By Burt Williamson
The small business issues that Henry Dubroff addressed his column in the July 8-14, 2016 issue of the Pacific Coast Business Times — regulation overhaul, flexibility in the minimum wage, and the ability to tap retirement assets for a small business — would be welcome changes.
What follows is an elaboration on those points along with some other ideas:
Reducing burdensome regulations
Leveling the playing field will take more than rhetoric from politicians. There are many regulations that unnecessarily impede ongoing operations with all the time it takes to comply. These stand as hurdles for those looking to start new endeavors as well.
Chambers of commerce make great efforts at the state and federal level as they represent the voice of many. It would be extremely beneficial if they were to create an advocate who would speak exclusively for the interests of entrepreneurs and businesses with fewer than 50 employees.
Incentives for entrepreneurs
A few useful tax incentives could be implemented much faster without affecting special interest groups and big business lobbying efforts. For example, states could provide a tax holiday from entity taxation for the first two years of any new operations. Owners of businesses with fewer than 50 employees (regardless of age) might be allowed to roll over retirement assets from any type of plan into a self-directed IRA for the purpose of borrowing or using those assets to invest in their own businesses. This would be allowed even if they still have an employer-sponsored plan in place. Loans would be interest-free as long as the funds are paid back within 10 years or before the individual’s full retirement age. A new business could be granted a two-year hiatus from the Affordable Care Act’s health insurance requirements and penalties from its start date.
Eliminate advantage of cash shifting
Multinational corporations can move excess earnings to foreign entities with different fiscal calendars and disguise the transfers as expenses and fees for service to avert the retained earnings tax. While every dollar spent by one of these large corporations may have the impact of five dollars overall as the funds flow through the economy, every dollar withheld has the same multiplier effect in the wrong direction. Eliminating the fiscal calendar game would help level the playing field and may direct more than $1 trillion of cash into those businesses for job growth and business investment. This could add as much as $7 trillion into the world economy that no government stimulus could accomplish.
Incentives for small businesses
To foster small business growth, it may be cost effective to offer incentives in terms that encourage the creation of higher paying jobs. A set of incentives might apply to businesses that create high quality jobs that pay $10 or more above the minimum wage. They would have to retain the employees for a period of two years or more without laying off others in order to qualify. Incentives could also be offered to those who demonstrate that they have offered advancement opportunities to existing employees.
Another set of incentives might apply to owners who invest cash in the business rather than taking large dividends or bonuses at the end of each year. The incentives may have to be more beneficial to the employer than taking the money home would be.
During the recession, the federal government provided a partial tax holiday from payroll taxes. To encourage hiring, state and federal authorities could provide a tax holiday on the employer portion of the FICA taxes for the first two years after hiring new employees.
A more controversial incentive would be to allow a progressive wage system that started below the minimum wage for employers who hire and retain first-time workers or elderly workers trying to re-enter the workforce.
Access to capital
The Small Business Administration is a wonderful resource but it does not have nearly enough resources to help business owners access the capital they need. More crowdfunding options need to be available for entrepreneurs and ongoing entities as long as they can document properly the need and intended use of the funds. It may encourage banks to loosen their guidelines for making business loans as well.
All of these could help make it the season for small business owners … year round.
• Burt Williamson is a financial strategist and Certified Financial Planner with PlanPrep LLC in Oxnard.