10 July 2008

Barack Obama will hurt growing businesses

In the first post of this series, I discussed how Senator Obama’s proposed tax increases would affect a small business during startup phase. The financial case one makes when determining if a startup is even feasible would be heavily burdened by Mr. Obama’s tax increases, leaving many potential businesses to stall in the ideation phase. Fewer small businesses means fewer jobs. Provided an entrepreneur forges ahead despite these challenges, self-funded growth would be further hampered by Mr. Obama’s proposed increase of capital gains and dividend taxes, and his failure to understand that many small business owners include business income on their personal tax returns, making them seem like individual high earners, even though the expenses often eclipse revenues at first.

This post centers on the growth stage, when a business starts hopping. Expenses are often highest, as the concept has proven out and investments in marketing and infrastructure can be heavy. Senator McCain proposes expensing equipment and technology investments in the first year, rather than amortizing over many years. This simple change should boost capital spending and more quickly reward businesses that make these investments.

The growth stage typically involves hiring, which tremendously benefits the community. Senator Obama’s plan to increase the minimum wage will make it more difficult to justify lower-skilled positions, leading to higher unemployment. These positions are often filled by younger people just entering the workforce, hoping to gain valuable experience to help them land their next, better job. Unfortunately for the next generation of workers, anti-free market minimum wages will delay their progress.

Senator Obama also intends to burden business owners with a “pay or play” scheme, in which they must provide health insurance for employees or pay a fine up to $12,000 per year per employee. This mandate will certainly result in fewer new jobs, a greater reliance on contract labor, and stunted business growth. When the costs of adding people are so high, many businesses will opt to delay or forgo expansion opportunities.


To summarize, Senator Obama’s naïve proposals will harm growth-phase businesses in many ways:
  • Investment in growing the business reduced because tax burden on individual filers will jump.
  • Hiring postponed or canceled due to higher, artificial minimum wages, and huge penalties for not provided mandated health insurance.
  • Capital spending would increase under Senator McCain’s plan to allowing expensing of such investments in year one.
Look for a continuation of this theme in my next post.

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