

Why both Obama and Romney are wrong on small tech business - xmattus
http://www.alleyinteractive.com/blog/how-both-obama-and-romney-are-wrong-on-small-busin/

======
ef4
"Tech" small businesses are doing just fine. And they represent only a tiny
fraction of small businesses, probably even more so when you measure by
employment, which is what people tend to care about.

As someone who has cofounded both a tech company and a traditional bricks-and-
mortar small business, I can assure you that the traditional small business
has slogged through copious red tape. It's true that much of it is state and
local, rather than federal, but that's small comfort.

You might think that a reasonably smart person should be able to independently
figure out how to pay a dozen employees without accidentally breaking the law
and getting fined. You would be wrong.

The payroll processing industry doesn't exist because it's hard to write
checks. They exist because it's absurdly difficult for a non-specialist to be
compliant without expending disproportionate effort.

------
liber8
What a strange article. Clearly he's writing from the perspective of "small
technology firms", so why extrapolate his perception of how regulation affects
_his_ industry with _all_ industries?

Please, Matt, speak to someone trying to run a business in the "more
conventional trades" and see how government regulations hurt them.

That is if you can find any such small businesses in the areas that federal
government regulation have killed off. Just take banks for example: in the
last 4 years, the federal government has basically made it impossible for any
bank with less than $100,000,000 in deposits to exist. New regulations
essentially require 40+ hours per week to keep up with the "minor nuisance
paperwork." That's simply not doable if you're a small bank, which is why
you're seeing all of them gobbled up or closing down.

Obviously, this has dramatic affects on the ancillary small businesses that
made their living serving those small banks.

Just because the harm isn't visible to you doesn't mean it doesn't exist.

~~~
shk88
You just discredited his opinion by stating that his perspective isn't an
accurate depiction of regulatory issues for small businesses. Then you went
and made your argument siting regulatory problems for small banks.

You discount an argument as anecdotal and not applicable and then support your
argument with another anecdote.

~~~
liber8
If you claim X =/= 1,2,3,4, or 5 and I show that X can equal 3, I have
discredited your claim.

~~~
bicknergseng
In math. Writing public policy to address anecdotal or individual cases is an
awful way of writing public policy.

~~~
shk88
Thank you.

------
maratd
> Why both Obama and Romney are wrong on small tech business

Obama and Romney are wrong on pretty much everything, but one of them will
still get elected. So what's the point of rubbing it in?

Politics is the art of ameliorating numerous constituencies. In other words,
discrete bribery. No "right answer" can come from that.

For the right answers, you need a leader, not a politician. We haven't had one
of those in a _very_ long time. They're not terribly electable.

~~~
mistercow
>Obama and Romney are wrong on pretty much everything

No, not really. Obama and Romney are both _right_ on just about everything;
most of those things we give no thought to because we settled them centuries
ago. There is a small space of matters on which they disagree, and on most of
those issues one of them is closer to right than the other. Then there is
another small sliver of issues, more important than the other sliver, about
which both are wrong and/or apathetic.

------
jerich
Omission 3: Address engineering and hard science education in the US. If we
could double the number of kids leaving school with an engineering degree,
we'd probably start to see some amazing stuff happening.

My out-there proposal for a way a president could actually effect change:
interest-free federal student loans for graduates with ABET-accredited
engineering and engineering-tech degrees (or even "negative interest"
depending on how much you want to push it). Or, just pass the Fundamentals of
Engineering exam to get your interest waived.

Someone could do the math to figure out if the additional tax income from
higher-earning tech salaries would make up for the lost interest income, but
I'm guessing it'd even out pretty soon.

Start encouraging students in all fields into tech-heavier majors. Want to
work in the fashion industry? Industrial Engineering should be your start.
Want to become a business executive? Get a Math or Systems Engineering degree
before you head to B-school. Even future lawyers would be better served with a
degree in Physics rather than cranking out another Political Science graduate.

------
il
This doesn't apply to startups, which are always set up as C corporations.

Most businesses are set up as S corp or LLC to avoid our broken corporate tax
system/double taxation. The high corporate tax rate obviously encourages
entrepreneurs to pass profits through to themselves rather than keep it in the
business and grow the company.

~~~
taylorwc
startups not always set up as C corporations--for instance, if you expect it
to be several years before you reach any profitability (happens a lot in
biotech), you set up as an LLC to flow losses through to investors for tax
purposes. most of these convert to c-corps upon profitability or if there's
going to be a major financing event.

~~~
il
This might be differet for unsophisticated investors, but I've never seen an
experienced technology investor invest in anything other than a C corp.

In any case, investors don't want losses to flow through to them. They want
losses carried forward to reduce the company's tax liabilty in the future.

