Some common sense tax math

Hey, everybody, listen up to some common sense tax math that the Republicans are hoping you are too scared or stupid to do. After listening to John Boehner and every other right-wing pundit out there, it is time to just come clean about what the expiration of the Bush tax cuts really mean.

Allowing tax cuts to expire will hurt job growth
Nope. The tax cuts were not designed to stimulate job growth, only to give back tax money that was “over-collected” or what was then called a surplus. If the tax cuts were designed to create jobs, we would not be in the recession we are in as they have been in effect throughout 2007-2010. Really. You can check this out for yourself.

Capitalists don’t create jobs with tax credits. They put the money away so they are in a better cash position when the economy starts improving and they see customers on the horizon. Then, they invest. Machines first, people second.

Allowing tax cuts to expire will hurt small business
Think about this for a second. The top tax rate is applied to the PROFIT over the $250,000 mark. I don’t know of any small businessperson who pays tax on revenue, but I could be wrong. If you find one, let me know.

For a small business to generate $250,000 in profit that slides over as personal income on an S-corp, assuming a very generous 20% margin, the revenue from activity must be $1,250,000.00 That’s $1.2 million folks. Raise your hand if you have a small business making $1.2M at 20% net profit.

If you own a restaurant and are open 365 days a year, that means you have to serve 171 meals at an average of $20.00 per to hit that revenue mark. I’m not aware of many restaurants operating at 20% net margin, so let’s say at 10%, you have to serve an average of 343 meals at $20.00 to hit that number. And that is being open every day. If you are open for 12 hours, that means 14 meals every hour at 20% or 29 meals every hour at 10%. That is one very busy restaurant.

When you start breaking down the amount of effort it takes to generate a net income of $250,000 in most small businesses, it is a bit unrealistic. Even if you take a look at freelancing businesses and start breaking the numbers down for someone like Chris Brogan who claims to get $22,000/day for onsite work, he still has to work 57 events a year to hit that magic $250,000 number at 20%. (I don’t know what his margin is. Maybe it’s higher.) When you look at the detail of what is takes to generate $250,000 of net in a business, the claim that many small mom and pop small businesses will be hurt by the tax cuts expiring just doesn’t add up.

Am I wrong? What am I missing?

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Four stages of a on-line service company

fblogo

I was reading and commenting on a post by Bob Scoble in which he rails on Facebook for bumping Joel Comm due to him having too many friends, fans, etc. which probably just amounted to a whole bunch of traffic out to Joel’s friends for which he should probably be footing the bill.

It got me thinking about almost every other online business out there and the stages it goes through. Here we go:

Stage One: “That is a stupid idea. It will never work.”
Stage Two: “Hey, that is pretty cool. How are you making money? Call me to invest when you are making money.”
Stage Three: “You suck. You owe me for making you what you are and you are not giving me what I expect, even though I built my entire life around you, paid you nothing and had expectations of you that you never promised me.”
Stage Four: “You are too big, powerful and are monopolistic. Kill the beast!”

In between these stages are statements peppered with “You know what you ougta do..” and “I would buy advertising on your site to help you grow if you only reached this demo or that demo,” blah, blah, blah.

Why do people continue to use free services to further their career, business or other interests and then think they have a right to complain about how a service treats them? You paid nothing for the service and you are owed what you paid for it. Nothing. If it doesn’t meet your needs, then go find something that does.

Or build it yourself and then you will find out what it is like to have thousands of users who are each all willing to pay you nothing for your efforts, drink all your beer and then complain about you and your lack of “give a crap.”

Or buy stock in the company you are supporting if you believe in them that much. At least then you will have an ownership stake and you’ve bought your right to complain. But, as an owner, you would then be paying for the cost of supporting users who do not pay you and will only be loyal to your brand until the newest best thing comes…..

Oh, look, is that a Twitter screen over there?? Is that the coolest thing or what?!?

Government should be counter-cyclic to the Main Street marketplace

Ohio Statehouse
Ohio Statehouse
I was listening to NPR on WMUB this morning about the freshman Ohio senators starting their terms and how hard their jobs will be dealing with the State having a $1.9 billion budget deficit, GM, Delphi, DHL and other large companies pulling out of Ohio and various other things.

Many of the in-coming senators went on and on about how they need to cut government waste and hunker down and spend smarter, blah, blah, blah.

And then it occurs to me: Shouldn’t government be counter-cyclic to the marketplace? When things are going well, the free market tends to create goods and services it needs without help from the government. When the economy is doing well, shouldn’t government be pulling back on services, conserving revenues for a down economy?

