Thirtieth Anniversary of Anderson Materials Evaluation, Inc.

The 14th of July, 2025, is the 30th anniversary of my materials analysis laboratory, Anderson Materials Evaluation, Inc.  Within two weeks of the announcement that the recent merger of Lockheed and Martin Marietta was going to result in the closing of the Martin Marietta Laboratories - Baltimore laboratory, I incorporated Anderson Materials Evaluation, Inc.

I initially provided surface analysis services using x-ray photoelectron spectroscopy (XPS, also called electron spectroscopy for chemical analysis or ESCA) and a scanning Auger electron microprobe (SAM).  Soon, I added thermal analysis services (thermogravimetry or TGA, differential scanning calorimetry or DSC, thermomechanical analysis or TMA, and dynamic mechanical analysis or DMA) and metallographic microscopy.  Down the road awhile, we offered infrared spectroscopy (FTIR) and scanning electron microscopy (SEM).  We then added energy-dispersive x-ray spectroscopy (EDS) to our SEM.

Still later, we added mechanical testing capabilities with the purchase of a used Instron machine and we upgraded its electronic controls and software.  We purchased an ultraviolet - visible light or UV-Vis spectrometer.  Then came the purchase of our gas chromatography - mass spectrometer (GC-MS), followed by the purchase of our wavelength-dispersive x-ray fluorescence spectrometer (XRF).  Next, we purchased a 3-dimension high resolution digital optical microscope with surface profiling capabilities and an integrated laser-induced breakdown spectroscopy (LIBS) elemental microanalysis spectrometer. Finally, our last major purchase was our x-ray diffraction instrument (XRD).  Through the years, I commonly paid myself less salary than my employees so I could invest more into expanding the laboratory's materials analysis capabilities.

This expanding instrument capability has helped us to provide a wide range of materials characterizations, failure analyses, materials verifications, quality control, detection of hazards, and research and development services.  We utilize these capabilities on materials as varied as metals, semiconductors, polymers, glasses, ceramics, composite materials, minerals and other inorganic chemicals, and organic liquids.  We presently employ 8 people, counting two interns and two other part time employees.

Today, Howard County, Maryland, presented me with my annual personal property tax bill.  My willingness to forgo income, purchase the equipment of my laboratory, and to take on risk, leaves me subject to a large tax bill annually for the value of my laboratory equipment.  That equipment depreciates, but if it is in use, it never depreciates below 25% of its initial cost.  This is one instance in which inflation is a good thing.  At least the expense of purchasing equipment in 1996 is much reduced by the inflation since then, along with the subsequent property tax.

Governments love taking from small businesses.  From each according to his ability or capability, to each according to someone's perception of their own need or maybe somebody else's need.  The force of government is most easily applied against a minority, such as capable small business owners.  Yet, after 30 years, I will continue working for as many more years as I can.  I still like solving materials problems and working with the kind of people who share my interest in using materials to improve the condition of mankind.

My Tax Rate as an Individual and as an Employer

Bernie Sanders is proposing raising the highest bracket of the federal income tax from 37% to 52%.  This caused me to think once again about the taxes I pay.

I pay all of the usual personal taxes such as federal income tax, Social Security tax, Medicare tax, Maryland income tax, real estate taxes on my home, and the Maryland state sales tax.  In addition, I am a small business owner.  As a small business owner, I pay the following taxes:

Social Security (half for each employee)
Medicare (half for each employee)
Federal Unemployment
Maryland Unemployment
S Corporation Tax
Workman's Compensation Insurance (required by state)
Real Estate Property Tax
Personal Property Tax (laboratory equipment, supplies, computers, furniture, etc.)
Sales Tax

The sales taxes are too onerous to calculate, so I am going to leave those out of my calculation of the tax burden I carry as an individual and as an employer.  I did this calculation for the year 2018.

Leaving sales taxes out of the calculation for both the company and at home, the other taxes I paid equal 99.0% of my income.  Taking into account the sales taxes, that percentage goes well beyond 100%.

Now most of you are likely to argue that many of the taxes I paid are just a cost of doing business and it is not as though the various governments ganged up on me and took every penny I earned and more and left me to actually starve in the streets.  But it is true that if these governments did not tax me, my personal income could have been about 60% more than what it was.  Viewed from this perspective, I was likely only able to control the spending of about 35% of the income I could have had were it not for the many government taxes I pay both as an individual and as a small business owner.  I am one hell of a taxpayer.

Is it any wonder in the modern era that so few people choose to be employers and so many prefer to be employees.  This does not even consider the many risks involved in being an employer and a business owner.  It does not include the paperwork burdens.  It does not include the weight of the responsibility for your employees' welfare.  It does not include the cost of complying with the many regulations imposed by governments, many of which have little regard for a cost-benefit ratio that is rational.

Reducing the costs and the many other burdens that governments put on employers has a truly dramatic effect on encouraging entrepreneurs, who are under extremely heavy burdens at present.  The entrepreneurial spirit in America is being squelched.  Let it flourish and the growth rate in our economy will skyrocket.  Even small improvements in the growth rate have a tremendous impact on compounding the growth of the economy over the 40 year period that most people have yet to live.

Think about this when the Democrat Socialist Party politicians propose more taxes to partially cover the expenses of their many proposed new welfare programs.  Not only are they not going to allow entrepreneurship to grow the economy more, but they are actually determined to further squelch it, to smother it, to brutally murder it.  They simply view employers as the enemy, which is exactly what is to be expected of socialists.

More and more employers will go on strike -- they will shrug their shoulders and let all of these heavy burdens crash to the ground.  Atlas will shrug.  The many American employees will have far fewer jobs with far fewer people willing to bear the many burdens of being an employer.  The number of employers has fallen dramatically over our history as governments have grown.  This is not the only reason for this, but it has been an important reason for it.

Increasing Mobility of Low Income People to Higher Incomes

I am going to comment on an article by W. Bradford Wilcox posted at the American Enterprise Institute on income mobility in the United States.  He has presented some data of Harvard economist Raj Chetty, a principal investigator at the Equality of Opportunity Project, based on local variations of local income growth, the share of single mother households locally, and local government spending.  The mobility is question here was actually one with a very high bar.  A child born into a lowest quintile household has to be a highest quintile earner by age 30.  Most highest quintile earners are well into their careers and tend to be much older 30.

Wilcox has fit these data sets with linear functions.  The data are interesting, though the linear fits are problematic for two of his three plots of the data.  In light of the recent renewal of Obama's redistributionist efforts, only partially and even falsely carried out by ObamaVaporCare, this is a good time to talk about what really affects income mobility.

The first plot, which is reasonably fit with a linear function, is:

This is not surprising.  Where income growth is strong in America, labor is more valued and those who want to work hard have many opportunities to make money.  Of course Obama's anti-business policies, high energy costs, excessive regulations, and the costs of ObamaVaporCare decrease income growth and are therefore likely to decrease income mobility on the national scale.  Nonetheless, local government efforts to suppress the free market will still leave a strong imprint on local mobility variations.  There is no question that it is much easier to start a business in some areas than in others, as an example with important affects on mobility.

Another critical effect on income mobility is:

Clearly an increasing share of households run by a single mother has a very negative effect on income mobility for their children.  The linear fit here is nonsense.  The proper fit is with a hyperbolic curve, which indicates a much stronger impact of single mother households on income mobility than a linear effect.  It has long been understood that there was a strong effect, but this data makes it very clear how strong and dominant that effect is.  It is well-understood that entitlement programs tend to increase the number of single mother households, so most of Obama's likely efforts to decrease income inequality will likely make it worse.  One of the many impacts of his policies already has been to increase energy costs, which really hurts those with little income badly.  How local government welfare programs are run will have a big impact on the number of single mother households.  Generally, the more money spent on such programs, the more single mother households.

The third plot is:

The thought here was that local government spending supports education, so with better local education systems, income mobility would be increased.  There probably is some such effect in some school districts, but we also know that generally increased spending on schools does not really correlate well with greater learning.  In some school districts, the people do have a high regard for education, but in many other districts it is just another labor union entitlement program to gain the teachers union votes.  Many inner city school systems are well-funded, but horribly managed.  So it is not surprising that the data does not follow any definable dependence in this case.  The data more nearly resembles a hand print with the palm pressed firmly and the fingers splayed out and pressing lightly.  Indeed, the thumb is nearly straight up, indicating that one can get virtually any result from spending $2,000 per capita on income mobility.  Clearly, neither local government spending nor local education spending is the primary effect on income mobility.  This is not to say that real learning is not important.  That I am sure is a critical effect.  But, sad to say, real learning is not something Obama is interested in.

