Changing the Rules for Past Behavior is Bad Policy

Changing the Rules for Past Behavior is Bad Policy
The AIG Mess

Submitted by ASO member: Tom Sullivan

Doing business is becoming more complicated by the minute. With a shrinking economy and a growing government , the regulations issued by local, state, and federal agencies, and yearly changes to the tax code are enough to jolt business owners awake at night in a cold sweat.

We know that regulations cost small business more than their larger-business counterparts. And, we have accepted that a certain amount of bureaucracy is the cost of doing business. What do not know is how close we are to creating a regulatory framework so complex it will scare people away from taking risks, the key ingredient to entrepreneurship.

The anger over AIG using a taxpayer-funded bailout to pay executive bonuses has prompted the U.S. House of Representatives to pass legislation penalizing behavior by changing the rules after the fact. We are wise to consider restrictions on corporate behavior when those companies are depending on federal help. There are always conditions, expectations, and qualifications when two parties enter into a contract. When a company enters into a contract with the government to receive billions of dollars, it should expect some pretty tough contract terms.

However, companies doing business with the government should not expect for the rules to change retroactively. Not only is that wrong from a simple understanding of contractual responsibilities, it is bad policy.

The worse thing to happen right now as our country is struggling to get out of a recession is for companies to start second guessing their decisions because the government "might change its mind." Expansion plans, hiring plans, and product innovations will come to a grinding halt for fear of unknown consequences.

Last year, the University of Kansas won the NCAA men's basketball championship. What would happen if tomorrow we decided to ban the 3-point shot? And, what if we decided to make the change retroactive to the 2008 NCAA championship? Who would have won the championship? That is ridiculous. However, we are doing the same thing to the business community by accepting a retroactive tax to fix a problem we failed to address when the government agreed to provide AIG with $152 billion last fall.

With regulatory costs exceeding $1.1 trillion, we can not add to the mess by changing rules retroactively. I am glad that the Senate is considering how harmful retroactive rule changes can be to our regulatory structure and to our economy.

Small Businesses Shoulder Burdens

Submitted by ASO member: Tom Sullivan

Today, President Obama announced some of his plans to help small business. It will be difficult to distract people from pouring over NCAA tournament brackets, but it is worth directing some attention to how the President approaches the sector which we are all counting on to rescue our economy.

Well before newspapers were carrying news of the economic collapse, large companies were shedding jobs and out of the wreckage grew newly self-employed entrepreneurs. This is not a description of some job-layoff silver lining. Rather, it is a statement of what employment data show over the past several years. Now that small and large businesses alike are deep in the trench of an economic recession, the national focus is appropriately how to climb out.

Small businesses have rescued the economy from past recessions. Entrepreneurs grow businesses through innovation, ingenuity, creativity and unbridled energy. Businesses grow as entrepreneurs succeed. As small business goes, so goes the economy. My advice to the President is to carefully examine what policies stimulate entrepreneurial activity and what policies stifle that activity. And, I advise, go full steam ahead with the policies in the “stimulate” category.

Health care and taxes should be the top two issues of focus for President Obama as he details his plans for the entrepreneurial sector. Small businesses will applaud a concentrated effort to address costs when re-shaping the health insurance system. The top question that needs to be answered is, “how do we make it easier for small employers to provide health insurance?” On taxes, the President should acknowledge that the more cash small business has, the more likely those profits will result in new hires. Postpone the rhetoric of “tax the rich” until those wealthy employers hire more people.

Next, I advise the President to focus on how government agencies treat entrepreneurs. Small businesses shoulder a disproportionately high percentage of regulatory burden compared to their larger business competitors. The cost of keeping up with the massive amount of federal rules, regulations, standards, guidance, filings, reports, and permits is 45 percent more for very small businesses compared to businesses with 500 or more employees. Federal regulatory costs for small businesses total $7,647 per employee per year. On a per-household basis, this cost exceeds the cost of healthcare. The President’s small business plan should start with a pronouncement that his White House will hold regulatory agencies directly accountable to small businesses. He can do that by adding a small business empowerment section to President Clinton’s executive order on regulatory planning and review. The small business section should stop federal mandates that unnecessarily stifle entrepreneurial growth and should encourage regulatory actions that unleash the economic potential of small enterprise.

Obama Tax and Small Business

There is a significant problem with the President’s budget proposal to raise taxes on small business owners who earn more than $250,000. Unfortunately, this approach reflects a misunderstanding of how small business operates and how important they are to this country’s economic recovery. High income small businesses are the ones who will be hiring new employees, investing their profits to expand, and starting new ventures. The question should not be on whether the President’s proposal impacts 2 percent or 8 percent of small business. The question should be on whether it is wise to further burden the sector we are counting on to rescue our economy. When our economy is in dire straits, the last thing we want to do is curtail successful small businesses from growing. When our economy is at full strength we can have a debate over what the “fair share” of tax burden should be, but now is the time to encourage successful entrepreneurs to hire, expand, and create new ventures.

Submitted by ASO member: Tom Sullivan

You Decide

The distinctions between democrat and republican, liberal and conservative, can become fuzzy when political parties stake their claims to fiscal responsibility, education, and health care. There are moments, however, when the philosophical differences between parties become crystal clear and the budget announcement by President Obama was one of those moments. The President's cap-and-trade program to reduce greenhouse gas emissions by 83 percent below 2005 levels by 2050 was characterized as a revenue raiser. The President highlighted $646 billion in additional revenue from the greenhouse gas reduction scheme over the next 10-years. Conservatives quickly pointed out that the $646 billion would come from power companies paying for the right to emit greenhouse gases. Those costs would be borne by consumers. So, is cap and trade program a cost or a benefit? You decide.

Submitted by ASO member: Tom Sullivan