "Employee Payroll Savings Account". Essentially it would let businesses pay for employees much like they would a computer. Let me explain.
To understand how this would work you need to understand how small businesses make decisions around tax time. I am only speaking for small businesses. I have no experience with large entities.
At the end of the year, every slightly sophisticated small business looks at their Profit and Loss statement. The business will be taxed on whatever profit remains after Dec. 31. This is why you see many business owners making purchases during the month of December. It isn't because they are buying Christmas gifts for themselves. They are trying to decrease their taxable income. If they can buy something and count it as an expense they will decrease the profit from their business that will be taxed.
The math is actually pretty simple. Say for example, I have $10,000 in profit that is going to be taxed at a 30% rate (these are just random numbers).
If I buy a $4,000 computer in December, and I can count that computer as an expense:
- I pay $4,000 to the computer store.
- The remaining $6,000 is taxed at a rate of 30% so I pay $1,800 to the government.
- I am left with $4,200 in the bank after all is said and done.
If I do nothing:
- I pay $3,000 to the government (30% of my $10,000).
- I am left with $7,000 in the bank but I have no computer.
If I but a $4,000 computer in January (worse case scenario):
- I pay $3,000 to the government (30% of my $10,000).
- I pay $4,000 for the computer.
- I am left with $3,000 after all is said and done.
So to sum it up, here is how it looks:
|Scenario||Tax paid||What I have at the end|
|Buy computer in Dec.||$1,800||$4,200 and a computer|
|Buy computer in Jan||$3,000||$3,000 and a computer|
If I buy the computer in January it actually costs me $1,200 more. I am essentially deciding between a $4,000 computer and $5,200 computer. If I think that I am going to need that computer at all then I am going to buy it in December!
Raise that tax rate to 50%, which is pretty close to what it will be for many small businesses making over $250,000 a year, and the difference is even bigger. At a 50% tax rate the difference in the computer cost from Dec. to Jan. is $4,000 and $6,000.
Why do you care? Why does it matter to you how much money a business has at the end of the year? Because the left over money is what is used to create new jobs. When a company is deciding whether or not they can hire someone they have to make sure they have a sufficient cash reserve to cover that person's salary and benefits.
Let's take a business that had $300,000 in profit. What if they want to hire two new people making $70,000 a year each. Say they feel they want to have a 6-month cash reserve to make sure they can cover the cost of the new employees. That means, when they factor in benefits and payroll taxes they will want to have something like $100,000 on hand.
Well, with $300,000 in profits that should be easy, right? Wrong. At a 50% rate, half of that will disappear. The business is only going to have $150,000 left in January after the taxes are paid. Now the decision becomes a little tougher and the business may put off hiring the new employees until they are sure that they really need them.
The problem is that the business can't deduct the employees' salaries as an expense before their taxes are due. If they were to buy a $100,000 worth of computers then they could decrease their tax liability immediately (Accountants: I know there are certain rules around this but this is just an example so say with me here). If they want to use the money for employees they essentially have to buy the employees in January with their post-tax dollars.
This is why you see businesses buying crazy things at the end of December, and not making crazy hiring decisions.
** The Employee Payroll Savings Account
But what if they could buy employees at the end of the year? What if businesses could set aside a certain amount of money that could only be used for employee salaries over the next year. This money would be shielded from taxes, thus decreasing the taxable income of the business (just like the computer purchase). In the example above, if the company had $300,000 in profit, they could maybe set aside $100,000 into this Employee Payroll Savings Account. They would then only be taxed on $200,000 of profit, saving them $50,000 in taxes.
Over the next year they would have $100,000 to use in salaries for employees (new or existing, but owners or their family members would be excluded). If, at the end of the year they haven't used the $100,000, it would be taxed like normal income. If they try to take the money out before the end of the year for something besides employee salaries they would have to pay the tax on the money at that time.
But essentially, you have decreased by $50,000 the cost of hiring new employees for the business. This would be a huge incentive for small businesses to hire new employees or to increase salaries for existing employees. In essence, at the end of the year, instead of buying a computer that they may not even need, they can set aside money that will be used to grow their business through new hires over the coming year. There is already a precedent for this. They are called Health Savings Accounts and they work essentially the same way.
Seems like something we might want to consider if job growth is really what we are worried about.
I never thought that I would be posting so much about religious issues on my personal blog. But I couldn't believe this post from Lowell Brown:
Basically the Daily Kos is asking its readers to single out Mormons who have donated to support Prop 8 and look for information to smear them. Smearing people for supporting a cause that you are opposed to is bad enough. But singling out people because of their religion is deplorable.