Income mobility depends upon the opportunity to earn a living, which is heavily dependent upon government policies not shutting down or over-regulating opportunities.  Because freedom of contract is heavily suppressed in the USA, many opportunities to earn are decreased.  One such egregious way to decrease opportunity to earn and to develop a career is to increase the minimum wage.  Doing so hurts the under-educated the most by keeping them from getting their first jobs.  This keeps them from acquiring skills and from establishing a record as a worthy employee.  It forces many to turn to crime.  The high costs of providing health insurance under ObamaCare and the minimum wage increases that took effect just before and during the start of the Great Socialist Recession have already had a disproportionate impact on ensuring the unemployment and part-time employment of those in the lowest quintile income households.  Obama has been no friend to the small businesses that often hire young people and give them their first opportunity to prove themselves.

It is another Obama farce to claim that he is going to do something to increase income mobility and to reduce income inequality.  As always, he will cause effects opposed to those he claims he will achieve.  Of course his main purpose in this income inequality rhetoric is to distract the American People from the disasters he has already caused in the economy and with our medical care.

Maryland Congressman Sarbanes' Vapid Energy Ideas

Having written a note to the Congressman who rules my incredibly highly gerrymandered Congressional District in the Socialist State of Maryland that I support a free oil and gas industry, I received this pablum reply:

November 21, 2013

Dear Friend:

Thank you for contacting me to express your support for the oil and gas industry. I appreciate hearing from you and welcome the opportunity to respond.

It is my hope that our energy sector will innovate and adapt to the needs and opportunities of a clean energy future. I believe that if we rise up to meet the challenge of climate change, we can solve so many complicated problems that our country is facing. By developing a long-term and sustainable energy strategy, we can address economic, national security, and environmental policy priorities in one fell swoop. We can diversify our energy portfolio and end our dependence on energy sources from volatile parts of the world. By revolutionizing our energy industry and becoming an exporter of clean energy technologies, we will be able to maintain our competitive advantage as a nation and ensure a prosperous future for our children. Just as growth in information technology served as the driving force behind the economic boom of the 1990's, the development of clean energy technology and green jobs will spur tremendous growth and offer long-term relief to the American economy.

Marylanders know that preserving and protecting our environment can go hand in hand with economic growth. The Chesapeake Bay, one of our most treasured natural assets, is at the center of our regional economy. As a member of the House Committee on Energy and Commerce, I will continue to support reasonable measures that give Americans more energy choices. I will be sure to keep your thoughts in mind when voting on relevant federal legislation.

Again, thank you for your input on this important issue. Please do not hesitate to contact me about any matter of importance to you in the future.

Sincerely,

John P. Sarbanes
Member of Congress

I am sure that John will not keep my thoughts in mind when he votes on issuing orders that will cause oil and gas prices to rise for entirely irrational reasons and force residential and business users of energy to pay these high prices in exchange for unreliable energy.  John is advocating the same use of so-called green energy that is causing Germany and Spain so many problems now.

He talks about a degree of energy independence which alternative energy sources such as wind, solar, and biomass have never delivered, but that the widespread use of hydraulic fracturing is substantially delivering with oil and gas today.  Maryland Gov. O'Malley has forced electric utilities to buy future wind and solar energy with the intent to pass the high costs onto Maryland users.  This is how John Sarbanes plans to address our economic problems at the national level also.

Ah, but these black and blue energy projects, called green by John, will produce jobs in Maryland!  Well, so far the only reason jobs are in Maryland is because a large fraction of the federal government employees, who suck in tax revenues from the entire nation, live in Maryland.  In addition, larger businesses in Maryland tend to be heavy government contractors in defense, medicine, and other R&D.  This is what really explains John Sarbanes' wish to have the government strongly take control of the energy sector and of energy use.  He knows that increased energy R&D funded by the government will disproportionately be contracted out to Maryland institutions and businesses.

This is badly needed in Maryland because between 2007 and 2012, there were 24 tax and fee increases in Maryland, which cost the economy $2.4 billion a year.  The Tax Foundation ranked Maryland number 41 for the worst state tax environment for businesses.  Maryland lost 6,500 small businesses with fewer than 100 employees between 2007 and 2012, while losing 40,000 jobs and 31,000 taxpaying households.  Imagine the conditions if Maryland were not so heavily funded by the federal government.

So, it is hardly surprising that a Democrat Representative is eager to damage the People of the USA in order to have Marylanders suck in their productive output through a straw from DC.

By the way John, climate change is one of the primary reasons a rational individual prizes our ability to use oil and gas.  Of course I say that understanding that it is natural forces, not man's emissions of CO2, that produced climate change in the past, does now, and will continue to in the foreseeable future.

With dumb fools like Barbara Mikulski and John Sarbanes and evil fools like Ben Cardin thinking themselves the Progressive Elite and better capable of making my life decisions for me than I am, you can see why I am an enemy of Big Government in a very concrete form.  This trio gets virtually everything wrong.  One would live a better and happier life by doing the opposite of what they want every Marylander to do in every case than one would following their preferences.  Yes, they are that wrongheaded.

Signing Up to be a Federal Government Contractor

Years ago, I signed my laboratory, Anderson Materials Evaluation, Inc., up as a federal contractor under the system the government was using at the time.  I was submitting an SBIR proposal which turned out to be in competition with about 60 other small businesses for a research and development grant.  About 6 weeks after these 60 small companies went to great expense to submit their proposals, the agency sent us a letter that said that because some other agency had requested a rather similar proposal a year earlier, they were not going to fund any grants under this request for proposals at all.  There was, of course, no apology for the agency's lack of homework in requesting the proposals and no expression of sorrow for the blow to the many small companies who never even had a chance to get a return on their investment.  Federal government bureaucrats simply are unable to imagine the harm they do.  I decided that applying for SBIRs was just too risky for my business and went years without applying for any contracts.

Recently, I performed two analyses for a federal agency which so impressed it that it decided it wanted five more such analyses.  These individual analyses were performed for three thousand dollars apiece and could be paid for with a credit card.  Over the years since my last bad SBIR experience, any work I had done for the federal government was performed at its request for credit card payment without the formality of being a registered government contractor.  As a result, my company did not need to be in the federal contractor system until this agency just requested that I respond to their RFQ for 5 more analyses on a contract.

So, I spent much of Thursday afternoon and evening and Friday afternoon setting my laboratory up in the new federal contractor system call SAM.  This system is integrated with Dun and Bradstreet, so I had to update my listing there and figure out how to get SAM to update obsolete information it had from an old set of data from years ago from Dun and Bradstreet.  Even before I could do that, I had to figure out how to get the system to authorize me to update the information it had imported from the old system in use years ago when I had put in a proposal for the ill-fated SBIR.  Then I had to wait until Friday to get that authorization.

Among the remaining tasks was the required reading of 45 FAR and DFARS requirements placed upon federal contractors on a host of issues.  One has to affirm that one is in compliance with each.  To understand these federal requirements, one is often referred to various laws.  In one case, one is told that the definition of an entity is to be found in a law and that it is different than the meaning the IRS gives to the same identifier in the Internal Revenue Code.  Apparently, small business owners have an infinite amount of time that bureaucrats and Congressmen can assume is readily dedicated to the finer points of their games.  No links are provided to the laws in question.

Once again, I am most impressed that the federal government has absolutely no sense of what expenses in time and effort it is appropriate to impose upon small businesses to do the work which the federal government is unable to do for itself.  For the government to have any ability at all to pose as competent, it has to turn to contractors to do its work.  Yet, when it does so, it does its darnedest to impose many of the inefficiencies and irrelevancies of the government bureaucracy on companies of the private sector.  It has no concern whatsoever for the value of the small business management's time.  None.

What the federal bureaucracy does care about is that it appears to have some concern for the issues of these FAR and DFARS.  If some contractor does violate one of them, it wants to be able to slam the responsible parties into prison or to heavily fine them.  Woe to the small business owner who rushes through these requirements without understanding them.  Woe to the small business owner who uses the time he could be using to earn a living to thoroughly understand these requirements.  This is a Catch-22 common to dealing with Big Government.