~~~
taylorwc
Depends on the investor, especially if it's an angel group vs. fund. lots of
angels want to receive the initial benefit of losses.

------
protomyth
"there actually aren't a lot of federal regulations that affect small
businesses."

This is a seriously flawed statement. There are a rather large number, and
worse, not one comprehensive list. It also matters what they classify you as.
There is a current case where a airport is classified as a mining operation
because they are going to sell the coal removed when they put in a new runway.
Doing a kickstarter and buying materials from overseas, good luck. We ignore
most of them up until the point we are made aware by a man with a badge or a
lawyer.

Well, I know a fair amount of farmers that are scared about Jan 1, if the
estate tax reverts and some startups should be too.
<http://www.mtpioneer.com/2012-January-Estate-Taxes.html>

------
001sky
1) Is a-sort-of strawman. Gov't regulations are required for all markets to
function absent fraud & violence. So, obviously at that level of abstraction,
yes its a truism. There would be no legal business entity period, for example,
without a government law outlining the legality of a "legal business
entity"...etc.

2) The avoidance of C-corps has to do with double taxation and high-marginal
rates on the _second_ level of taxation. So, again, this analysis is flawed.
The absence of C-corps is evidence that the tax rate/s in fact makes them un-
economic and thus illogical to bring into existence.

3) Small businesses are hurt by both excesses of credit (which lead to asset
bubbles and COGS inflation) as well as localized shortages of credit. There is
currently not an aggregate credit shortage (corporate balance sheets are
stuffed with cash). Seperation of retail from investment banking would help
with the localized issues around credit to small businesses (because it would
eliminate cross-product subsidies, and more rational pricing structures for
debt).

4) This would actually support a public heathcare system in its entirety.
Which is legitimately, not an idea either side has addressed. But its also
arguably a feedback loop on the tax issue: if it goes away somebody has to pay
for it. This is likely to show-up in the tax bill if the service is
nationalized, for example.

These are all good points to raise, but would just propose to have a little
more background added for color. Politicians and voters are almost always out-
informed on these issues by special interests. But because the latter elects
the former, they only need to communicate at levels of "Mininimum Viable"
product. Which is a great innefficiency :/

~~~
wycats

        2) The avoidance of C-corps has to do with double taxation and
        high-marginal rates on the second level of taxation. So, again,
        this analysis is flawed. The absence of C-corps is evidence that
        the tax rate/s in fact makes them un-economic and thus illogical
        to bring into existence.
    

Exactly right. A good tax system would provide limited tax advantages (or
maybe even added costs) to filing as a pass-thru entity, allowing companies to
use the appropriate tax structure, and help make policy appropriately targeted
for businesses vs. individuals.

Obama's business tax blueprint explicitly addresses this:

    
    
        (iii) Distorting the form of businesses.
    
        Business may be organized under a variety of different forms,
        including C-corporations, S-corporations,  partnerships, and
        sole-proprietorships. These organizational forms offer varying
        legal, regulatory, and tax treatments. The primary difference in
        tax treatment between C-corporations, on the one hand, and 
        S-corporations, partnerships, and sole-proprietorships, on the
        other, is applicability of the corporate income  tax. C-corporations
        are subject to the corporate tax, while pass-through entities are
        not.
    
        The combined effect of this varying tax treatment has contributed
        to a lower effective tax rate for pass-through entities relative to
        C-corporations. The effective marginal tax rate on new investment
        by C-corporations is now 32.3 percent, while the effective marginal
        tax rate on new investment by passthrough businesses 26.4
        percent.
    
        ...
    
        The ability of large pass-through entities to take advantage of
        preferential tax treatment has placed businesses organizing as
        C-corporations at a disadvantage. By allowing large pass-through
        entities preferential treatment, the tax code distorts choices of
        organizational form, which can lead to losses in economic efficiency;
        business managers should make choices about organizational form
        based on criteria other than tax treatment.
    
        ...
    
        Reduce the corporate tax rate from 35 percent to 28 percent.
        This reduction in the rate would put the United States in line with
        other advanced countries, help encourage greater investment in the
        United States, and reduce the tax-related economic distortions
        discussed above.
    

As a person who has just spent a bunch of time deciding on my form of
business, I consider the S-Corp option to, in fact, be distortive (and costly,
from a time and accounting cost perspective). I am glad that this discussion
is happening in policy circles, and that Obama explicitly addresses it in his
blueprint, even though it is not really part of the public discussion.

~~~
tomjen3
Don't bother reading that. All politicians lies. Come November that isn't
worth the bytes used to transfer the text.

