August 6, 2009
The Assault on American BusinessBy Chris Banescu
The message from Washington is clear and getting louder by the day. If you run a successful business you face excessive government regulations and higher levels of taxation for years to come. The more productive and profitable you become, the more you will be forced to pay for the privilege of operating in this country. This threat is real and it appears that many companies and business owners are taking steps to protect themselves.
President Obama's anti-business and anti-competitive campaign messages made executives and business owners apprehensive even before the January 2009 presidential inauguration and the Democrats obtaining control of Congress. Coming in the midst of one of the worst financial crisis and economic recessions in recent memory these promises had predictable results: businesses aggressively cut expenses, decreased their capital expenditures, drastically reduced their payrolls, and hunkered down to weather the current crisis and deal with the long-term consequences of punitive government actions.
What are the messages that businesses have been receiving from Obama and a vast majority of the Democrats in Washington even before the November 2008 elections?
There are at least five different specific promises and initiatives from the current administration that threaten the future competitiveness and success of American businesses and the prosperity of individuals who dare to succeed and earn more. These combined threats have played an important part in further depressing economic activity in the US and signaling to all company owners to remain defensive and cautious in the face of a business unfriendly political environment at least through the end of Obama's term (only one, we hope) in office.
Threat #1 - Higher Income Taxes
Beginning with 2011 the Obama administration promises to raise income taxes on married couples earning more than $250,000/year and singles earning more than $200,000/year. This would mean that the two highest federal income tax rates will rise from 33% and 35%, to 36% and 39.6%, respectively. Furthermore, the White House seeks to phase out the personal exemptions and limit deductions allowed for these taxpayers. Many businesses are usually started and run by families and individuals with gross incomes in those ranges. This guaranteed 9% to 13% tax increase (likely much higher due to tax exemptions limits and planned healthcare surtaxes) on their yearly incomes will reduce cash flowing into the economy (via investments or purchases) and seriously hinder economic growth.
Threat #2 - Higher Capital Gains Taxes
President Obama also pledged to raise capital gains and dividends taxes from the current 15% to 20% starting in 2011. This represents a 33% tax increase on all businesses and individuals who realize a capital gain on the sale of stock, real estate, or other assets, and those that receive qualified dividends from stocks in their personal portfolios, retirement accounts, or pension funds. This enormous tax increase will punish not only the highest income earners, but all hard-working taxpayers and retirees.
Threat #3 - Government-Run Health Care/Socialized Medicine
The current administration is actively working to create a government-run health care system that will cost approximately $1.6 trillion over 10 years, as reported by the Congressional Budget Office , and will only remove "16 million from the 46 million uninsured."
The Wall Street Journal reports that House Democrats want to implement a package of surtaxes from 1% to 3% on all families making $350,000 or more in order to raise an additional $540 billion in taxes over the next decade. So any small to medium-sized business earning at least $250,000 or more will see its tax rate increase from 35% now, to 39.6% to 42.6% come 2011, and possibly as high as 44.6% in 2013 when these health-care surtax rates are scheduled to rise to 2-5%. These business owners can now look forward to a massive 13.1% to 27.4% tax increase on their earnings.
Furthermore, Investor's Business Daily details that the latest Senate version of this plan would include "a $750-per-worker 'annual fee,' $375 for part-time workers on companies with more than 25 employees that do not offer coverage to employees." This represents yet another additional tax on small businesses. As the IBD article correctly points out, "if you're a small business seeking to expand beyond 25 workers, you have quite a bit to think about. That's sure going to help job growth."
Threat #4 - Cap and Trade, Significantly Higher Energy Prices
Another fiasco in the making is President Obama's obsession with reducing and regulating carbon dioxide emissions by businesses and individuals, despite the solid research and objections of thousands of scientists that attest that carbon dioxide (CO2 is only 0.037% of the earth's atmosphere) is not a pollutant and does not contribute to global warming or "climate change" of any kind. Dubbed "Cap and Trade" this legislation threatens to bring about enormous government regulation and taxation of energy production and usage across every single industry in the US.
A recent Investor's Business Daily outlines the inevitable consequences of such an intrusive scheme:
Waxman-Markey is nothing but a huge scam that will bankrupt any business that relies heavily on energy, boosting fuel prices by 22 cents a gallon and socking the average family with an $1,800 a year tax hike.
Threat #5 - Runaway Government Spending, High Inflation and Weakened Dollar
The countless government bailouts of bankrupt financial institutions and many incompetently managed companies, runaway borrowing and spending by the federal government (currently running $1 trillion yearly deficits, for at least another 10 years), and warnings from China, Russia, and India who are rapidly losing confidence in the US dollar and are threatening to dump it, are setting the stage for future hyper-inflation; another potential tsunami of financial devastation for all Americans. Under such conditions companies will continue to be increasingly risk-adverse, be very stingy with their cash reserves, steer clear of US-based capital expenditures that require a long-term financial commitment, and remain guarded with any expansion and hiring plans that would unnecessarily endanger the enterprise in the event of high inflation rates.
Staying the Course on Anti-Business Initiatives
Obama's current anti-free market initiatives have been consistent from the beginning of his candidacy and throughout his first six months in office, and he's aggressively making good on his promises with legislation that's implementing them. Businesses understand what is happening and have tried to make adjustments. Like a living organism that has been attacked (imagine an octopus that's drawing its tentacles closer to its body to protect itself from an intruder or another predator) business has contracted and retreated to avoid disaster and survive. Company owners and managers have taken on a defensive stance to deal with the worsening economic downturn and the coming higher taxes, increased regulations, and future hostile economic environments they will face even when the current recession subsides.
Consequences for the US Economy
The consequences of business activities contraction worsened by Obama's multiple threats are devastating. Economy activity reduction, as measured by GDP numbers, reached -6.3% in the fourth quarter of 2008 and -5.5 % for the first quarter of 2009. Our economy has shrunk by almost 12% in the last 9 months and the US unemployment rate has peaked at 9.5% as of June 2009. Since January of this year 2.7 million private sectors jobs have been lost, despite the so-called $787 billion "stimulus" plan that was supposed to keep unemployment rates below 8%. To date only $43 billion of this "stimulus" act has actually been infused back into the $14 trillion US economy; a miniscule and insignificant drop in a huge bucket that most likely did little to help an economic recovery. Yet President Obama insists that it "has worked as intended."
The Investor's Business Daily article reveals yet more alarming statistics regarding the US economy:
Worse, the June jobs data mark a milestone of sorts: Our unemployment rate equals that of the no-growth Eurozone nations.
What the Future Holds
As far as the eye can see President Obama and the Democrats are preparing to implement multiple significant tax increases, layer upon layer of new government regulations and restrictions on business activities, and massive and wasteful government borrowing and spending for at least the next decade. There is nothing coming out of this White House that would signal to American businesses that it is willing to change course and let the private sector - the only real engine of value and job creation in a free-market economy - do its job and bring our country out of this recession. The assaults on American business and entrepreneurship continue unabated and the negative consequences of these actions are already rippling through our economy and impacting our lives. Things are getting worse not better! At a time when a normal recessionary cycle should be coming to an end and the economy should be stabilizing and begin recovering, US business activity continues to contract, with hundreds of thousands of jobs (467,000 lost in June 2009) still being lost every month. We're heading down a dangerous path that will virtually guarantee reduced long-term economic growth, higher unemployment and inflation rates, lowered living standards, and an erosion of our individual freedoms and liberties for the foreseeable future.
Chris Banescu is an attorney, entrepreneur, and university professor. He regularly blogs at chrisbanescu.com.