Many a small business simply cannot afford the assumed level of understanding and hence assumes a level of risk which the average citizen has no concern about, just as the bureaucrat and the Congress and the President have on concern.  Big government does not like small businesses.  It cannot comprehend a business which is less than very large.  Small businesses with resources that actually have to be earned the old-fashioned way with hard work simply live in a different world from governments.  Business owners are also a minority, so they count little at election time.  Indeed, most politicians think it makes nothing but sense to treat small business owners as villains while courting the votes of the worker bees.  Basically, government justifies its intrusiveness in everyone's life almost entirely upon the claim that business owners are villains and only Big Government can control them.  So, who cares how much time government forces these villains to waste?  It really is all very logical.

But, what would the private sector be without small businesses?  It is odd that few voters ever give much thought to the function of government, either what is does or what it should do.  It is even more odd that few voters think about the critical role of small businesses in the private sector that has to produce the wealth and perform the tasks so profligately squandered by Big Government.

Why Romney is Better for Small Businesses

Businesses that pay taxes at the individual income tax rate employ 54% of American workers.  Obama wants to raise the marginal income tax rate of business owners making more than $200,000 a year, while Romney wants to lower this marginal tax rate by 20%.  Obama will raise the marginal tax rate in the two highest income tax brackets from 35 to 39.6% and from 33 to 36%.  He will add a 0.9% increase in Medicare taxes to people in these brackets and will increase the tax rate on dividends, interest, and capital gains by 3.8% beginning in January.  He will reduce their deductions as well, which will make their marginal tax rate a real 44.8%.

As Obama says, these tax rates will not apply to 97% of small business owners, but they will apply to those who hire most of the new employees.  In 2008, there were 27.28 million companies and only 18,469 had more than 500 employees.  This means that about 27.26 million firms are small businesses or about 99.93% of all businesses are small businesses.  78.26% of all firms had no employees.  Those with 4 or fewer employees accounted for 91.6% of all small businesses.  The businesses that account for most of the new hiring employ from 20 to 499 employees and these are only about 2.3% of all businesses.  Most of the high income business owners Obama wants to tax at 44.8% marginal rates are owners of such businesses.  Such high marginal tax rates will serve as a strong disincentive to work so hard to grow a company.

Small businesses are the result of free associations of individuals in the private sector, not the government sector, or the falsely, but optimistically termed public sector.  The owner(s) of the small business voluntarily formed the business to supply services or goods to others in voluntary trade.  The owner(s) may hire employees, who voluntarily trade their labor for a wage or salary.  The only necessary role of government is to prevent others from using force to interfere with these voluntary trades and associations.  Small businesses are very much creatures of the private sector.

Large businesses are sometimes in a position to purchase politicians to bend the excessive powers of big government to provide them with special advantages, much as labor unions and trial lawyers do the same.  Among the favorite tactic of such nefarious big businesses is the use of excessive regulations to reduce the ability of otherwise lean and determined smaller businesses to compete with them.  The big business can readily hire several compliance lawyers and accountants, while hiring one of each is a huge expense for the competing small business.  Of course, under Obama, the big business just has legislation passed that directly gives it an advantage, such as a mandate that people must use their product or service.  The green energy companies and the Too-Big-To-Fail financial companies are the recipients of such advantages.  So are ethanol producers.  Almost any advantage an unethical big business gets with its political pull is harmful to most small businesses.

Small business owners tend to be more independent-minded and more individualistic than most people.  They are willing to take on a greater amount of self-responsibility and the risks that manifestly come with trying to build a small business.  They have to carefully identify their values and control their limited resources with wisdom and understanding.  These are not the traits of people who wish to be dependents of government in its Nanny State guise.  Small business owners tend to be willing to rise or fall based upon their own productivity.

Broadly speaking, the Democratic Party is more the champion of big government than is the Republican Party.  In particular, it tends to be anti-economic rights in its viewpoint.  Property rights, the right to earn a living, the right to hire employees exercising freedom of contract, the right to travel, the right to trade goods and services with others under the freedom of contract, and the right to create new ideas, goods, and services are all critical individual rights which small businesses require to flourish.  It is the maximization of these freedoms, not special interest favors, that small businesses need most to have the opportunity to succeed.

That the greatest need of small businesses is economic freedom is seen empirically by studies that rank nations and states (here, here, and here) by their economic freedom and examine their economic growth.  Generally, a small business does better when its customers are doing better, so targeted favors from government are of little use if your customer and suppliers are not doing equally well.  Bigger and growing markets also tend to bring down the costs of its business inputs more as more innovation occurs and businesses can take more advantage of scale or find more niche markets adequate to their growth.

Independent-minded small businessmen should want this open field of a healthy and robust private sector to operate in.  They are not equipped to field an army of lobbyists to protect themselves from politician's attempt to extort money from them.  They are not able to come up with the campaign donation bribes to pay the game of seeking special interest legislation or regulations.  The small business owner has his mind fully occupied by the business needs of his business and does not need a ton of government paperwork to do, hundreds of thousands of pages of government regulations to read and decipher, long discussions with politicians behind closed doors, and weeks of hearings and trials to attend.  Neither does he want subsidies, credits, and deductions which are supposed to reward him for obeying the wishes of politicians.  He is an independent businessman because he wants to do things his way, not as the manipulated serf of a politician.

Obama has been making the claim that he has lowered taxes for small businesses 18 times.  Yes, he has manipulated small businesses with a number of small or short term tax breaks.  My own small business has never benefited from any of these tax breaks.  In the Obama economy, I have not been able to hire an additional employee, so I have not received the benefit of paying only 90% of the taxes owed on quarterly tax payments, with the rest to be made up at the end of the year.  No, I have had no advantage from this also since my company pays payroll taxes every month in full.  Small business owners are not allowed to deduct the cost of their health insurance premiums, but for one year (2010) Obama allowed relief from this nasty ill-treatment of business owners.  In a couple of years, the amount of equipment one could deduct in the year of purchase was increased, but the usual lower amount is much more than most small businesses can purchase in a year anyway, so only a few small businesses can benefit from this tax break.  Start-up costs of up to $10,000 for a new business can now be deducted instead of a paltry $5,000, but that is worth little unless the start-up business makes money quickly.  And then it is still worth little.

Obama claims to have increased Small Business Administration loans.  They come with incredible paperwork, long wait times, and are for relatively small amounts.  It is easier to earn the money and pay for growth from earnings than to try to get money from the SBA.  Or, many small businesses used to finance growth by taking money from the refinance of the owner's home, but the policies of big government that led to the sub-prime mortgage bubble have killed that option for capital seed money.  Obama and the Democrats were especially prominent in support of the sub-prime loan bubble and its collapse.  The SBA programs for which Obama increased funding are directed at sub-prime loans to small businesses.  Many of them will fail when they cannot make their loan payments.

Obama's website for Small Business Owners claims that:

When President Obama took office, American small businesses were struggling under the devastating effects of the recession, runaway health care costs, and a credit freeze created by the Wall Street meltdown.

How interesting.  Small businesses, especially most of those serving mid- and large-size businesses are still feeling a recession due to the $2 trillion that these companies have been hording rather than using to buy the services of small businesses.  Our healthcare costs have only increased due to ObamaCare, or the ObamaUncaringTax according the Supreme Court Chief Justice Roberts.  The quote on our healthcare plan for my business went up 20% this year.  We had to drop the benefit as many other small and larger companies have also done.  Thanks to the Obama FDIC, the Federal Reserve, and the Dodd-Frank so-called financial reform law, it is still very hard for a small business to get a loan.  Of course, who wants a loan when the economy is so bad and so variable that one cannot be sure one can make the payments on it?

The SBA 7(a) Loan Program is ideal for businesses with less established credit histories looking to borrow up to $5,000,000.  Great, but what responsible small businessman will borrow anything like $5 million when his business is not well-established enough that he can be sure to pay back so much money?  I suppose the answer is a Democrat businessman, especially one who has bundled campaign contribution money for Obama.

The supposition of all of Obama's small business programs is that a small business wants to partner in some way with the government.  Well, no, most of us just do not want government to view us as a source of income for wasteful government spending, such as on green energy subsidies.  We do not want to pay higher taxes on our marginal income if we manage to generate a profit.  We really just want government to stay off our backs and out of our way as we exercise the economic rights which legitimate government is supposed to protect, not violate.

