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Uncle Sam Giveth and Taketh

Posted by Larry Doyle on July 11, 2009 7:46 AM |

Give a penny, take a penny? How about give $50 billion, take $50 billion, if not a lot more . . .

Welcome to a Saturday morning chapter of “Uncle Sam Giveth and Taketh.”

While reviewing a number of news outlets, I was struck by the juxtaposition of two reports from The Washington Post:

White House Eyes Bailout Funds to Aid Small Firms and Democrats Agree on Tax Hike to Fund Health Care.

Standard fare, right?? Let’s not be quite so hasty.

From the former, we learn that:

The Obama administration is developing an initiative to take money from the $700 billion rescue program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.

The effort would represent a striking shift from the rescue program’s original mandate, since it would direct billions of bailout dollars toward a plan that aims more at saving jobs than at righting the financial system. Some economists estimate that small businesses, defined as firms with fewer than 500 workers, employ most of the country’s workforce.

From the latter, we learn that:

House Democrats agreed yesterday to raise taxes on the wealthy to pay for a sweeping expansion of the nation’s health-care system, proposing a surtax on the highest earners that could send the top federal tax rate toward 45 percent.

Republicans assailed the idea, saying the new tax would fall heavily on small-business owners, who tend to report business income on their personal tax returns.

Don’t think for a second that our political wizards in Washington are capable of precision execution on either of these fronts. Given the size of the respective programs, I think jobs saved (via increased SBA assistance) versus jobs lost (via higher taxes on small business) will be at best a push.

A few questions and comments:

1. How does  Uncle Sam, in the name of the Small Business Administration, determine who receives assistance? Can Uncle Sam be influenced in picking winners and losers? Hmmmm . . .

2. Does it even matter anymore that the TARP legislation was not written for purposes of allocating funds to small business? Does the rule of law count for anything in our country?

3. On the tax front, to think the Obama administration is going to increase taxes on upper incomes (both individuals and small businesses) to as high as 45% and not touch tax rates below that is beyond naive. There is NO doubt in my mind the taxman cometh across the board at the federal, state, and local levels.

Thoughts and opinions, especially from those involved in small business, are deeply appreciated!!

LD

  • fiscalliberal

    Taking on loans to small business is such a massive job and requires a lot of personel. I wonder if this isn’t a shot across the bow for banks in terms of getting them to loan.

    However it could be that small business is not borrowing because they see a high risk in any future economic projections.

    So – this might be just poliitcal theater for the weekend and will have short legs

    • The whole idea that banks are refusing to loan money is a specious argument. BANKS MAKE MONEY THROUGH LOANS, this is what they do. The reason they aren’t loaning money is two fold. First the Fed has taken their toxic mortgages off the books and given them TBills, but instructed them not to lend money backed by the TBILLS. The Fed is acting as a money launderer giving insolvent banks the appearance of solvency, this is a giant shell game. Secondly banks and business don’t see economic opportunities that can and will repay the loans. You can’t force people to borrow at the same time moral hazard issues present themselves. Smart business people properly managed their cash flow needs and don’t need the money, this is something you learn and discuss in any money and banking class. So the only people left looking for loans are businesses that implicitly are mismanaged. This is the problem and make no mistake about it the banks want to lend money but they also want the capital returned.

      The real problem with this type of intervention into the lending process is that everything will become political. Only those politically connected will get loans regardless of their profitability. Good ideas will be overlooked and bad ideas supported on the tax payer’s dime. Everyone will have to grovel at the feet of politicians in order to get loans. You even stated that this will require a large bureaucratic system to dole out the money. This bureaucracy will eat up 30- 50% of the money directly. This is exactly what fascism is all about, government domination and control of the economic apparatus. this will grow government and government jobs not small businesses.

  • One more thing that will cause job LOSS is that the minimum wage is going up in the very near future. A higher minimum wage will also lead to more job loss, as it raises the price floor for the job market.






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