When the economy is not doing well, that is when we need government help. That is when the government should ramp up the spending, not pull back. Government waste during fat years is a lifeline to average folks and small business during famine years.

As an owner of a small business, I only heard that the various Ohio Revenue departments are going to start going after every single penny it feels it is entitled to. It will asses property values higher, it will send out random letters declaring I owe this penalty or that missed tax payment, whether real or not. It will extract and extort money from the down and hurting at a greater rate than normal. All in pursuit of “responsible budget balancing.”

And they will further spiral the economic crisis downward and wonder why the budget will never balance. When the Ohio Statehouse policies put people out of business, tax revenues dry up and no matter how threatening the letters are, you can’t get money from people you put out of business and kick out of their homes.

I know it is really hard for elected officials to act responsibly during the fat, happy party years but when we out here on Main Street are doing well, Columbus and DC should be saving for a rainy day, not joining in the party and buying the booze for the drunken puppies.

Am I wrong?

What would you do if you had $1 million dollars?

Dear President-elect Barack Obama;

I am a small business owner. I do quite well for myself as I am in a knowledge-based business servicing the youth sporting market and the retail services industries. I also dabble a bit in coffee and Web 2.0 consulting.

I was running some numbers this afternoon on the bail-out plans that have been proposed to date. As I look back on my college days some 20 plus years ago and my classes in English Literature — specifically with regard to American literature of the mid to late 1800s (Hawthorne, Dreiser, Meliville, etc) — I was struck with what is to me a strangely obvious fact. Modern capitalism has run its course and the current financial crisis is the front wave of a new economy.

At its basics, capitalism is providing money to build infrastructure for making goods and to a certain degree, providing services with the promise of a return on its sale or sale of the goods produced. Having been in a service industry all my life, I am not unaccustomed to “cramming” a product economic model (“making widgets”) into a service model. It really doesn’t work but we lied to ourselves just the same.

This country no longer makes things. We provide services; we assemble components. The old capitalist model where we invest in machinery, buildings, factories, etc for making goods is dead. It has been dying for a very long time. As such, funding the economy from the top down is not a viable option. There will be no trickle-down benefit as the economy will only swell and move if the bottom tiers start spending and buying goods and services. Yet, they can’t because they have no ready cash.

Capitalists talk in billions of dollars. Ordinary citizens talk about hundreds each week. Investment banks talk millions in transaction per day. Small business talks about hundred of thousands in revenue. When you pour $700 billion into Wall Street, it is like dumping a gallon of water into the Pacific Ocean. When you pour $1 million into a small business, it is like filling a bathtub with a fire hose.

Here is my proposal:
– Establish a fund of $400 Billion dollars.
– Give $1 Million dollar grants to 400,000 business that are ready, able and willing to provide services to a service-based economy.
– Each business can then afford to hire 6 people at a salary of $40,000. With health care, taxes, equipment, etc. that should equal about $60,000 investment for each employee.
– That leaves about $640,000 left for materials, computers, advertising, marketing, etc.
– Encourage a strong multi-generation team, such as Gen Y, Xers, Boomers and beyond. Working together, we make a difference we all want to experience.

That puts about 2.4 Million people to work, building knowledge centers for teachers, creating software to better manage health care systems, providing new event marketing systems for brands, creating better time balance management systems for new parents, perhaps even finding a cure for some diseases. The infrastructure of services you will jump-start will sustain itself well past the year the US Government will fund.

Your campaign proved the model. Small amounts of money spread across millions of people who are motivated to creating a better world than was left them works. We are ready, willing and able to make the change.

Lead us and help us say, “Yes, we can” one small voice at a time until it becomes a thunderous, mighty roar.

Warm regards,

G.

PS I look forward to seeing the new puppy Malia and Sasha pick out!

The real death of the Dayton Daily News

For those of you who may not know, I was with the Dayton Daily News from 1998-2002. It was perhaps the most meaningful period of my life, in which I learned how to write objectively, think independently, treasure really, really talented people around me, learned how to change the world with little more than a thought and a pen, to learn patience, compassion and humility from greater human beings and learned how to find meaning in a job where I was paid almost nothing and expected to accomplish almost everything. I loved every heartache of the 4 1/2 years I spent there.

Yesterday, I visited the DDN building on Ludlow Ave in downtown Dayton. They were having a public sale where furniture, computer equipment, etc was being sold for whatever they could get. I went to walk the halls for one last time, to hear my friends, colleagues and mentors in my head one last time, to reclaim the same excitement I felt coming into the old newspaper building every morning. I was not disappointed.

….