Also, in the post above it describes anti-Prop 8 supporters harassing Mormons as they went to attend church services last week. In contrast, my parents participated in Pro Prop 8 rally in their city on Saturday. My father told me that they didn't have a single opponent to Prop 8 come up to them and have a rational discussion. All they did was yell obscenities as they drove by and call my parents bigots. Interestingly though, my father said that the number of people that gave them a thumbs up or thanked them for what they were doing was about 5 times higher than those who came and verbally assaulted them. Just so you understand, this rally was a group of people on a street corner holding signs that said "Vote Yes on Prop 8". My parents didn't yell at anyone. They didn't try to berate anyone. They didn't jump out and try to stop traffic. They just held signs.
Compare that to the protest in Oakland where protesters tried to block traffic, intimidate and frighten Mormons trying to attend a worship service.
What you see is that there is a very vocal minority opposed to Prop 8 whose only tool seems to be intimidation. They won't try to influence you. They will try to shame you into shutting your mouth.
A lot of people say that Prop 8 won't affect religious freedoms. Looks like it already is.
In a previous post I talked about Proposition 8 in California and how many people view Prop 8 as a freedom of religion issue. Several of the commenters informed me that religious freedom was a red herring. Here is an excerpt:
So those at the top of the Yes-on-8 effort have tried desperately to cast this as being about religious freedom, despite the fact that the religious freedom is already guaranteed by the US Constitution, by the state constitution, and by the very state supreme court ruling that they are railing against. Their falsehoods are being carried along by well-intentioned folks who are deceived by them.
But it seems that there are some experts that would disagree with them. My brother, Trevor sent me this article:
"[Banned in Boston]"
The article goes into more detail about the Catholic Charities case there (Catholic Charities ceased offering adoption services in Boston because they felt that, due to the legalization of gay marriage in Massachusetts, they would be forced to provide adoption services for gay couples, which would be contrary to their religious beliefs). I suggest you give it a read.
A few quick highlights from the article:
- The attempt to define gay marriage as a right is very much an attempt to setup sexual orientation as a protected class under the Constitution. Doing this would put sexual orientation on the same level as race, i.e. denying adoption to a gay couple would be equivalent to denying adoption to an African American couple.
- Though it is unlikely that religions will ever be overtly forced to do such things as perform gay marriages, they will have their non-profit status threatened if they refuse to do so. Basically, supporters of gay marriage who want to force religions to accept the practice will attempt to levy a "religious belief" tax on religious organizations, threatening removal of their tax-exempt status, costing them millions of dollars. They will be told, "Accept gay marriage and you can stay tax exempt, deny it and you lose the status." Sounds like a very conditional form of religious freedom. Don't believe me? Read the article.
If you want a more detailed explanation from one of the religious organizations supporting Prop 8, the LDS church (of which I am a member) has an excellent article detailing their stance and the reasons for their support of Prop 8. As I have stated previously they, nor I, am opposed to legal rights being offered to domestic partnerships. But redefining the word marriage has far reaching consequences as outlined in both articles mentioned above.
A lot of things are being thrown out there right now about the current financial meltdown. I have heard a lot of talk on the various news programs that if the U.S. taxpayer doesn't bailout Wall Street then we are headed for another Great Depression.
Jeffrey A. Miron had an interesting piece at CNN.com. He is definitely a contrarian when compared to what seems to be the current conventional wisdom. But a lot of it sounds right to me.
Another great resource is this video from Darden School of Business at the University of Virginia. It is about an hour long but very informative. A couple points that I thought were interesting:
- One of the professors pointed out that the government would be buying these bad loans on very favorable terms and thus there was a lot of potential upside.
- About 2/3 of the way through they start discussing how business school education needs to change. Companies should be focussed on building "good businesses" and not "maximizing shareholder value" at any cost - exactly!
Though I am currently opposed to the bailout proposals I must admit that I have my doubts as to whether my position is correct or not. A new great depression is a pretty scary thing. But it seems that everyone who is pushing the bailout has a strong vested interest in this thing not blowing up. The business correspondents are most likely heavily invested in the stock market which will take a big hit if this happens. Lawmakers are going to get a lot of the blame if this doesn't get fixed. So, who do you trust? This people that are proposing the "fix" are the very ones who created the problem.
I guess now it is just a game of chicken. Will the lawmakers opposed to this bailout be willing to chance a new great depression? And, if we avoid it now are we just delaying the inevitable?
I don't usually blog about political issues but I felt I had to say something in this case.