Actions Speak Louder than Words: Obama Hates Small Business

For each of the last five months, the National Federation of Independent Businesses (NFIB) has found that the business optimism of small business owners has fallen.  With First Quarter 2011 GDP growth dropped to 0.4% and Second Quarter GDP growth presently said to be 1.3%, some earlier optimism that this never-ending Great Socialist Recession was showing some signs of recovery has vanished.  Indeed, it is not even clear that if price inflation were taken into account properly that the so-called growth of the first two quarters of this year was not really a contraction of the economy.  We may very well actually have had the second dip of this recession already.  The Manufacturing Index has also been very disappointing.  Real estate values show no sign of recovery and consumer spending is still limping along.

Every time Obama and the Democrats push to provide extended unemployment benefits to the unemployed, the states have to continue using much higher than normal unemployment tax rates on the employees of businesses.  My company's rate in 2010 and 2011 is 7.33 times higher than it was 2008, despite our never having let an employee go who was eligible to collect unemployment insurance benefits.  This is not an incentive to small businesses to hire more employees and makes it harder to keep the employees they have.  Being forced to let a good employee go is definitely an optimism killer when you are running a small business.

Small businesses are also hit by the increased costs and bureaucracy they will have to expect with ObamaCare.  The Dodd-Frank financial industry reform bill has especially cut them off from the big lenders with assets in excess of $100 billion.  The increased regulatory burdens imposed by Obama's EPA, FDA, FTC, DOD, FDIC, Consumer Protection Agency, the NLRB, and the restrictions on oil and gas drilling have been hardest on small businesses who cannot afford legions of lawyers to deal with the government bureaucracy.  When the FDA or DOD require a business to become ISO-certified as proof of quality controls, that cost is proportionally much greater on a small business than on a larger business.  This is a very real discrimination against small businesses and often has only cosmetic effects on real quality controls since the business owner and upper management in a small firm are much more likely to be on top of quality issues than the corresponding management is in a big business.  New FDA oversight of small food retailers and producers is another major cost escalator for many small businesses.  Since few people were dying of food poisoning, there is no significant benefit to this new Obama cost.

Falling demand has been the biggest problem for small businesses which are less likely to participate heavily in the export markets as the large multinational companies do.  There are better opportunities for profits and sales abroad in many areas than here in the U.S., thanks to the Obama administration economy-wrecking policies.  Small business owners are also very worried about the uncertainties caused by excessive government spending and the rapid increase in the national debt.  The more spending government does, the more it interferes with business activity.  Since 2001, the GDP has grown by 46%, but the national debt has grown by 146%!  The Federal Reserve bought about three-quarters of U.S. Treasury Bonds in 2009 and 2010, thereby increasing its balance sheet from $896 billion in August 2007 at the start of the housing bubble collapse to $2.9 trillion now.  This is clearly not sustainable, yet there is no end in sight to this method of "covering" the absurd spending of the government.  The excessive spending and debt both cause pressure of increased taxes or inflation in the near future.  Business taxes are already much too high.

While only about 8% of small businesses name access to credit as their primary problem in NFIB surveys, it is clear that the credit needs of many small businesses are not being met.  Interest rates were increased on many lines of credit, business loans, and business credit cards.  40% of small businesses attempting to borrow in 2009 were able to meet their credit needs, 10% had most of their needs met, 21% had some, and 23% had none of their credit needs met.  With the gathering worries of satisfying the Dodd-Frank finance reform bill, this situation is becoming worse as this recession drags on and on and on.  Small businesses commonly do not have the resources to last through multiple years of recession.  Banks are especially refusing to lend money to fill in cash flow problems.

Small business owners generally own real estate.  In the NFIB 2009 study, 95% had real estate.  The fact that most real estate has lost considerable value has deprived many small business owners of the collateral they would commonly use to secure credit.  13% of small business owners had at least one property worth less than what they owed on it.  The loss of property values has left many small businesses much more vulnerable.

Into this sorry picture of woes for small businesses, the Obama administration FDIC has been squeezing banks to loan less money to small businesses, which it regards as less credit worthy as a group.  On that they may be right, but as is the rule with government, the assessment is a one-size-fits-all assessment.  Main Street Bank of Kingwood, Texas specializes in small business loans.  Main Street Bank has a $175 million loan portfolio and 90% of it goes to small businesses.  Most of these businesses have annual revenue less than $1 million.  The average loan size is $100,000.  Main Street had a profit of $1 million in the Second Quarter and wrote off 1.25% of its loans as bad.  The failure rate of loans in the FDIC insured banks in the First Quarter was 1.82%.  The FDIC has not released the bad loan rate for the Second Quarter yet.  Government is slow.

Despite the success of Main Street Bank in its small business loan strategy, the FDIC slapped it in July 2010 with an order to increase its capital and reduce the proportion of its small business loans from 90% to 25%.  The bank was also ordered to hire another bank executive.  It had to sell a business and shrink its loan portfolio to meet the increased capitalization requirement.  This increase in capitalization was a large one, from 9.5% in June 2010 to 17.3% in June 2011.  As a result of this FDIC interference in their business, Main Street Bank is working hard to turn in its bank charter.  A new company is being set up, Ascentium Capital, which will have backing from a private group of investors and will no longer take customer deposits.  This business will not be regulated and will be able to continue to specialize in small business loans.  They plan to increase the loan portfolio to $500 million.

The reduction from 90% of Main Street Bank loans to 25% for small businesses, removed $114 million of small business credit from the market.  Now imagine this kind of thing happening all over the country as the FDIC goes from bank to bank and prescribes lowered small business loan exposure.  The impact on small business credit will be huge.  This is very important, because a large fraction of American workers are employed by small firms and much innovation occurs in these companies.  A lack of access to credit during an extended recession makes these myriad small businesses more likely to fail.  The Obama administration policy is clearly to subsidize and bailout big businesses, but to slash and plunder small businesses.

Interestingly enough, the Small Business Administration has been repeatedly cited for guaranteeing lenders loans at 85% of the loan for which the lenders are considered to be at high risk in 80% of SBA 7(a) loans.  Their loan failures run many times higher than those of Main Street Bank!  While their loans go to only 0.2% of small businesses, they have an outlandish failure rate of 19.4%.  Perhaps the Obama crew should be more concerned with controlling this loan failure rate than that of a private bank which knows its business very well.

That tendency to plunder small business could not be made more clear than by Obama's constant effort to raise taxes on those earning more than something between $200,000 and $250,000 a year.  His efforts to widen the death tax is another indicator of his evil intentions with respect to small businesses.  It is politically much easier to plunder small businesses than it is to tackle big businesses with their many savvy lawyers and lobbyists.  It is also easier to over-regulate small businesses.  Socialists do not like business owners and managers.  They are equated with labor exploiters, no matter how many goods and services they produce for free consumers and no matter how many jobs they may provide.  Obama and his crew of insiders are nothing if they are not true socialists.  Small businesses are made to pay a heavy price as a result of their present power.

The Deception of the Reduced Employee Share of Payroll Tax

I am sure there are many employees who are delighted that the government has decided to make the total 2.0% reduction in the rate of the Social Security tax in the employee's contribution and not in the employer's contribution.  In fact, this is a nearly meaningless distinction, except that it plays well with those who have not thought the problem through.  I can tell you from my experience with mostly quite intelligent employees that very few people have thought this issue through.

In view of this ignorance, the ploy makes great political sense.  First, there are many more employees than there are employers, so it wins more votes for the politicians.  Second, the disappointed Progressive Elitists who so badly wanted to raise taxes on those guilty of being productive enough to earn more than $200,000 or somewhat less or couples earning more than $250,000 together or somewhat less are likely to feel that the reduction of the Social Security tax only on employees making less than $106,800 helps to equalize their disappointment in not getting to soak the rich.  They are also getting even with those rich, exploitative employers by not letting them have a share of the tax break for 2011 offered by this Social Security tax reduction.  Progressive Elitists hate business, profits, and businessmen, so this plays well.  But then this little triumph is entirely based on their own ignorance of employee compensation, which they display in many ways in addition to the present case.

Why is the distinction of employee and employer shares of the Social Security and the Medicare taxes meaningless?  On one level, it is because they are both paid by the employer.  The employee does not take his paycheck home and then send his Social Security withholding of 6.2% and his Medicare withholding of 1.45% in to the IRS.  His employer does that, unless he is self-employed, in which case he sends 12.4% in Social Security tax and 2.9% in Medicare tax.  But while this fact is important, it is not the hard part to understand.  Let us get to that.

