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What small business really wants (it’s not what all those senators claim)

Recently on TV there was a rerun of a popular movie produced in 2000: “What Women Want,” starring Mel Gibson and Helen Hunt. Very briefly, Gibson has “shocking” experience (literally) and is able to get into the “heads” of women and read their thoughts. Not a great move, but high grossing and of interest to me because it involved an advertising agency — my core profession for over 40 years.

It also coincided with the continuing claims by many members of Congress about what needs to be done to assist small business, who will be the drivers of our economy to get us out of this funk. Frankly their comments are inane, fictional, silly and inept. Why? Because virtually none of them really knows the dynamics of small-business challenges, and consequently do not or cannot get “into the heads” of true small-business people. Frankly, their statements are politically based, and have little to do with reality or an intelligent analytical basis of small business needs.

The current Senate (where most of the nonsense resides) is made up of about 60 percent lawyers (McConnell is a lawyer). Only 9 percent (9 senators) list their former occupation as “businessmen,” and of those 9, several are suspect, and several others had experiences in businesses that would not be described as “small.” Of the suspect ones, Jim DeMint, R-S.C., is listed as a “businessman” before becoming a senator — but his own biography says nothing about that experience. James Inhofe, R-Okla., is also described as a former “businessman” — but he was president of Quaker Life Insurance, which went into receivership and was liquidated in 1986. Using the credentials of these men, along with the few others who may have expertise, I conclude, is of less than little value and, indeed, in some respects antithetical to helping small businesses grow.

My credentials as a legitimate small businessman are these. After serving in the U.S. Air Force for three years of active duty, I was honorably discharged in 1957. A friend of mine owned a small Twin City ad agency, and having gone to flight school, he advised me that his largest account sold communications equipment to the Air Force. He asked me to join him. A few years later I became a partner in my own agency, and owned several more Minnesota agencies over the decades. From that day on I have been entrepreneurial, my own boss, and a quintessential small businessman. Additionally, I have owned small businesses in the aforementioned advertising, Twin Cities real estate, health care — and at 77 still own and operate my own successful local businesses today. That gives me well over half a century of expertise to share with you, and the right to point out that most of the proposals today are irrelevant, or worse, and the right proposals are being ignored.

A sanctimonious — and detrimental — claim
The most egregious of their useless proposals revolve around the current the tax debate — whether to include the top 2 percent in reversing the Bush tax cuts. The sanctimonious claim is “this would hurt small business” — and this suggestion is incredibly wrong and even detrimental.

It is wrong for many reasons, mostly because it is fiction. It would not affect the huge majority of small businesses, to begin with. In a very cogent recent study, Scott Shane, the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University, plotted the average of all industries and businesses classified as “small business,” with the average revenues at a little over $1.5 million annually, and the average income (on which taxes are paid) is about $100,500. This is far from the $250K target for increasing taxes on the wealthy (or small businesses). Moreover, almost all such businesses are classified as Sub-S corporations, and as such they pay no taxes at all (profits are prorated and passed through to the shareholders, of which there could be several or more, further diminishing the likelihood of $250K taxation).

Aside from the fictional account of such taxes harming “small business,” the whole subject of taxes to me (as a small businessman) was entirely moot, including our reputedly high Minnesota taxes. I never based my growth plans, or operational strategy on taxes. Never, ever did the issue of taxes inhibit me from attempting to grow profit and succeed. Nor do most small businesspeople let taxes drive their goal for success. Should I actually get lucky — make considerable profit — and see a higher tax rate, the worst case scenario is I pay a bit more. No big deal.

A demand-driven economic system
I stated that not raising taxes on the wealthy is antithetical to small-business success. How so? Well, capitalism is a demand-driven economic system. Putting more money in the hands of fewer people is a negative; what is needed is putting more money in the hands of more people — folks who are demand-driven consumers. The whole discussion of trickle down vs. raising all boats is too trite to repeat here; but to me, it has been positively decided. Small businesses depend on strong consumer demand. In that regard, extension of unemployment benefits fits that mold, too; it is not only a humane issue, it is also economic in that it adds demand from the bottom up.

Two other bugaboos that senators are claiming but that are largely fictional are regulatory issues and the mystery they keep purporting of “uncertainty.” I have never “feared” regulation. Some is essential, some easily complied with, and some bogus. But regulation, to a small businessman, is a moving target — always changing, annoying, but to me it has never inhibited me, or dissuaded me from carrying on and growing. To me, it is a gnat that you keep dealing with. And with the disastrous lack of regulation on such things as the egg recall, the Gulf oil spill, the mine tragedy, and the Wall St. debacle, it has to be remembered that as a small businessman, I am a consumer, too, and I see the value of keeping our environment clean, food safe, and financial system legitimate.

Uncertainty — to a small businessman — is absolutely not related to the economic issues of this recession (despite claims that it is inhibiting small-business growth). To small businesspeople, uncertainty is a way of life in any economy. It means putting your own money at risk, meeting payrolls, possible loss of a significant account, or unforeseen circumstances that may strike you. The senators should not be giving lectures to small-business folks on uncertainty — because probably none of them has faced any of those challenges. Their next paycheck is assured.

The biggest negative: lack of liquidity
Well, if those are things small businessmen do not agree with, what are some positive thoughts on things we would like to see? Right now, the biggest negative is lack of liquidity. Despite all the talk, promises and programs to stimulate bank lending, none is working, and without the fuel (funds) to power expansion, small businesses are stuck in neutral. Take it from me, good credit, strong growth history, long-term relationships, etc., are not stimulating banks to lend — and it is devastating to businesses that are growing and hiring.

Further, the Small Business Administration (SBA) has been less than helpful; it is mostly useless. Long ago, after many tries, I gave up on navigating the bureaucracy of the SBA — and this despite the fact that several banks told me my business was a “poster child” for SBA loans because I was a veteran owned a successful growing small business, and the SBA had “special” programs for folks like me. The programs turned out to be far less special than promised.

One last thing the government must do to assist small business is invest infrastructure and education. In the short run, small businesses must have solid transportation, good roads, and easy access to markets domestic and foreign. On the education front, small businesses especially depend on an educated, skilled workforce, because with fewer employees, better trained and more strongly motivated employees are crucial.

The bottom line is this. As a long term, successful, and experienced small businessman, I resent being told what is good for me by a bunch of politicians who know not of what they speak. They have never had to make a payroll, are basing proposals on political positions rather than on factual suggestions that might have merit for small businesses — and, in fact, are proposing policies that might actually be harmful to such businesses.

Now you have heard from a Minnesota small businessman with some very specific suggestions to give true assistance to the people who will create the jobs in this recessive period. Is anyone listening?

Myles Spicer of Minnetonka has spent his business career as a professional writer and owned several successful ad agencies over the past 45 years.

Comments (11)

  1. Submitted by Richard Schulze on 12/02/2010 - 06:29 am.

    It is true that small companies create jobs, especially when they are first born. And small companies destroy millions of jobs when they die—which is often. In fact, only a small fraction of smaller enterprises are capable of generating sustained growth of very many jobs. Yet lawmakers of both parties fall over themselves as the protectors of small business, creating programs that often help big corporations (and wealthy hedge-fund managers) as much or more than favored smaller enterprises.

    This is one of the keys to America’s apparent inability to do much of anything about anything, lately: the dominant, “mainstream” conversations in media and politics are frequently discussing a parallel reality whose shape is based on cherished/convenient myths rather than facts.

  2. Submitted by Greg Kapphahn on 12/02/2010 - 08:42 am.

    Thanks, Mr. Spicer, for such an accurate description of the reality of life for a small business owner.

    What brings me to despair is that, although the GOP talking points on this subject, and the carefully-designed misinformation that demagogues such as Mickey Bachmann, Mitch McConnell and John Boehner are being allowed to spout all over the mainstream media will never be countered with these facts.

    The general public will NEVER be offered the accurate information that would allow them to discern the truth from among the endless stream of “damned lies” that they are daily fed.

    As the nation increasingly circles the drain, those who are seeking nothing but their own wealth, power and political advantage are being allowed to lie to the public with complete impunity to with effect that those who know nothing BUT those lies vote for those who promise to help them and will never understand how they were misinformed into supporting those who engineered their own destruction.

  3. Submitted by myles spicer on 12/02/2010 - 09:11 am.

    Re Schulze’s comments, I agree entirely. What the Republicans have done goes straight to the old adage “tell a lie often enough, and people will began to believe it”. That is exactly what has been done by the GOP as they continuously claim to be protectors of small business. He is also correct that most (new) small businesses fail — mostly because of the common flaws: lack of managment expertise, lack of capital (as I noted in my piece), and lack of staying power. However, there are a core group of solid, healthy growing small businesses that are the drivers of new jobs; and they are also the incubators of successful businesses (Best Buy is a great example).

    Re Kapphahn’s comments, on media distortion, in his new book “Toxic Talk” Bill Press notes that 93% of radio talk show commentators are conservatives — many far to the right. It is getting increasingly difficult for Americans to sort out fact from fiction in this environment.

  4. Submitted by Thomas Swift on 12/02/2010 - 10:32 am.

    This useless twaddle not only fails as political propaganda, it fails to convince the thoughtful reader of the author’s credibility as a representative of successful businessmen.

    For instance, the author boldly assures us that [He has] “never “feared” regulation.” And that “regulation, to a small businessman, is a moving target — always changing, annoying, but to me it has never inhibited me, or dissuaded me from carrying on and growing.”, however he then goes on to completely contradict himself in admitting that regulatory red tape and bureaucracy prevented him from obtaining a loan from the Small Business Administration.

    If this is an example of his product, I find it very hard to believe his boastful claims of success as an advertising man. He hasn’t sold anything here.

  5. Submitted by myles spicer on 12/02/2010 - 01:05 pm.

    Thomas
    I fear you have confused “regulation” with “bureaucracy”. No regulations prevented me from success…or failure. Nor was I “prevented” from getting an SBA loan, it is merely a program that offered me few if any benefits from conventional bank loans (which I was always able to obtain, and still do). It does need streamlining.

    Re my prowess to “sell you” on my positions — that will never happen anyway. The only folks who can be “persuaded” to new positions are those with open minds, and not ideaologically challenged. Having said that, you are surely entitled to your firm and seemingly unbendable conservative positions, and I will respect them.

  6. Submitted by Thomas Swift on 12/02/2010 - 02:58 pm.

    Myles, if you’re suggesting there is no link between “regulation” and “bureaucracy” it might partially explain the lack of reason and logic in your opinions.

    You, of course, are free to respect my positions or not as you please, without regard to any effect you believe it might have on them. But I maintain that your lack of persuasive ability have little to do with my receptiveness to new ideas; I’m simply immune to leftist pap.

  7. Submitted by Bob Sebo on 12/02/2010 - 04:42 pm.

    Beautifully written, Mr. Spicer…and refreshingly Minnesotan. A characteristic that seems to be missing from a number of our policy debates.

  8. Submitted by rolf westgard on 12/03/2010 - 05:42 am.

    This is the best analysis I have seen on the subject of small business and tax and regulatory policy.
    The ignorance of legislators on this subject is rivaled by their ignorance of energy technology. An illustration is the Congressional mandate for 250 million gallons of cellulosic ethanol in 2011. The EPA has lowered this to 6.6 million gallons as we don’t know how to produce cellulosic ethanol in quantity. Passing laws is easy. Understanding laws that apply to economics or physics – not so easy.

  9. Submitted by Karen Sandness on 12/03/2010 - 06:21 pm.

    I’m self-employed, not even large enough to count as a small business, and as a sole proprietor, I pay personal income tax on the profits from my work.

    One of the biggest lies that the Republicans have spread over the past thirty years is that “high taxes prevent businesses from hiring people or upgrading their facilities.” This erroneous statement is plausible to people who have worked only as employees. After all, if you as a private individual were to hire someone to mow the lawn or clean the house, or if you wanted to buy a computer to play games on, that money would come out of what was left over after you paid your state and federal income taxes.

    What most people do not know is that businesses pay for employees, equipment, and other costs of doing business with *pre-tax* dollars. Self-employment is not always an easy road to follow, but the list of things that are now tax-deductible for me was a delightful surprise.

    I have no need for employees, but I can consult a professional for counseling about some aspect of my business, buy a scanner, order business cards, attend a professional convention, send documents by FedEx, make phone calls to Japan, take continuing education courses, and pay overhead for the use of my home office, and all those costs are *subtracted* from my taxable income.

    That’s right. Taxes don’t prevent me from investing in my business. They actually encourage me to spend money on equipment for my office instead of on an HD TV for my living room.

    No profits, no taxes. That’s why some major corporations are able to get by with paying no income tax. They have clever accountants who make income not look like income and use legal but tricky accounting techniques to overstate expenses.

    I find that this fact is new information for the average American, who simply assumes, without thinking about it much, the businesses are taxed in the same way as individuals.

    Here’s the only thing that has ever hurt me in 17 years of self-employment: lack of customers.

  10. Submitted by myles spicer on 12/04/2010 - 12:46 pm.

    Karen makes a couple of useful points — especially at the end. It goes back to my contentions on “uncertainty” as a small businessperson (or sole proprietor). Uncertainty permeates the small business community — and if you are averse to risk, you should find a home in a large “mother” corporation.

    The plaint that reducing taxes and eliminating regulations will somehow mitigate “uncertainty” for small business is bogus. It won’t! Because there is always risk and uncertainty when you are on your own, have your own money on the table, and obligations to meet payrolls. And also, the loss of customers or clients is always present.

    Uncertain times now? Not really. Compare nowadays to: the Depression era, WWII, Korea, Viet Nam, 20% interest rates; the resignation of a president, and the the assasination of one. Now THAT is uncertainty!

  11. Submitted by Amy Hoglin on 12/07/2010 - 03:15 pm.

    Thank you Myles and Karen. I’ve been waiting for someone more eloquent than I am to make these points!

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