Being a regular reader of Daring Fireball I am well aware that John Gruber's politics are quite a bit different than my own. I really don't see that as a problem. I am fine with different views since they often help me clarify my own. But last week he posted a note about Google coming out against Prop 8 in California with this commentary:
Good for Google. I hope they put some money behind it too; anti-gay bigots are putting a ton of money into a campaign to pass this initiative.
I have no issue with Google stating their position or with John Gruber stating his. But it seems to imply that anyone who supports Prop 8 must be an "anti-gay bigot". It is possible that Gruber didn't mean to lump everyone together on this but it sure seems this way. I support Prop 8 in California and do not consider myself an anti-gay bigot so I thought it might be useful to make a few points about what is going on in California from my perspective.
What is Prop 8? Prop 8 is a proposed amendment to the California State Constitution that would establish that marriage is only valid between a man and a woman. Basically it means that same-sex couples cannot get married.
Erroneous Fact - Gary Marriage in California is to Establish Equal Rights
Many are saying that gay marriage in California is necessary so that same-sex couples have equal rights. The California Supreme Court has specifically stated that this is not the case:
We note that although much of the academic literature discussing the legal recognition of same-sex relationships frequently uses the term “domestic partnership” to describe a legal status that accords only comparatively few legal rights or obligations to same-sex couples, the current California statutes grant same-sex couples who choose to become domestic partners virtually all of the legal rights and responsibilities accorded married couples under California law . . .
In light of the comprehensive nature of the rights afforded by California’s domestic partnership legislation, the status of such partnership in California is comparable to the status designated as a “civil union” in statutes enacted in recent years in Connecticut, New Hampshire, New Jersey, and Vermont.
This is not about equal legal rights. The court that supported gay marriage stated so clearly.
A Question of Religious Freedom
So what is it about? I will not pretend to know all the factors at play here. But I can tell you that a key component of this debate is religious freedom.
Many people say that allowing two people that love each other to get married doesn't harm anyone else. Therefore, if you are opposed to gay marriage you must be a bigot. What is a bigot? Here is a definition from WordNet.
a prejudiced person who is intolerant of any opinions differing from his own
The idea goes that since same-sex marriage doesn't infringe upon the rights of anyone else, if you are opposed to gay marriage it must be because you are intolerant of same-sex marriages because they differ from the type of marriage you believe in. Basically, you don't like same-sex marriages simply because they are different.
This is far too simplistic a notion.
Legally recognizing same-sex marriages has far reaching effects that go beyond the two people getting married. Many religions believe that homosexual relations are morally wrong. This is true of most Christian religions. You may agree or disagree with that belief, but one of principles this country was founded upon was that of religious freedom. Thus the question arises - should a priest be forced to perform a wedding ceremony for a same-sex couple? I think that most people would say no. In that case the same-sex couple's right to marry would be taking away the priest's right to practice his religion.
But, you say, that wouldn't happen. The government would not force its standards on a religion. The same-sex couple could just find a priest who wasn't opposed to same-sex marriage to perform the ceremony. But that isn't what has been happening.
In Boston, where same-sex marriages are legally recognized, Catholic Charities have ceased to offer adoption services. Why? Because if they denied adoption to a married same-sex couple then they would be practicing discrimination and would therefore be punished.
This is not the only case. Doctors in California have been forced to provide fertility treatment despite the fact that they claimed it was against their religious beliefs.
So, you have to ask yourself a very important question - how important is religious freedom? When does the state have the right to force you to do something that is against your religion?
This is the real question revolving around Prop 8. I have not spoken to anyone in California that is against homosexuals having all the rights that would accompany a civil union. As I stated previously, those already exist. The gay marriage initiative is much more a push to tell religions that they do not have a right to believe that homosexuality is morally wrong. Whether or not you support gay marriage you must ask yourself if government should be making this declaration.
Why a Constitutional Amendment?
A constitutional amendment seems pretty heavy handed. So why is this approach being taken in California? Because there are no other options left on the table for those who oppose gay marriage. In 2002, Prop 22 was passed which defined marriage as being between a man and a woman. This was passed via ballot initiative where the people of California actually voted on the measure.
So, what happened?
By a 1 vote majority a split California court decided that the definition of marriage being between a man and woman was unconstitutional. By one vote a court decided that gay marriage was constitutionally protected. This despite a popular vote that clearly said the opposite.
Opponents to gay marriage were left with no other option than a constitutional amendment.
Think about this. Five judges were able to declare that they knew better than the majority of voters in California and totally disregard the voice of the voters. Ask yourself how American that sounds.
