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Information & Insight
A Taxing Question
The intent behind the Bush tax cuts of 2001 and 2003 was to stimulate long-term economic growth by encouraging savings and investment.
Today, on a macroeconomic level the debate over whether or not to extend the tax cuts is round one of an inter-generational battle over what Americans expect from government.
Although quick congressional action is an oxymoron, today, in the face of high unemployment and a tepid economic recovery, there is not a lot of time for debate on this issue.
While not prescribing a solution, a recent article in Bloomberg BusinessWeek provides historical perspective and a solid overview of the pros and cons of this major issue facing Congress in the months ahead.
If it Ain't Broke Don't Fix it, But if it's Stalled, Get it Moving!
For local businesses hit hard in a slow economy, or for entrepreneurs with a strong business plan, but no track record, government backing makes it easier for banks to lend.
The 7(a) loan program may not be well known outside of small business circles, but across the nation, for lenders and borrowers alike, it a blessing disguised as a government program. A 7(a) loan may be used for working capital, fixed assets and other business expenses, and the term of the loan can be up to 25 years.
According to a story in The Wall Street Journal, "the latest round of funding was exhausted in May, causing a decline in SBA loan volume. A provision included in the small business job creation bill now before the Senate would resuscitate the 90% guarantee through Dec. 31 and allow the SBA to increase the maximum loan amount to $5 million from $2 million. The bill already has passed the House, but the Senate is bogged down by disputes over the broader bill."
Raising Taxes in an Election Year with a Stagnant Economy is Political Suicide, so What's Plan B?
Catch 22 redux? The federal government can run budget deficits, but states, for a variety of reasons, are often mandated to balance their budgets each year.
In 2010 almost all governors struggled with layoffs to close budget deficits while administration officials were afraid that another round of state layoffs or tax increases would derail the fledgling recovery.
The Washington Post reported that House speaker Nancy Pelosi threatened to call back legislators from vacation to pass a $26 billion spending package to save teacher and other key jobs.
Coming Problems for Small Business Due to Healthcare Reform.
For three years prior to the passage of healthcare reform legislation, insurance premiums for my company, Lindsey + Associates increased an average of 30 percent annually.
As a business owner, I am painfully aware that Congress cannot expect insurance companies to offer more and expect premiums to decline because "in theory" they will lower costs over time.
Health care premiums will continue to increase because:
- Elimination of the pre-existing condition limitation (however, in Maryland and a few other states this limitation has already been eliminated).
- Annual and lifetime maximums for essential benefits will no longer be permitted
- Medical insurers must pay for preventive care and cannot ask employees to share this cost
- Insurance companies will be subjected to annual rate reviews.
Medical insurers will be required to submit rates for an annual review. The rate review process will be administered by the Department of Health and Human Services. How will this affect your health premiums in the near-term? Medical insurers will start immediately pushing more direct and in-direct costs into their current premium models prior to undergoing rate review. That way their base level of premiums will be higher.
Nonprofits are a Vital Part of Economic Growth
In the past decade non-profit job growth has significantly exceeded private sector new hires. GuideStar USA, Inc., a leading source of nonprofit information published a survey that received over 7,000 responses from public charities and private foundations. Key findings included:
- 40% showed a declined in contributions
- About two-thirds reported fewer individuals giving and gifts from individuals were smaller
- 63% reported an increase in services provided
- 41% increased their annual budget from 2009 to 2010 while 29% decreased showed a decrease in their annual budget
- 8% are in imminent danger of closing
- 78% of mental health organizations saw an increase in demand for services
Go to www.guidestar.org for a free copy of The Effect of the Economy On the Nonprofit Sector.
Every Business is Vulnerable to Employee Fraud
A recent article in The Wall Street Journal, contained the following recommendations from the Association of Certified Fraud Examiners.
- Don't put the same person in charge of both accounts receivable and the company's disbursements.
- Hire an outside accountant annually to perform an audit.
- Beware of employees involved with the company's finances yet never take a vacation.
- Watch for changes in lifestyles such as expensive cars and vacations.
- A common fraud is kickbacks involving vendors. Be alert to unusually close relationships between employees and vendors.
- Be the first person to open bank statements.
- Examine the images of canceled checks.
- Look at receipts to ensure that federal and state taxes were paid.
- Maintain an open door policy that permits employees to talk confidentially about their suspicions.
In today's economic environment and competitive marketplace business is tough enough, so take steps now to prevent internal fraud.
We Don't Need Another Washington Stimulus Package.
According to the July 12, 2010 issue of Newsweek, 500 of America's largest non-banking companies have more than $1.8 Trillion in cash reserves. Unfortunately CEO's will probably not be spending these reserves until and unless their confidence in Washington politicians improves. Other sources have also reported that individual investors are sitting-on almost $8.0 Trillion in cash and cash equivalents. So between companies and individual investors there is almost $10 Trillion in cash tucked away. This dwarfs Washington's previous stimulus package. Market and consumer confidence are the keys to any meaningful recovery.
Non-traditional Help for Funding Start-ups.
An article in the July 4, 2010 issue of Bloomberg Businessweek, Kickstarter is taking a new approach to helping fund start-ups. Using Kickstarter.com businesses post their funding requirements on-line. Investors in return get merchandise or other free-products - anything but equity. Also in the same issue Elizabeth Warren, the congressional TARP watchdog, states that Treasury is proposing to provide $30 billion to banks to lend to small businesses. Sounds like a good idea because, since the financial meltdown, banks have cut back lending to small businesses by 9% compared with 4% for other businesses.
New Ways to Plug a Pension Fund Gap.
Several financial trade publications and the New York Times have reported that some large cash-strapped companies that have deficient pension assets are transferring non-cash assets to trust funds to help plug their deficits. For example, J. Sainsbury, the big U.K. grocery chain, plans to transfer property into a trust fund and the maker of Johnnie Walker whisky, Diageo PLC, has plans to transfer two million barrels of maturing whisky to a trust fund.
Understanding the New Health Care Law Will Become a Gold Mine for Consultants.
The Wall Street Journal has reported that a key metric in the law is medical-loss ratio. This measures how much of your premiums are being paid out. The law requires at least 80% of premiums from individuals and small businesses be paid out and 85% for larger employers. Be assured that the insurance companies and their lobbyists are helping Washington define how to calculate this important ratio.
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