An employer hires an employee because he wants the employee to help him produce goods and services and hiring the employee is calculated to produce enough more goods and services that the employer can cover all the costs of hiring the additional employee and make some profit as well.  The employer and the employee make a deal that the employee will be so productive that the employer can rationally afford to keep him employed.  There are two sides to this issue that need to be considered.  What will the employee add in company income and what he costs the employer.  For our purposes here, we will mostly consider what the employee costs the employer.

Adding an employee will generally require more work space and more equipment.  Workman's Compensation Insurance payments will go up.  The company may need to do more advertising to bring in more customers for the employee to provide goods or services for.  There will be an incremental increase in liability insurance in many cases.  There will be generally added expenses for business cards, office supplies, pollution controls and other regulation compliance, and the materials and goods the employee must use to make the company's finished goods or provide services.  There will also be overhead expenses due to the added work in doing payroll and keeping records for the IRS and reporting to them and other government agencies on tax and labor issues, and to provide and keep track of benefits.

Finally, there is the matter of providing the compensation package to the employee.  His compensation cannot rationally be greater than his additions to the company's income minus the many expenses of the previous paragraph.  If they are, for more than a brief training period, he should be fired.  Now every company is also in a bidding war with every other employer and even with the employee's potential thoughts of being self-employed, so that he has little leeway on the downside as to what he can offer in a compensation package.  He may increase that leeway somewhat by providing a nice work environment, good people to work with, good customers to work with, extra freedom in hours worked, and interesting work to do.  But one way or another, he is still in a stiff competition to keep desirable employees, who are likely to be desirable to other employers as well.  But most important of all, the employee's total compensation has a strict upper bound determined by what he adds to the company income minus the expenses associated with his doing so.

The compensation package is usually considered to be his wages or salary plus the costs of his benefits such as health insurance, retirement plans, vacation, sick leave, etc.  One could say that the employer's share of the Social Security tax and the Medicare tax, that state and federal unemployment taxes, and Workman's Compensation costs are all overhead expenses.  But if you do, the employer still needs to consider them as part of the costs of adding an employee and the employee still has to cover those costs or lose his job.  But, unlike added equipment, office or warehouse space, advertising, and other common overhead expenses, these taxes, which Workman's Compensation also is for all intents and purposes, are very easy to attribute to each particular employee and most rational employer's will do just exactly that.  They are part of your compensation package then.  Sure, most employees do not think of them as such, but that is the real case.

Why is this?  It is because the employer would have been just as happy to have given these tax monies to you as to give them to various governments or insurance companies.  If you are employed, you are worth the sum of these taxes, your take-home pay, the other taxes fictionally paid by you though he pays them for you, and all of your benefits.  In fact, if the employer could hand all of this money to you he should be happier.  He probably likes you and he would surely be very happy not to have go to all the trouble of separating the amount you are worth into separate piles with all the associated record keeping, report filings, and payments needed to

• Withhold income taxes for the state.
• Pay unemployment insurance to the state.
• Withhold income taxes for the federal government.
• Withhold Social Security taxes for the federal government.
• Withhold Medicare taxes for the federal government.
• Pay unemployment insurance to the federal government.
• Pay Workmen's Compensation insurance.

I can certainly vouch for the fact that I would love to give all this money to my employees and if any of these taxes had to be paid, I would be delighted if they would relieve me of all the tedious work involved and do it themselves.  Of course, I have a devious motive.  I know that that would create so many very angry voters that we would soon have a much simpler tax system and much smaller governments.  Many more people would pay more attention to how much they were paying in taxes.  The present system is designed to fool them into underestimating the amount of taxes they pay.  That deception works with most people.

Now, let us consider the case of a tax increase.  It does not matter a bit whether the tax increase is designated as paid by the employer or the employee.  The employer is still the one who is actually going to make the payments, though the employee is involved in some minor adjustments on the income tax.  Let us suppose that either the Social Security or the Medicare tax goes up.  If it does, the employer will have to do one of a few things:

• If he has many employees, he can easily fire one or more of the least productive employees to compensate for the cost increase.
• He may crack the whip and say all employees must work harder.
• He may defer pay increases until increases in worker productivity match the increased tax cost.
• He probably will be loathe to take on new workers who will not be able to match their cost of employment for an initial period of time as they learn the job.
• He may cut back on benefits.
• He might have to decrease wages or salaries, though this is usually psychologically a tough choice for everyone.

The employer has options and he will have to exercise them.  Losing money is not a choice he can handle for long.  But, you should note that such compensatory actions are harder on small businessmen than on big companies.  If your costs go up 2% and that wipes out your profit, but you have four employees, firing one causes you to lose 25% of your income.  That is most often not an option.  So you have to use the remaining options or go out of business altogether.  The going out of business option is very frequently exercised by small businesses, especially since they are usually already working very hard and productivity increases are often harder for them to come by.

Now let us return to the 2% decrease in the employee share of the Social Security tax.  Each employee gets to now take that 2% home and spend it as he wishes.  But, what would have happened if the 2% decrease had been in the employer's share of the Social Security tax?  Well, perhaps for a few weeks the employer might have had a few extra dollars to reinvest in his company or to call net income and to be taxed, but there would be a very rapid readjustment in the marketplace in which employers found that they must offer employees 2% more to retain them or to get them to come to work for them.  Why?  Because the worker in question has already proven that his labor is worth that extra 2%.  That is why he had a job in the first place.

Good, productive employees are a scare resource.  There is always an active bidding process for their services, just as there is a market for plumbers, accountants, gold, wheat, pork, televisions, and other goods and services.  The inescapable Law of Supply and Demand applies here as it generally does in life.  Governments often pretend that they are above the Law of Supply and Demand, but all they do is shift the equation is some way, usually some bad way, but some new Supply and Demand equilibrium ensues.

In the case of the 2% reduction from 6.2% to 4.2% in the employee share of Social Security, there will be more money available in the short run for people to spend.  Generally, I favor reductions in taxes.  However, this reduction is going to make the financial straits of the Social Security system all the worse.  The Baby Boomers are about to start retiring in large numbers.  The politicians have been unwilling to face that program's severe underfunding.  The Ponzi scheme is about to collapse upon us all.  The best solution is simple, but few will yet accept it.  The problem is the size of the Baby Boomer wave and the fact that retirees are living a long time.  The life expectancy of the 65 year old in 2006 was 18.5 years.  That is a long time in retirement, particularly given that many people aged 70 are now in good enough health to be working.  The retirement age should be at least age 70.  I expect to work at least until I am 75 and longer if my health allows, which it probably will.

Given that the federal government has long been using Social Security tax revenues to generally pay for the obscenely excessive spending of the government, either major retirement age increases or major tax increases will be required.  Taxes are already much too high and they are already very much degrading the health of the private sector.  What we generally need are massive government spending decreases.  They are coming because the People will not put up with higher taxes and they are coming to understand the fatal nature of government deficit spending.  The process by which the necessary spending decreases will occur is going to be very interesting to observe.  Because a simple problem has so very long been ignored, its solution will now be all the tougher and may be catastrophic for some.

Demorats Maximize Economic Uncertainty

By punting on passing legislation to extend the Bush tax cuts before the November election, the Democrats are once again proving themselves the masters of economic uncertainty.  As I have noted many times, economic uncertainty and the inability to calculate a probable return on investment due to hiring new employees or investing in plant and equipment, causes most businessmen to horde as much cash as possible.  According to Charles Krauthammer this now amounts to about $3 trillion.  The Federal Reserve says that non-financial corporations are reserving $1.845 trillion and financial institutions are clearly adding a lot to that.  It is also true that companies building their cash reserves has been a long on-going process since 1982, so it is not entirely due to the recession or the Obama administration. 

But, the reason for this has been an increasing sense of uncertainty throughout that period.  The socialist onslaught against businesses of the Obama administration did not come from nowhere, but has been building for a long time among the faculty of our colleges and universities and the college-educated elite of the Northeast, the Pacific Coast, and large parts of the Midwest.  Gore and Kerry came close to winning the presidency and in the 2006 elections, the control of Congress was passed to the socialist party.  Large companies with much to lose have become increasingly aware of their vulnerability to socialist redistributionist schemes, litigation, and extortion by Congress, Presidents, and state and local governments.  It is these large companies who are the ones most responsible for this increased cash hording.

Small business has long been the primary engine of growth and hiring.  The Bush tax cuts helped them, but the on-going growth of state and local governments, their regulations and taxes, and federal regulations and mandates substantially defeated the benefits of the Bush tax cuts for them.  The reduction of uncertainty due to the death tax, which wipes out many small businesses, was a Bush tax cut that was delayed in its start and had a brief duration of one year, 2010.  It expires at the end of this year and will return to a tax rate of 55% for any estate worth more than $1 million.  This is a huge business uncertainty for many small businesses.  In addition, these small businesses do not know what the tax rate on so-called profits will be in January, since those so-called profits are passed onto most small business owner's personal income taxes.  Those rates are going up, if the Bush tax cuts are not extended.  The Democrats are divided into those who want to extend the personal income tax part of the Bush tax cuts in total and the larger number who want the tax rates for the two highest tax brackets to go up.  Obama is a rather critical actor who wants those two tax bracket rate increases.  This will affect many small businesses.

Why did I say so-called business profits above?  Because the profit is often a fiction.  Suppose a company's income undergoes fluctuations through the year due to seasonal variations or due to more random fluctuations.  The end of the tax year comes along and a company has to pay taxes on that part of its income that exceeds its expenses to date.  Generally, it had better have some such income in excess of expenses, because it does not know whether income in the near future will be enough to cover expenses.  Nonetheless, it gets taxed on this essential reserve.  Suppose your company earns a lot of income in the Fall, but much less in the early part of the next year.  Every year you have to have some money to carry over to deal with the expenses of the early part of the next year.  This money is not really profit, since it may be barely adequate or inadequate to deal with the seasonal fall-off in income.  Nonetheless, the company is taxed on this. 

If the owner of the company makes enough to fall into one of the two higher tax brackets, his taxes may well be about to go up on this necessary reserve.  If he is in the highest tax bracket, the marginal tax rate will go up by 13.1%.  Because that may be the case, he may well decide to lay off some employees at the end of the year, since he probably has many fixed expenses such as rent and insurance he cannot do much to reduce.  He knows he will have less reserve money he can use to pay employee salaries early next year if Obama gets his way.  Of course, at this time, the small business owner in a lower tax bracket also cannot be sure the Bush tax cuts will be extended.  Uncertainty adds to firings and to less investment in equipment and plant to grow and to become more productive.  This uncertainty or an actual increase in taxes both have the effect of extending the pain of this recession.

It turns out that the Democrats have not even written a tax-cut extension bill yet.  If one is not passed, then the personal income tax marginal rates of 10%, 15%, 25%, 28%, 33% and 35% become 15%, 28%, 31%, 36%, and 39.6% brackets.  If Obama gets his way, the present 33% rate bracket is split, with the upper part of the bracket getting the higher tax rate of 36%.  The split would come at a married filing jointly income of $237,200, which is once again belies his pledge not to increase taxes on married people making less than $250,000 a year.  He would have the highest marginal rate tax increase from 35% to 39.6%.  This happens for married filers making more than $382,550.  The long term capital gains tax will also increase from 15% to 20% for upper income bracket filers and the present 0% rate for lower income brackets will increase to 10%.

In the second quarter of this year, net household wealth decreased by 2.7%, which hardly encourages the small businessman.  Net worth is down 19% since the second quarter of 2007.  The federal debt went up 24.4% in the second quarter this year, following a first quarter increase of 18%.  Apparently with the approach of the November elections, federal spending surged!  State and local government spending has long been going up, though it has slowed lately due to a loss of tax revenues caused by the recession.  The more governments spend, the more wealth is transferred from the private sector to the public sector.  More public sector spending creates more complex laws, regulations, subsidies, and mandates, which decrease American productivity and destroy jobs.  Overall, the spending of all U.S. governments (federal, state, and local)  is given in the chart below as a percentage of the GDP:

From a local maximum in 1991 of 37.22% of GDP, the spending burden slowly fell until it reached a local minimum in 2000 of 32.56%.  This had a lot to do with the relatively good employment numbers from 1998 to 2000.  Since 2000, total government spending has increased, though it was flat from 2002 to 2007, with spending in the range from 34.75% to 35.28% of GDP.  In 2008 it began surging upward to 36.94%, in 2009 it was 42.32%, and in 2010 it is expected to be 43.85% of GDP.  Noting the huge increase in total government spending since 1952 shown in this chart and understanding that the bureaucrats spending this money are creating new business regulations, mandates, and are picking winners and losers by industry, company, and location, this spending increase represents an ever greater burden on businesses.  The more governments spend, the greater the uncertainty for most businesses.

Now we should all be very reassured by the government's proclamation that the recession ended in June 2009.  Ha!!!  By the operational technical definition in use, it did end, because GDP has grown since then.  But, this really depends upon strict adherence to a definition that ties a recession only to GDP losses.  A recession would better be defined as any period of six months or more in which one or more of the following cases occurs:

1. GDP has decreased.
2. Personal net worth has decreased.
3. Unemployment has exceeded 6%.

Real unemployment still exceeds 10% and net worth was down in the first two quarters of this year, so we are still deep in a recession.  It is true that GDP has increased of late, but the rate of increase in the last quarter was very low.  Overall, the suffering rate is very high.  The Democrat cure is to have the governments spend more money foolishly, to increase some taxes, to mandate increased energy costs, and to leave it unclear whether the largest tax increase in history will soon be knocking the legs out from under our staggering private sector.

Mandated Employer-Provided Health Insurance Discrimination

One of the provisions of the mandated employer-provided health insurance plans being considered by the Democrat Congress that I have been wondering about for some time pertains to the issue of how that mandate would treat individual versus family coverage requirements. My company pays 100% of the cost of the individual plan for everyone, but pays no more for family plans. For whatever reason, we historically have had few employees who needed family coverage and it did not seem fair to discriminate in their favor by providing them with benefits much higher than those for employees who either did not require coverage due to having a spouse covering that or who only needed individual coverage.

The National Federation of Independent Business (NFIB) says that employers must offer "qualified" individual and family coverage. They must also make a premium contribution of at least 72.5% for individual coverage and 65% for family coverage.

What does this mean in terms of compensation for the employee without the need to insure a family? In 2007, the average individual coverage plan cost was $4,708 a year. The average family plan coverage cost was $12,680 per year. 72.5% of $4,708 is $3,413.30, while 65% of $12,680 is $8242.00. The employee with a need for family coverage must be given $4,828.70 per year more than the employee without a need for family coverage.

Now, I love families, but not everyone has a family. Sometimes this is by choice and sometimes it is more a matter of misfortune. But whatever the cause, it is not necessarily the case that an employee with a family is worth more to a business than one without a family. This being the case, what business is it of the government to require a business to treat an employee with a family as though they are more valuable to the business? Nonetheless, the government is going to require that small businesses subsidize families.

This government mandate invites additional discrimination against hiring people with families or who might be likely to soon have a family. No doubt, the government will have anti-family discrimination laws on the books and police to visit small businesses to see if they have the expected ratio of employees with families to those without families.

Note also that whether the increased business expense is that of an individual plan or a family plan, the fixed price addition compared to pay is larger for lower paid employees. There will be an increased rate of job loss for low-paid employees. Companies will have a greater incentive to replace lower paid employees with machines and technology, or to outsource their jobs to India and China. This effect will be large for lower paid employees covered by individual plans, but it will be much larger for those covered by family plans. So, discrimination against lower paid employees will be particularly great for those with families.

The plan my company has has provisions for single coverage, for coverage of only a spouse, for coverage of a parent and one child, and for coverage of a family. Thus, there are two offerings of intermediate expense which employees can choose. Will the government be forcing anyone with the need to cover only one additional person, a spouse or a child, to buy a much more expensive family plan? If so, then both such an individual and his employer will be required to subsidize families with multiple children or with a husband and wife and a child. Is this fair?

Remember the old welfare policies such as Aid for Dependent-Mothers that caused many poor women to chase husbands away and raise children as single parents on welfare? Well, this mandated health insurance plan requirement that family plan premiums must be subsidized by small businesses may have something of a similar effect, except that employees will be in the position of fearing to have families at all since it might result in them losing their jobs!

Obama: 98% of Small Businesses Will Not Pay Health Insurance Penalty Tax

The Obama health care programs working their way through Congress in about five versions agree that businesses which do not provide health insurance plans meeting the government's requirements will be forced to pay a penalty tax of 8% of payroll. If a company is forced to pay for family plans, then 8% of payroll will be much less than the cost of providing family health insurance plans to employees. As a result, many firms will not provide health insurance and will pay the penalty tax.

Obama has promised that 98% of all small businesses will not have to pay the health insurance penalty tax. Most people hearing this will assume that this means that surely those firms with fewer than 50 employees will not have to pay such a penalty tax. Or, maybe that surely a firm with 20 or fewer will not have to pay such a penalty tax. You are deceived. Obama is out and out lying to us all.

The HR 3200 bill called the National Insurance Act of 2007 is now being considered for passage by the House of Representatives. It calls for the 8% penalty tax on all firms with a payroll of $400,000 or more. It also calls for penalties from 2% to 6% on all firms with payroll between $251,000 and $400,000. A firm with a payroll of $251,000 is most likely to have 8.8 employees according to 2004 statistics provided by the U. S. Census Bureau. Table 2a on the line for firms with 5 to 9 employees, allows one to calculate the average pay per employee to be $28,531.40 and dividing this into $251,000 of payroll yields 8.8 employees.

Now this may surprise most people who know that small businesses are usually classified as those with fewer than 500 employees. One might tend to think that the category of 98% of small firms might include most of the firms with fewer than 50 employees, since that is only 10% of 500. Since 8.8 employees is almost 9 employees, let us sum up the number of all firms with payroll having fewer than 500 employees from the same U.S. Census Bureau figures and compare their number to those firms having 9 or fewer employees. Taking only those firms with payroll, we find that the firms with 9 or fewer employees are only 78.78% of all small firms with payroll. This is more than 19% short of the 98% Obama promised would not be taxed.

But it is worse than this. There are many more single person, self-employed firms than there are firms with payroll. All of these people are forced to buy health insurance approved by the government under this House bill, so effectively these firms must buy health insurance with no option to opt out, unless they pay a penalty tax of 2.5% of income. Many of these self-employed people have family incomes below $250,000, so Obama is also violating the pledge of no new taxes on people with incomes below that. Furthermore, these self-employed firms with no payroll are surely small businesses. So, those small businesses having the option not to offer health insurance and yet not having to pay the health insurance penalty tax are only 18.21% of the total number of small businesses. So, in reality, Obama's exaggerated 98% of small businesses will not have to pay the health insurance penalty is only about 80% higher than the reality.

Man, can this president tell a whopper of a lie!

I sure remember seeing those bumper stickers that said Bush Lied. Well, President Bush had some faulty intelligence information on Iraq and made a mistake in believing it. But, Obama could not even truthfully use the business payroll and employee information of the U.S. Census Bureau of 2004. This is a real lie, not a mistake!

It is time to put those Obama Lied bumper stickers on our cars!

Health Care Reform Effects on Small Businesses

The Council of Economic Advisors released a report entitled "The Economic Effects of Health Care Reform on Small Businesses and Their Employees" on 25 July 2009. This report is an effort to enlist support from small businesses for the Obama - Democrat Congress health insurance reform plans.

Much of the report is about how many people are employed by small businesses and that a smaller fraction of small business employees are covered by company provided health insurance plans than are by bigger companies. It says that the "U.S. health care system imposes a heavy 'tax' on small businesses and their employees." What does it mean by this? Well only that small businesses pay up to 18% more per worker than large firms do for the same health insurance coverage. First, I wonder what the average % additional cost is. This up to 18% more is meaningless. In fact, I am sure there are small companies paying much more than 18% more, just as there are apparently small companies paying a smaller than 18% differential with respect to large companies. If my house costs more because I live in the Washington, D.C. area than it would if I lived in Tulsa, Oklahoma, should I run around saying I am paying a home tax because of that? Well, maybe I should since so much of the cost differential is due to government restrictions on housing in the Washington area. As we will see, small business is to be offered a subsidy for providing health insurance to its lower paid employees to offset this so-called 'tax.'

It turns out, that in order to get the nationalization of our health insurance system done, the initial offering from the Obama crew is a bribe to small businesses. The 'vast majority' of small businesses will not be subjected to the 8% payroll tax if they do not offer employee health benefit plans. But, if they do, they will be given a 'tax credit' which is a higher percentage of their health benefit costs the lower the average pay of their employees. Hmmm.... seems like a good reason to hold down your employees pay, well except that market supply and demand do not really allow that. This brings up some interesting questions.

You see, Washington always thinks of every business as being a corporation. Corporations pay taxes on their net income. But, almost all small businesses report their income on the owners' personal tax returns. Does this mean that each business partner or stockholder must submit all the proof of payouts on employee health plans and on their average compensation to the IRS? How does the IRS then pay out the tax credit? If the company has no net income, as many small businesses do not, is the tax credit paid out? Is it paid out proportionately to each business owner as a check to them personally? Or, will there now be a whole new tax filing system for small businesses under which the money will be sent to the business directly? No matter what, this will be another government nightmare of paperwork for small businesses. This alone will be good reason to drop health insurance coverage for employees. Governments will never understand how heavy the hand of their paperwork lies on the head of the small businessman.

Now, there will be many small business owners naive enough to buy into this bribe, but in time this system will surely be changed and it will be changed to be more and more burdensome to small businesses. Just as the carbon cap and trade bill proposes expense offsets to many and attempts the really big energy reductions only after 2020 in order to get that program established, we can be sure the deal on health insurance will become more bitter with time.

There is no mention of reforming one of the big problems that small businesses have today with respect to offering health insurance to their owners, who are a substantial part of the workforce of small businesses. If an owner owns more than 2% of the stock of his company organized as a S-corporation, he is not allowed to treat company payments for his health insurance as a tax deductible expense of the company, though he does so for his employees. Many small business owners have no health insurance for this reason. And many have none because the small business cannot afford the expense. But, of course, the government hates business owners, so this may well not be changed.

The report talks about how various levels of reduced health insurance costs will help small businesses to become more profitable and to offer their employees more pay. They pick percentages of reduction out of the hat and calculate savings. But, there is no reason to think that health insurance costs will actually go down given that the government is going to dictate added benefits be added to the insurance coverage. I suppose, as long as the subsidies are offered, companies with many low-paid employees may save money if they are among those few companies with low-paid employees who already offer health insurance. The report notes that the lower the average pay of a small company's employees, the less likely that the company offers health insurance benefits. Most small companies may simply be tempted to stop offering health insurance and tell their employees to turn to the government health insurance exchange.

Under the House bill, a worker with a spouse and two children whose family income is $40,000 per year would pay approximately $1,700 for a policy that in a non-group market would cost $12,000 or more. This will be a huge government subsidy. Of course the government is figuring some reduction in cost because the insurance companies entering the plan are supposed to give up their profit! Ha!!! Perhaps they think the policies will be sold for less than what insurers would charge large companies. Let us use this 18% differential to calculate that part of the savings, though that figure may not have any validity. So 18% of $12,000 is $2,160. This means that the government subsidy for this family will be $12,000 - $1,700 - $2,160 = $8,140. Note that this is a huge transfer of wealth from some Americans to other Americans for no reason but that they are less productive individuals! This is the core of Obama's share the wealth philosophy.

This exchange plan is a lot better in some ways than most company offered plans. The family will have to make no more than $850 or less in out-of-pocket expenses. A family of four making less than 133% of the poverty level income of $22,050 will be put on Medicaid. Above this 133% level, they will go into this government exchange. At the starting income for the exchange of $29,300, this family of four will pay about $400 (approximately, estimated from the graph in Fig. 8 in the report) for the $12,000 insurance plan. Wow, what a transfer of wealth!!! The family of four making up to 400% of the poverty level will also receive a subsidy. This is an income of $88,200 and the subsidy will be about $2,200, again estimated from a graph.

As I see this, it would appear that most small businesses, except those with average employee compensation well above the average, will be better off ending their employee health benefit if they now offer one and letting their employees go into the government exchange. This frees them of the headache of doing a lot of paperwork, and many of their employees will be eligible for very large subsidies.

Of course, those subsidies come from taxes levied in some way upon the economy. It is clear that Obama and the Democrat Congress will levy those taxes on the most productive people in America and then transfer that money through these massive subsidies to those who are much less productive. The same is to be done in the carbon cap and trade scheme where the government will give subsidies to lower income families to offset their higher energy bills, while more productive people will pay the full cost of their skyrocketing energy bills.

Frankly, if the health insurance redistribution bill and the energy use tax redistribution bill are passed into law, there is no reason for productive people to bother being productive. They should go on strike. Going Galt is the only answer. It will be time to do some reading, go fishing, go hiking, and sleep in late, but there will be no point in working for money. Perhaps we should all retire to Galt's Gulch and prepare for the collapse of this socialist monstrosity that Obama and his fiendish Democrat Congress are fashioning. There we might create our own money with no convertibility into U.S. dollars and claim we have no income and hence should pay no taxes to the Socialist Republic of the United States.

Union Representation Card Check Legislation

Labor unions are doing very well in the public sector, where they have been very successful in organizing government workers. In the private sector, they are in deep trouble. In the 1950s they had 35% of private sector workers organized, but now they have only 7% in the private sector. Consequently, they have become desperate to find a way to improve their numbers in the private sector. The card check legislation, which was passed by the House in 2007, but defeated in the Senate, is once again Labor's number one lobbying priority.

Presently, if a labor union persuades 30% of the non-management employees of a company to check a card saying they are interested in labor union representation, the company must either accept the union as the sole bargaining agent of all of its non-management employees or call for a secret ballot election managed by the National Labor Relations Board of the Labor Department. Currently, labor unions win more than 50% of such secret ballot elections. This system is one full of injustice. First, it is wrong to require a company to negotiate labor contracts against its will with anyone or any organization. Company owners are not obliged to provide a job to anyone, except by their choice. When they are forced to do so, they have become slaves to their employees. Second, it is wrong to force those employees who do not wish to join a labor union to do so, unless the management freely chooses to make that a condition of employment, which they do have the right to do.

But this already union-skewed system is not enough for the labor unions. Clearly, workers have seen that unions are often very effective in destroying companies, which makes their continued employment very dubious. A very good illustration of this presently is the need for General Motors to go bankrupt, so an organization can emerge from its ruins which is not chained to many extremely uncompetitive concessions made to the labor unions. Many employees in the private sector have clearly understood the risks of joining a labor union and have chosen not to do so.

The union answer was to have Rep. George Miller (D of CA) introduce the so-called Employee Free Choice Act once again, which in the best tradition of Congress is anything but what its title suggests. This is more commonly called the card check legislation. It will require a company to recognize a union as the sole bargaining representation of all of its employees if 50% of them check off a card saying they want union representation. A union may be forced upon a company and those employees who do not want union representation even before they know that an attempt is being made to organize the workers of the company. There may never be an opportunity for the company and uninterested workers to make any counter arguments. It is also very clear that union organizers can put very great pressure on the last few employees they need to reach the 50% critical number for unionization. The secret ballot need no longer stand in their way.

This process of unionization is so easy that it can be readily applied to very small companies, which will be especially vulnerable to being taken over before they even know they are under attack. There is nothing to prevent the unionization of even very small Mom and Pop businesses. These businesses do not have the legal resources to contend with the unions. These small-time entrepreneurs have often suffered through years of personal privation to build a stable company and to get to the point where they could hire a few employees. In many cases, the lowest paid employee in such a company may be the founder of the company, who is still foregoing salary income in order to build his business. Yet, this struggling owner/manager is now forced to employ employees backed by hordes of lawyers from the union and to pay them still greater multiples of pay and benefits relative to his own pay. He may be providing them with health benefits already, which law does not allow him to provide for himself.

This proposed legislation further imposes the requirement that the company must enter into negotiations with the union within 10 days of the union getting the 50% check-offs needed. Then if no agreement is reached between the company and the union within 120 days, the government provides an arbitrator who will dictate the wages and benefits the company will provide the workers for a two-year contract. Given that the Labor Department will designate the arbitrator and given its generally pro-labor union stance, you can see why labor unions have written these provisions into the bill.

Meanwhile, a February 2007 McLaughlin Associates poll of 1000 respondents found that 79% opposed this bill and only 14% were in for it. Among just Democrats, 78% opposed the bill and 16% were for it. A 2004 Zogby poll found that 78% of union workers oppose any measure that denies them a secret ballot vote on union representation. Despite this opposition by voters, the Democrat Party obligation to the labor unions is so great that the Employee Free Choice Act, or abomination, may well pass Congress when it is considered soon. President Obama voted for it when it failed to pass the Senate last time and swore during the election that he would sign it into law as President.

Soon not only GM and U.S. Steel will be having difficulties being competitive, but your corner independently owned gas station and the local diner will be struggling even harder than normally to stay in business. Small business owners who relished doing it their way instead of opting for the safety and easier life of working for a large company, will find themselves slaves to a labor union. What a life!

Unions to Destroy Entrepreneur's Creations

Labor unions have been having a hard time in the private sector in the United States. Only 7.5% of private sector workers are union members. In the 1980s, union membership was about 20% of the private workforce. The unions are desperate to reverse this trend. They spent $450 million electing more Congressmen in this last election in an effort to get changes in the laws to help them unionize more and smaller businesses.

Unions are a major factor in making unionized companies less competitive. Unionized workers are paid in accordance with seniority, not with respect to productivity. In many other ways, unions make companies less competitive. Promotion by seniority saps the incentive to work hard and to think on the job. Work rules may cause a great loss of multi-functionality in employees and may simply have them taking unnecessary breaks. Union-imposed rules may make little sense in many contexts, but management cannot bend them to accommodate the Big Picture or the complete, rationally evaluated context of a particular situation. Unions also push for wage and benefit increases which many companies cannot sustain. Consequently, unionized businesses are a vanishing bred of business in the highly competitive American marketplace. With global markets more and more competitive also, unions are more and more a disaster for many businesses and for their employees.

The premier legislation that unions are seeking to reverse their loss of private sector membership is card checks. They and their Congressional allies are calling this The Employee Free Choice Act. This is really legislation designed to keep employers from ever speaking to their employees before their companies are unionized. It is also designed to make it easy for the union organizers to intimidate workers wherever they wish to corner them to get them to check a card that they are interested in being represented by the union. It is very revealing that union members do not like card check. They want union representation to be chosen by secret ballot. In union households, 69% oppose The Employee Free Choice Act! 76% of union voters say that the secret ballot is the best way to determine if workers want to be unionized or not.

Entrepreneurs create most of the jobs in America. In particular, small businesses create most of these jobs. The owners of these small businesses face a very daunting task in trying to build and maintain a business. Of the businesses started in 1992, 25% died in the first year. 50% were gone in 4 years. In the 10th year only 29% were still in existence. Yet, most of the owners of these businesses worked incredible long hours and did their best to try to make their companies a success. Most of these companies died even without the added burden of being unionized.

A great many small business owners went into business in good part because they had had it with working for others. Many of them are independent-minded people who want to work their way. The unions want to boss them around when they have built a business just large enough for the unions to be able to milk it of some significant resources. With the take-over of more and more small businesses, the unions will try to build up their membership. This will then give the unions more income they can use to try to bribe the politicians into giving them ever more power. The union bosses will be able to live high on the hog in money and power, while ever more small businesses are ground into oblivion.

This is a huge attack on wealth and property in America. It is a serious threat to small businesses and the huge investment that most small businessmen have put into those businesses. It is an overt expropriation of wealth. It is also an attack upon innovation and the determined spirits who have created wealth out of nothing with years dedicated, focused effort. Since the secret ballot is the most accurate way to determine whether the employees of a company want to be unionized, it is also an attack upon their livelihoods. Many of them do have long time horizons and want to work for a company that will exist in 10 years. Many employees do not want to see their union dues given to politicians they do not even want to vote for, let alone fund. This activity by the labor unions is hugely immoral and should be very roundly condemned by everyone.

A worker has a right to choose to be represented by a union. An employer has the right to then fire him rather than to have to negotiate with a labor union representative. Both employees and employers have the right to make choices. But, ultimately, an employee has his job at the discretion of the employer. If the employee does not wish to meet the conditions of employment of the employer, then the employee may leave and find another employer or he may start his own business. No employer is responsible against his will for the employment of anyone. To the degree that the law claims he is and forces him to provide jobs, the employer is simply a slave of the state and of the employee. There is no reason any employer should put up with this injustice. No one should be a slave, most especially not because he is productive and innovative enough to create jobs for others.