Is Everyone a Bigot?
So, the question still remains, if you support Prop 8 are you an "ant-gay bigot"? Maybe. If you support Prop 8 are you an anti-religious bigot. Maybe. I am sure that there are supporters on both side of the issue that could easily fall into the bigot category. But there are many who are not. There are many supporting Prop 8 who just want the right to believe and practice their religion. There are many who believe that if the redefinition of the word "marriage" is going to come about after thousands of years, it should happen because the people of California or the United States, or their legislatures have voted to make it so. It should not happen because 5 judges decided that was what they believed. I am also confident that there are many who oppose Prop 8 who sincerely believe that gay marriage should be a right and who may not have even thought about the religious freedom component of this.
Believe what you want to on this issue but don't throw around the bigot charge. All it does is prevent people from dealing with the real issues.
Check out this video of the Sekai Camera shown at TechCrunch 50. The possibilities for this type of thing are incredible. We have always wanted to do some sort of virtual history tours. This would be a very cool way of doing it.
I have just started using Things, a new GTD application for the Mac and am really liking it. I saw this one tip in the forums and wanted to document it a little more clearly. Basically this shows you how to setup contexts in Things using tags without overwhelming your menu bar with a gazillion tags.
Open Tags Window
Create an @ tag
Add Nested Tags
Add nested tags for all of the contexts you want to setup.
Here I have setup four contexts, Grocery Store, Phone, Online and Email. Now assign these tags to some tasks.
Select a Focus
If there are tasks in the focus with your tags you will see the @... in the tag bar.
Click on @ tag
When you click on the @ tag you will see all of the sub items.
You can then filter the list based on the context.
I decided that trying to go through every presentation was going to be more than I was capable of. So, to finish off my review of the conference, I am just going to talk about the presenters that were most pertinent to me an my business at our current stage of development. That is not to say that the presenters I don't mention were bad, it is just that their topics weren't directly applicable to my situation.
Day 1 (Continued)
The overall highlight of the conference for me was Dharmesh Shah from OnStartups.com and the founder of HubSpot. The guy is brilliant. It was clear he didn't have a set presentation but instead just some guidelines that he meandered through. It was all fascinating.
A lot of the presentation had to do with metrics. How much does it cost to acquire a customer? How much is that customer worth once you have acquired them? What is the typical lifespan of a customer? To all of these questions my answer was a solid, "I have no idea" so obviously I have some work to do.
He also talked about the Customer Happiness Index (CHI). The basic idea is to measure actions that tell you how much a customer is using your product and figure out what actions are likely to prompt them to upgrade or cancel your service. By doing this you can develop some very good financial projections and hopefully see what is/isn't working before it is too late turn that information into useful actions. Once again, we aren't doing much in this area so it is something that we want to start looking at right away.
Another great tip was to test the advertising of the product using Adwords before you develop/launch it. A little too late for our current product, but something to keep in mind for future ventures.
Another one I really liked was Jessica Livingston, author of "Founders At Work". In the book she interviews a bunch of founders. I read it last year and it was one of the best books on entrepreneurism I have ever read. The stories were all fascinating and contained the types of anecdotes that every founder craves. She mentioned that she might start looking at founders who weren't successful, maybe a book titled "Founders Who Failed" (my term, not hers)? I hope she does something along those lines. Information about failed startups would probably be more valuable than the stories of the successes. It is great hear about those who won the battle, but sometimes you want to talk to the guys who found the mines before your cross the field.
Finishing of the first day was Paul Kenny from Ocean Learning. He is a sales consultant from the UK. A lot of what he talked about was similar to stuff I had read in Jeff Thull's book "Exceptional Selling". He had some great tips but it all boiled down to, "Care about your customer and do what is best for them." If your solution isn't the right thing for them, tell them so. It will build credibility for the future. Don't talk to them about what your product does. See if you can sell them solutions to their problems. Great stuff that I really already know but don't always practice. He mentioned that there is a salesman in the UK that is quite a bit older than him but still comes to his conference twice a year. The guy says it is to keep his skills fresh because it is so easy to slip into bad habits. So true.
Day 2 had more presentations that weren't directly applicable to our business right than day 1, but there was still some excellent stuff in there.
Tom Jennings from Summit Partners gave a great rundown of how venture capitalists work with founders and how they make money. He seemed like a very straight shooter and probably a great guy to do business with. I learned a ton. Don't know if I will ever be in the position to take venture funding but, if I am, I will definitely refer back to a lot of what he said.
Key takeaways for me were: