BusinessTrends Blog

Small Business Tax Measure Proposed by U.S. House Leaders Will Free Up Capital for Entrepreneurs

noreply@blogger.com (Raymond J. Keating) — Wed, 21 Mar 2012 14:35:00 +0000

Cash flow and access to capital are major concerns for small business owners as they struggle through the weak economic recovery. The pressure of rising costs, including the spike in gas prices and increases in health coverage premiums, are squeezing small business owners and they need immediate relief. That is why the Small Business & Entrepreneurship Council (SBE Council) is supporting House Majority Leader Eric Cantor's (R-VA) "Small Business Tax Cut," as it will provide critical assistance to capital-starved entrepreneurs.

SBE Council chief economist Raymond J. Keating said, "In the current atmosphere, small business owners are worried about the threat of higher taxes. Moving in the opposite direction would be a welcome change. The debate should be about how to reduce tax burdens on the entrepreneurial sector of our economy. This 20 percent tax cut for smaller businesses is a step in the right direction."

SBE Council President & CEO Karen Kerrigan added, "Ideally, the Congress and the White House should have moved on early opportunities to fundamentally restructure the tax system where all rates are cut and the fix is permanent. This did not happen, yet small businesses desperately need relief. The 20 percent tax deduction would infuse small businesses with the capital they need to withstand economic headwinds and costs that continue to work against them."

A survey released last week by SBE Council found that higher gas prices were adding to the strain of small business owners. In fact, 43 percent of small business owners said their firms would not survive if gas prices remained high or increased further.

"Getting our nation's economy back to strong and sustained growth needs to be a top priority for our elected officials. High confidence and robust job creation in the small business sector is central to that end. The 20 percent tax cut for small business owners is not only needed, it will have an immediate impact on the economy," added Kerrigan.

Entrepreneurs and SBE Council Working to Push JOBS Act Through U.S. Senate

noreply@blogger.com (Karen Kerrigan) — Tue, 20 Mar 2012 14:34:00 +0000

The JOBS Act, H.R. 3606 will finally get a vote late today or tomorrow in the U.S. Senate. SBE Council remains confident for passage, but we are not resting on our laurels. Our members and staff are working the Senate to make sure H.R. 3606 passes with a big bipartisan vote. (It will need 60 votes for Senate passage).

Here is a media release SBE Council sent out today:

A vote in the United States Senate is expected today or tomorrow on the Jumpstart Our Business Startup Act (JOBS Act), H.R. 3606, a package of important capital formation reforms supported by President Barack Obama. The legislation passed the U.S. House of Representatives with overwhelming bipartisan support (390-23) on March 8, 2012. Entrepreneurs and small business owners are galvanized about this important legislation, and are working to ensure the package sails through the U.S. Senate.

The JOBS Act includes practical measures to update archaic Securities and Exchange Commission (SEC) rules, and helps to construct a new regulatory framework that leverages technological innovations and practices that will open new pools of capital for small businesses. Besides reforming regulations that will make it less costly and burdensome for small firms to go public and accelerate their growth in the public markets, the legislation allows for crowdfund investing which presents new opportunities for entrepreneurs to access capital.

“Crowdfunding and the JOBS Act need to pass so we can get capital to our nation's job creators. This important piece of legislation addresses the startup and seed-funding gap that was left after the financial meltdown of 2008. It will allow the community to step in and fund fraud-free entrepreneurs and small businesses. Main Street will be able to evaluate becoming investors in our nation's neighborhood shops or the next great startups and will also share in that prosperity,” said Woodie Neiss, founder of StartUp Exemption, who developed a crowdfunding framework upon which the legislation is based upon.

According to Small Business & Entrepreneurship Council (SBE Council) President & CEO Karen Kerrigan, Democrats and Republicans not only listened to entrepreneurs regarding their plight on the issue of capital access, but they also found assurance in solutions that protect investors through new technologies, as well as a modern regulatory framework that will increase transparency and investor engagement.

“The legislation provides a sensible regulatory approach that takes into account the power of technology and the ‘sunshine’ capabilities of social media in protecting investors. Key reforms provide regulatory flexibility and relief, and will enable capital formation. A strong entrepreneurial ecosystem depends on access to capital. Freeing up new sources of capital – as the JOBS Act will do – will strengthen our nation’s small business sector, and add to their job creating capacity,” said Kerrigan

The Senate is expected to vote on H.R. 3606, the JOBS Act, either later today or tomorrow following votes on a Democrat alternative (Reed Amendment) to the JOBS Act and an amendment to fully fund the Export-Import Bank.
For more information and background about the JOBS Act, or crowdfunding and crowdfund investing, please visit www.sbecouncil.org or call 703-242-5840.

Tell your U.S. Senators to vote for the JOBS Act, H.R. 3606! You can contact them at 202-224-3121!

A Look at Ireland's Economy After St. Patrick's Day

noreply@blogger.com (Raymond J. Keating) — Mon, 19 Mar 2012 12:45:00 +0000

It's after St. Patrick's Day, but it is still worth taking a look at a brief analysis on the economy of Ireland. Consider the following SBE Council Cybercolumn from late last week:

On Saturday, March 17, everybody's Irish. After all, it's St. Patrick's Day.

As Americans celebrate all things Irish, it's worth taking a quick look at the state of the economy of Ireland.

Of course, it must be understood that all of Europe has been suffering, and the near-term outlook is negative.

According to a report in the March 15 Irish Times, "Bloxham Stockbrokers has revised downwards its economic forecast for the year, blaming uncertainty in the global economy for a weakening of the country's prospects. Its report projects growth of just 0.5 per cent in real gross domestic product, compared with previous estimates of 1.1 per cent. Next year, GDP is expected to grow by 2 per cent, according to Bloxham's estimates." It was pointed out that slowing exports were a main reason for the growth outlook downgrade.

At the same, it was noted, "However, the country is in a much better position than other euro zone peripheral debt countries to grow once the world economy picks up, Bloxham said."

Consider three critical points.

First, Ireland in fact is in a far better position than most of its neighbors. Keep in mind that, while Ireland's GDP performance was worse than the EU in general over the last four years, for more than a decade prior, Ireland's economic growth far outdistanced the EU (not to mention the U.S. as well).

Second, part of Ireland's growth story was that government spending as a share of GDP was far below the rest of Europe. For example, before the recent economic mess hit, Ireland's government expenditures came in at 34.3 percent of GDP in 2006, compared to 46.3 percent among the 27 EU nations, according to the European Commission's Eurostat data.

However, Ireland's government spending exploded recently, reaching 66.8 percent of GDP in 2010. That level will have to come down to where it was previously - and do so rapidly - in order for Ireland to get back on a solid growth track.

Third, given that economic freedom is the necessary foundation for entrepreneurship to flourish, and therefore, for the economy to grow, it is critical to point out that on the Heritage Foundation's "Index of Economic Freedom 2012," Ireland ranks an excellent number 9 out of the 179 nations ranked.

But it also was noted that Ireland's score dropped, due in part to that increase in government spending. It was noted in the index: "Its score has decreased by 1.8 points from last year, reflecting poorer management of government spending and reduced monetary freedom. The Irish economy fell to 2nd place in the Europe region behind Switzerland. Ireland recorded one of the 20 largest score declines in the 2012 Index."

Looking ahead, Ireland's strengths - for example, strong property rights; a low corporate income tax rate (12.5%); a "streamlined regulatory process is very conducive to dynamic investment and supportive of business decisions that enhance productivity" (as noted in the index); and openness in terms of global trade and commerce - put the nation in a far better position to get back on a strong growth track compared to much of Europe.

Getting government spending rolled back, though, will be critical. If that happens, we can get back to celebrating all things Irish, including the Irish economy.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

SBE Council Economist on Latest Inflation Numbers and Fed Policy

noreply@blogger.com (Raymond J. Keating) — Fri, 16 Mar 2012 14:23:00 +0000

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), offered the following statement in reaction to the CPI inflation numbers released this morning by the U.S. Bureau of Labor Statistics:

“CPI inflation running at 0.4% in February provides a worrisome reminder of the potential fallout of historically loose monetary policy that the Fed has been running for the past three and a half years.

“There are two consequences of loose monetary policy – the risk of higher inflation and the problem of price volatility. Threats continue to loom regarding the value of the dollar, energy prices, future interest rates, and the inflation-adjusted capital gains tax.

“Throw in risks on the fiscal side of the policy equation – such as unprecedented levels of government spending, and the threats and realities of increased tax and regulatory burdens – and entrepreneurs, investors and business managers continue to face too many questions for the good of the economy.”

Some Senators Have No Clue

noreply@blogger.com (Karen Kerrigan) — Fri, 16 Mar 2012 02:39:00 +0000

Very interesting debate in the Senate today on the JOBS Act. It is interesting to watch Senators opposed to the capital formation and crowdfunding provisions of the JOBS Act decry a subject they know absolutely nothing about.

These members have a stone-age view of public policy and how the economy works. In addition, they feign "shock" at the speed the bill passed the House (it was about 11 months) claiming "special interests" had something to do with it. Well, it is small business owners and entrepreneurs behind the movement to make these common sense changes.

Please contact your Senators on Friday and early next week and demand that they pass the JOBS Act! Let them know regulations need to be modernized to allow small businesses to raise capital, grow their businesses and create jobs! You can call the Capitol Hill switchboard at 202-224-3121 -- ask to be connected to your U.S. Senators -- tell them small businesses (and President Obama) support the House passed JOBS Act!

Karen Kerrigan, President & CEO

Small Business Needs the JOBS Act

noreply@blogger.com (Karen Kerrigan) — Thu, 15 Mar 2012 15:05:00 +0000

In a letter to the U.S. Senate today, SBE Council President & CEO Karen Kerrigan urged Senators to support the JOBS Act (H.R. 3606), which passed the House with wide bipartisan support and could be voted on by the full Senate today.

Here is the text of the letter:

March 15, 2012

Dear Senator:

On behalf of the Small Business & Entrepreneurship Council (SBE Council) and our more than 100,000 members nationwide, I am writing to urge your support of the Jumpstart our Business Startups (JOBS) Act, H.R. 3606. The JOBS Act offers powerful reforms that will help small businesses at various stages of growth and development. The common sense reforms that are included in H.R. 3606 will provide regulatory flexibility and relief, and will promote and unleash new sources of funding for capital-starved small businesses.

The JOBS Act is critical to our members and our nation’s small business owners and entrepreneurs. Small business owners and entrepreneurs continue to lack the capital they need to hire, invest and grow. Capital formation is central to a dynamic and healthy entrepreneurial sector. Without adequate sources of capital, the economy will continue to underperform, and the recovery will remain less than robust. Healthy entrepreneurship requires access to capital, yet funding streams remain cautious, locked or tentative. Entrepreneurs need solutions that will create options for accessing capital. The JOBS Act offers such solutions, while protecting investors.

The crowdfunding piece of H.R. 3606 will enable new platforms for raising capital. The platforms will protect investors by utilizing proven technologies, sensible regulation and tapping into ‘the sunshine’ of social media. On these transparent platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses with significant promise. Crowdfund investing will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors. Americans will have the opportunity to invest in small businesses in their local communities, or support entrepreneurs in rural or urban areas where business formation is critical to sustaining those communities.

This is what has made gift-based crowdfunding so successful, and why crowdfund investing has been a major success in other parts of the world. The crowdfunding piece of the JOBS Act, along with the sensible changes made to Reg D, are two powerful provisions that will produce significant benefits for the broader small business community.

Other regulatory reforms in the JOBS Act are important for helping small firms access and accelerate their growth in the public markets. By creating a new category of issuers -- the “Emerging Growth Company” (EGC) – which phases in certain regulations over a five year period (or until a firm exceeds $1 billion in annual gross revenues), small firms will have the opportunity to scale up more efficiently while providing investors and regulators with critical information.

The JOBS Act will also make it easier for a small business to go public by increasing the offering threshold from $5 million to $50 million. In addition, the bill raises the outdated shareholder registration requirement threshold from 500 to 1,000 shareholders. Originally adopted in 1964 and not altered since, this threshold rule restricts company growth as firms need flexibility in a competitive global marketplace to develop. Finally, the JOBS Act increases the number of shareholders that can invest in a community bank (from 500 to 2,000). This common sense change will allow these critical institutions to better compete, and serve small businesses.

The small business community is very excited about this bipartisan legislative package that directly addresses a central challenge – access to capital. Unfortunately, the naysayers who are spreading a message of “fear” and “fraud” lack an understanding about the modern economy and how innovative technologies are transforming practices and tools that protect consumers and investors. Our outdated laws must be reformed to reflect this reality and provide U.S. entrepreneurs an opportunity to succeed in the competitive global marketplace.

Thank you, in advance, for your support of America’s small business owners and entrepreneurs.

Sincerely,

Karen Kerrigan
President & CEO

Small Businesses Getting Slammed by Rising Gas Prices

noreply@blogger.com (Raymond J. Keating) — Wed, 14 Mar 2012 16:34:00 +0000

Results of a survey released by the Small Business & Entrepreneurship Council (SBE Council) find that high gas prices are taking their toll on the nation's small business owners. In the group's most recent "Entrepreneurs & the Economy: Trends, Issues and Outlook" survey, 72 percent of respondents say that higher gas prices are impacting their business.

"The fragile economy is being undermined by high gas prices. The weak recovery and policy uncertainties are already weighing on the confidence and minds of small business owners. Now they must find a way to cope with higher fuel costs. Unfortunately, their choices are limited," said SBE Council President & CEO Karen Kerrigan.

The survey, fielded between February 21 and March 2, 2012 by TechnoMetrica, polled 304 small business owners (overall margin of error +/- 5.4 percentage points at the 95 percentage level). During the course of the survey and following its completion, gas prices continued to increase. For example, according to the Energy Information Administration, the weekly average price for regular gasoline climbed from $3.641 per gallon as of February 27 to $3.747 per gallon as of March 12.

Small business owners are dealing with these higher costs by cutting employee hours and raising prices - two options that hurt their competitiveness and the health of the overall economy, according to SBE Council. When asked about their responses to higher gas prices:

• 41 percent of small business owners said higher prices were affecting their plans to hire.
• 22 percent of small business owners have cut back on employee hours.
• 40 percent of small business owners have raised their prices.

Astonishingly, 43 percent of respondents agreed with the following statement: "My business will not survive if energy prices continue to remain high or increase further." (23 percent strongly agreed with the statement.)

SBE Council chief economist Ray Keating noted, "Very few businesses are immune from the negative effects of rising energy costs. As a result, entrepreneurs and managers have to make tough decisions, none of which are positive for their businesses, for workers seeking employment or worried about their current jobs, or for the economy in general."

According to the survey, there is intense dissatisfaction with the overall direction of federal policies meant to help the economy in general: 61 percent of small business owners are not satisfied with economic policies from Washington. Only 6 percent are "very satisfied" while 30 percent are "somewhat satisfied."

In terms of stress levels related to their business finances, 46 percent of small business owners are feeling the same level of stress today as in the past three months, 38 percent say they are more stressed, while 14 percent feel less stressed. Despite this, 42 percent believe their financial conditions will get better. However, 42 percent say they will remain the same, while 13 percent believe their finances will get worse.

Keating added, "While prices at the pump are affected by various factors and events, including political risks in the Middle East and U.S. monetary policy, the President and the Congress play key roles as well by either erecting or removing obstacles to domestic energy production."

Kerrigan added: "The surge in gas prices underscores the need for the Administration to move without haste on advancing pro-energy policies, including the approval of the Keystone XL pipeline. The U.S. cannot allow world events, supply disruptions and global demand surges to control the fate of our economy or global competitiveness. We must take full advantage of the natural resources we have been blessed with as a nation and move forward on a genuine 'all-of-the-above' energy strategy."

Positive Trends on Trade?

noreply@blogger.com (Raymond J. Keating) — Mon, 12 Mar 2012 16:25:00 +0000

When looking at monthly trade data, it is not the trade balance that matters. Instead, it's the trend on both exports and imports.

Namely, if both are growing, that's good news for the economy. Rising exports means expanding opportunities for U.S. enterprises and workers. Meanwhile, increasing imports is not an economic negative; instead, import growth generally reflects a growing domestic economy.

The latest trade data released from the U.S. Bureau of Economic Analysis on March 9 shows positives in terms of both exports and imports.

Exports rose in January, and that made for the second consecutive month of growth after two months of declines.

As for imports, they also rose in January for the third straight increase after a roller-coaster up and down ride for nine months.

Many uncertainties remain on the trade front, including European economic woes, questions swirling around the Middle East, the possibility of slower growth in China, and a lack of vision and leadership on free trade from the Obama administration.

The hope is that the recent months of growth in trade will develop into a substantive trend. That would be good news for the small businesses that account for more than 97 percent of U.S. exporters. Of course, it would help a great deal if the U.S. would get back to a serious effort at reducing governmental obstacles to trade, so that opportunities can expand.

__________

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

SBE Council Chief Economist on Latest Jobs Data

noreply@blogger.com (Raymond J. Keating) — Fri, 09 Mar 2012 15:32:00 +0000

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), released the following statement in response to the February employment data reported by the U.S. Bureau of Labor Statistics:

"The news on the jobs front in February was good across the board. According to the establishment survey, payrolls increased by 227,000 in February, with private sector payrolls up 233,000. That's the third straight month where payroll gains exceeded 200,000.

"The household survey, which better captures small business activity, showed employment gains of 428,000, with the labor force also increasing by 476,000. The data show solid gains for two straight months now.

"These employment gains have come in spite of fiscal and monetary policymaking that has kept uncertainty alive. Serious risks remain, including energy prices and misguided energy policies, new taxes and regulations associated with ObamaCare phasing in, European woes, looming tax increases, new regulatory threats and monetary policy risks. The path of these trends and policies all need to change to get the U.S. economy firmly on a path of solid economic growth. We need pro-entrepreneur, pro-growth tax and regulatory relief, an aggressive free trade agenda, and sound monetary policy focused on price stability."

SBE Council Praises Bipartisan Passage of JOBS Act in House, 390-23

noreply@blogger.com (Karen Kerrigan) — Thu, 08 Mar 2012 21:22:00 +0000

Today, the U.S. House passed the Jumpstart Our Businesses (JOBS) Act, H.R. 3606, with strong bipartisan support (390-23). Passage of the legislation will help expedite U.S. Senate action on this critical capital formation package, according to the Small Business & Entrepreneurship Council (SBE Council).

President Barack Obama was supportive of the legislation's passage, and Senate Majority Leader Harry Reid (D-NV) has pledged to move forward on a similar package. SBE Council, a leading advocacy and research organization dedicated to promoting entrepreneurship, has been advocating for many elements of the JOBS Act for the past year. The group praised the bipartisan collaboration that fashioned the legislation and guided it through the House.

"Access to capital remains a daunting challenge for small to mid-size firms at all stages of development and growth. The JOBS Act addresses a number of smart reforms that will boost capital formation and funding opportunities for small businesses. The legislation provides regulatory flexibility and relief from rigid and costly regulations for small firms, while modernizing outdated laws that restrict investment and capital formation," said SBE Council President & CEO Karen Kerrigan.

In a KEY VOTE letter to all U.S. House Members, SBE Council wrote: "Without adequate sources of capital, the economy will continue to underperform, and the recovery will remain less than robust. Healthy entrepreneurship requires access to capital, yet funding streams remain cautious, locked or tentative. Entrepreneurs need solutions that will create options for accessing capital. The JOBS Act offers such solutions."

The JOBS Act bundled an array of legislative measures focused on helping to increase business startups, and accelerate the growth of existing firms. SBE Council supported all the measures, including the crowdfunding piece of H.R. 3606, which will enable new platforms for raising capital. On these transparent platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses with significant promise. The platforms will operate under a new, and transparent, regulatory framework.

As SBE Council noted in its KEY VOTE letter: "Crowdfund investing will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors. Americans will have the opportunity to invest in small businesses in their local communities, or support entrepreneurs in rural or urban areas where business formation is critical to sustaining those communities." The platforms will protect investors by utilizing proven technologies, sensible regulation and tapping into 'the sunshine' of social media.

On March 6, the Senate Banking Committee hosted a hearing on the capital access bills. SBE Council is encouraging the Senate leadership of both parties to move quickly on package of bills.

"Economic conditions remain fragile, and rising gas prices have the potential to undermine the economic gains that have been made to date. The package of capital formation bills will provide a needed boost to business confidence, while offering meaningful solutions to entrepreneurs who are strapped for capital. We urge the Senate to move quickly," said Kerrigan.

On to the Senate!

Grading the States on Health Care Costs

noreply@blogger.com (Raymond J. Keating) — Thu, 08 Mar 2012 15:53:00 +0000

On the morning of February 26, the health committee of the National Governors Association met. According to The Washington Post, the goal was to come up with ideas to reduce state health care costs.

Temporarily putting aside deep divisions over the costly ObamaCare scheme, which faces attacks from Republicans on the presidential campaign trail as well as a Supreme Court challenge with arguments to be heard in March, there was a different emphasis. The Post reported that "both Obama's assistant health secretary, Howard Koh, and Iowa Gov. Terry Branstad, a major opponent who sued to block the law, focused Sunday on what they could agree on: cutting medical suffering and costs by encouraging disease prevention and healthier lifestyle choices."

Unfortunately, this is either political fluff, at best, or an expansion of government intrusiveness and busybody-ness, at worst.

A more substantive endeavor would start with a look at the SBE Council's "Health Care Policy Cost Index 2012," which ranks the 50 states and District of Columbia according to key public policies affecting health care costs and the costs of health insurance coverage.

For example, as noted in the report, the Kaiser Family Foundation/Health Research & Educational Trust reported, based on its "2011 Employer Health Benefits Survey," that the average annual premium for employer-sponsored family health coverage increased by 9 percent in 2011 to $15,073.

In terms of broader costs and spending, national health spending continued to rise, but at a slower rate in 2009 and 2010. The latest data from the Centers for Medicare & Medicaid Services noted that expenditures increased by 3.8 percent in 2009 and 3.9 percent in 2010. At the same time, though, government health care spending, and therefore taxpayer costs, have continued to rise rapidly - increasing by 9.7 percent in 2009 and 6.5 percent in 2010.

What drives health care costs higher? Part of the increase is positive, due to new and improved treatments and care. As for the negative aspects, though, costs are pushed higher due to third-party payments (e.g., when employer-provided insurance or a government program pays for treatment, neither the health care provider nor consumer needs to be concerned about costs, as a result prices and utilization increase); and more regulations and mandates, with government overruling the marketplace and forcing health insurers to extend coverage, or assess risk and price services based on political preferences.

The 2012 index ranks the states according to eight criteria. They include both negative measures, along with some positive reforms:

• Health Savings Accounts (HSAs). Health Savings Accounts provide much-needed choice, competition and consumer control in the health insurance marketplace. HSAs are tax-free savings accounts owned and controlled by individuals, with funds deposited tax free into the account by the employee, employer or both, and earnings accumulate tax free. The funds are used to cover regular, predictable medical expenses, and each HSA is tied to a traditional catastrophic insurance plan to cover large health care expenditures.

• Guaranteed Issue for Self-Employed Group of One and the Individual Market. Health insurance represents a significant cost for businesses. Taxes, mandates and regulations increase health care costs, increase the number of uninsured, and act as another disincentive to starting up or locating a business in a high-cost state. Guaranteed issue means that individuals may not be turned down for health insurance coverage no matter the condition of their health or risk status. So, incentives for people to purchase health insurance before they become ill are removed. A guaranteed issue mandate raises health care costs, in this case for the self-employed. The index looks at guaranteed issue for self-employed group of one and for the individual market.

• Community Rating for Small Group Market and the Individual Market. Community rating mandates that an insurer charge the same price for everyone in a defined region regardless of their varying health care risks. So, no matter what the risks involved, everybody pays the same price for insurance. That translates into higher costs across the board. The index includes community rating gauges for both the small group market and the individual market.

• High-Risk Pools. For individuals that cannot get health coverage due to pre-existing conditions, some states have set up high-risk pools. According to the Council for Affordable Health insurance, high-risk pools "provide a safety net for the ‘medically uninsurable' 1% to 2% of the population, who have been denied health insurance coverage because of a pre-existing health condition, or who can only access private coverage that is restricted or has extremely high rates." CAHI notes that "state high-risk pools are a much better alternative to providing coverage for the medically uninsurable than imposing guaranteed issue laws on insurers which eventually increase the cost of insurance for everyone."

• Number of Mandates. Beyond regulations like guaranteed issue and community rating, state laws impose a host of mandated benefits on insurers. These mandates, while often sounding reasonable, carry real and sometimes significant costs. Health care mandates are easy to impose, as politicians take credit for expanded benefits while denying the related costs.

• Per Capita Medicaid Spending. Taxes imposed on entrepreneurs, businesses and consumers are a reflection of the level of government spending. Medicaid spending is a significant cost for taxpayers, whether paid at the state or federal levels. For good measure, as government spends more on a service, in this case health care, the opportunities for waste, fraud, abuse, etc. increase, and spending accelerates faster than it otherwise might due to the incentives at work in government, which can best be summarized as elected officials and their appointees spending other people's money. In the end, as government spends more on health care services, the costs in those services accelerate.

According to these measures, the best 15 states in terms of state health care policies are: 1) South Carolina, 2) Iowa, 3t) Indiana, 3t) South Dakota, 5) Nebraska, 6) Utah, 7) Wyoming, 8) Montana, 9) Alabama, 10) Wisconsin, 11) North Dakota, 12) Oklahoma, 13) Kansas, 14) Alaska, and 15) Tennessee.

Meanwhile, the worst states are: 34t) Florida, 34t) Colorado, 34t) Maryland, 37) Michigan, 38) Pennsylvania, 39) Minnesota, 40t) Delaware, 40t) California, 42) Oregon, 43) District of Columbia, 44) Connecticut, 45) Washington, 46) New Jersey, 47) Vermont, 48) Rhode Island, 49) Massachusetts, 50) Maine, and 51) New York.

In the end, at the federal and state levels, three policy paths actually exist on health care. One is about political fluff and platitudes, which means the status quo. A second option is more government control and interference, and therefore increased costs and diminished care. And the third would mean pro-market reforms that expand choice and competition for consumers and businesses, and restraining the growth in negative costs. The choice is clear, but apparently many elected officials fail to see the obvious.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

On Deck in the House: 20% Tax Cut for Small Businesses

noreply@blogger.com (Karen Kerrigan) — Wed, 07 Mar 2012 12:50:00 +0000

The U.S. House will vote on a bundle of capital formation bills on March 8, which includes the crowdfunding measure long supported by the White House. This package is expected to handily advance as it has wide bipartisan appeal, and several of the measures have already passed the House with large bipartisan majorities. In the next several weeks, the House will move to tax issues where it will focus on a major tax relief initiative for small businesses.

The proposal calls for a 20 percent tax cut for small businesses that employ fewer than 500 people. As Majority Leader Eric Cantor (R-VA) announced earlier in the year, "Our pro-growth proposal will provide every small business that employs fewer than 500 people with a 20 percent deduction, helping them retain and create new jobs. I hope every Democrat will join us in passing the small business tax cut by April 15."

Such a tax cut will free up resources for small business owners, which they can invest in their businesses and hire needed employees. With health coverage, energy and other costs on the rise, small business owners and getting squeezed. The business environment remains challenging and accessing capital is difficult. Indeed, with President Obama proposing a major (and SBE Council would argue needed) tax cut for corporations, small businesses also need tax relief. SBE Council looks forward to House action on this tax proposal.

Karen Kerrigan, President & CEO

The Mystery of Regulation Via the Federal Reserve

noreply@blogger.com (Raymond J. Keating) — Wed, 07 Mar 2012 02:26:00 +0000

Call it another case of "regulation without representation." Well, it might not be just another case; instead, it could rank as one of the most blatant cases of "regulation without representation" in recent history.

Our elected officials in the nation's capital are notorious for writing legislation that regulates all kinds of activities, and then leaving the actual details of regulating to the bureaucrats. For good measure, there is no follow up, such as requiring that Congress actually vote for or against these rules and mandates. The federal regulatory process, quite simply, is a glaring abdication of lawmakers' responsibilities.

The Dodd-Frank financial regulation law stands out as a glaring example of nonsensical law, which puts enormous power in the hands of government bureaucrats and hurts the economy.

When President Obama signed the measure into law in July 2010, a New York Times report noted, "A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years." That was the epitome of understatements. As for the epitome of overstatements, the Times piece went on: "But ‘because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes,' Mr. Obama said before signing the legislation. ‘There will be no more taxpayer-funded bailouts. Period.'"

In reality, Dodd-Frank in no way bars taxpayer-funded bailouts. Indeed, there are only two broad things that we know for sure about Dodd-Frank.

First, we know that it did nothing to redress the problems that generated the housing/credit mess, unprecedented taxpayer bailouts, and one of the deepest recessions since the Great Depression. The causes of this historical meltdown were loose monetary policy, and an assortment of federal laws, entities, subsidies, incentives, rules and regulations that detached home ownership from sound economics. In turn, the private sector acted in accordance with the incentives set up by government, which amplified some of the worst impulses among many borrowers and some lenders. So, all of the key mistakes made by government remain in place. Loose money, imposed in the hopes of ginning up the housing market, is running full throttle; the role of federal entities like Fannie Mae and Freddie Mac, after receiving enormous taxpayers bailouts, actually has been expanded; and nothing has been done to fix assorted laws and regulations that push non-economic mortgages.

Second, given this reality, we know that the massive Dodd-Frank regulatory endeavor will generate enormous costs that will further distort markets; create a false sense of security among the electorate; and further empower unelected government bureaucrats.

Consider Dodd-Frank's much-vaunted Volker Rule, named for former Federal Reserve Chairman Paul Volker, which prohibits banks from undertaking proprietary trading. The rule maker is the Federal Reserve. But Fed Chairman Ben Bernanke told Congress in late February that the Volker Rule would not be ready by its July 2012 deadline, and he was not sure when the rule would be ready. The problem? The Fed is having trouble figuring out what kind of trading by banks would and would not be allowed. That's not surprising. After all, what kind of trading is done on behalf of customers and what is done on behalf of shareholders? For good measure, if one understands markets and the reality that shareholders only benefit in the end when the firm serves consumers well, how can various types of trading really be disentangled?

So, the Volker Rule was silly from the start. It does nothing to redress the actual causes of the 2008 credit/economic mess, and only limits banks abilities to enhance value for both bank shareholders and customers.

As for the enhanced power of bureaucrats via regulation, on February 21, The Wall Street Journal published a powerful front-page story on how the Dodd-Frank regulatory undertakings by the Federal Reserve are going on behind closed doors. While the Fed has emphasized greater transparency in its monetary policy decision-making process, it's rule-making process ranks as the most secretive in the federal government, according to this report.

Consider the following from the story:

"While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions. The Fed is making these sweeping changes-the most dramatic since the Great Depression-almost completely without public meetings. Rather than discussing rules and voting in public, as is done at other agencies with which the Fed often collaborates, Fed Chairman Ben Bernanke and the Fed's four other governors have held just two public meetings since July 2010. On 45 of 47 of the draft or final regulatory measures during that period, they have emailed their votes to the central bank's secretary."

That's not just troubling. It's scary.

Obviously, the Fed carries heavy responsibility for its own actions, as it is breaking with tradition and with what goes on at other federal regulatory entities. At the same time, though, as the Journal noted, the Fed is not breaking any laws. Congress must take responsibility for not specifically dictating that the Fed needs to hold an open process.

Of course, perhaps those in Congress who passed Dodd-Frank are not too keen on having an open process. After all, an open process just might reveal how clueless and misleading lawmakers were when they passed the law, and how bankrupt and costly the law will turn out to be.

All of this matters to the entrepreneurial sector of our economy, as increased costs, limited returns, and government dictates regarding risk for banks inevitably translate into restraints on the availability of credit and ability to grow.

A February 23 Wall Street Journal story further drives home this disturbing reality. Since stepped up regulations occur when regional banks top $10 billion in assets, the incentives to restrain growth are substantial. The Journal noted, "The new Consumer Financial Protection Bureau oversees the banks above $10 billion in assets, and bank regulators require them to strengthen risk-management measures. Under a Federal Reserve proposal, they also would have to undergo an annual stress test to prove they can withstand economic hardship."

What's the reaction? As reported, "As such, some banks have made the unusual decision of growing more slowly and even turning away money to stay under the regulatory benchmark. Some banks have lowered the interest rates they pay for customer deposits in an effort to attract less cash. And the timing of growth initiatives also is now a factor, as some banks think it makes little sense to trip the $10 billion trigger unless they are to grow much bigger."

The astoundingly misguided Dodd-Frank then has incentivized an entire portion of the banking industry to avoid growing, unless that growth is large and quick enough so as to more easily absorb the added regulatory costs. That's a recipe for reduced savings, restricted credit, less business growth, and therefore, reduced economic and employment growth.

Politicians excel at blaming the private sector for the problems they usually cause, and then causing more problems with additional misguided actions. This most often is the case with regulation, as elected officials make grandiose claims, pass legislation, and leave bureaucrats to sort out the details and private sector businesses and consumers to absorb the costs. Dodd-Frank is a glaring, costly example. What the economy needs is to repeal this grossly misguided law, and instead, implement reforms that actually address the problems underlying the 2008 mess.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

House Expected to Vote on Package of Capital Formation Bills This Week

noreply@blogger.com (Karen Kerrigan) — Tue, 06 Mar 2012 15:36:00 +0000

GOP leaders introduced the Jumpstart Our Business Startups Act (JOBS Act) on February 28-- a package of bipartisan bills that will encourage capital formation, and help businesses grow. Several of these bills - which are strongly supported by SBE Council -- have previously advanced in the House on a bipartisan basis. President Obama signaled his support for the initiative. SBE Council is confident these bills will advance in the House, and remains optimistic that the Senate will take action as well. Senate Majority Leader Harry Reid (D-NV) announced that the Senate will move forward on these capital access bills, and the Senate Banking Committee is hosting a hearing on March 7.

As SBE Council President & CEO Karen Kerrigan noted in a recent Politico.com article regarding Reid's announcement to move on the bills, "Access to capital continues to be a major struggle for small businesses and entrepreneurs. It is a no-brainer for the Senate to move forward with this package of capital formation bills."

The JOBS Act -- which includes provisions to modernizes existing regulations, update thresholds or provide compliance relief - is bundling the following provisions:

(The following information is provided by Majority Leader Eric Cantor, R-VA)

REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES ACT (H.R. 3606): Approved by Financial Services Committee 54-1

H.R. 3606 reduces the costs of going public by providing companies with a temporary reprieve from Securities and Exchange Commission (SEC) regulations by phasing in certain regulations over a five-year period. The bill creates a new category of issuers called an "Emerging Growth Company" (EGC), which would retain its status for five years or until it exceeds $1 billion in annual gross revenue or becomes a large accelerated filer. H.R. 3606 ensures investors are protected by requiring the EGCs to provide audited financial statements as well as establishing and maintaining internal controls over financial reporting.

THE ACCESS TO CAPITAL FOR JOB CREATORS ACT, H.R. 2940: Approved by the House 413-11

H.R. 2940 removes an SEC regulatory ban preventing small businesses from using advertisements to solicit investors. H.R. 2940 allows small companies offering securities under Regulation D to utilize advertisements or solicitation to reach investors and obtain capital. The SEC's ban on solicitation, first adopted in 1982, limits the pool of potential investors and severely hampers the ability of small companies to raise capital and create jobs.

THE ENTREPRENEUR ACCESS TO CAPITAL ACT, H.R. 2930: Approved by the House 407-17

H.R. 2930 removes SEC restrictions that prevent "crowdfund investing" so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered "accredited" by the SEC. H.R. 2930 allows companies to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides investors with audited financial statements. Individual contributions are limited to $10,000 or 10 percent of the investor's annual income, whichever is less.

THE SMALL COMPANY CAPITAL FORMATION ACT, H.R. 1070: Approved by the House 421-1

H.R. 1070 makes it easier for small businesses to go public by increasing the offering threshold for companies exempted from SEC registration from $5 million to $50 million. The SEC has the authority to raise this threshold but has not done so for almost two decades. Amending Regulation A to make it a viable channel for small companies to access capital will permit greater investment in these companies, resulting in economic growth and jobs.

THE PRIVATE COMPANY FLEXIBILITY AND GROWTH ACT, H.R. 2167: Approved by Financial Services Committee Voice Vote

H.R. 2167 removes barriers to capital formation for small companies by raising the shareholder registration requirement threshold from 500 to 1,000 shareholders. Many small businesses are forced to file as a public company because of an obscure regulation that requires companies with 499 shareholders and $10 million in assets to file with the SEC. This current shareholder threshold rule was originally adopted in 1964 and has not been modernized since. This regulation restricts the number of shareholders and assets these companies can have. In turn, this severely limits the growth stages for companies, which need time and flexibility to develop.

THE CAPITAL EXPANSION ACT, H.R. 4088: House Version of S. 1941, Referred to Financial Services Committee

H.R. 4088 increases the number of shareholders permitted to invest in a community bank from 500 to 2,000. This bill would enable banks to better deploy their capital to make loans and create jobs rather than comply with burdensome SEC requirements.

It looks like the House will vote on the JOBS Act on March 8, and SBE Council will KEY VOTE this important legislation, as a vote for small business, in its Ratings of the 112 Congress.

Karen Kerrigan, President & CEO

UN Control of Internet

noreply@blogger.com (Raymond J. Keating) — Fri, 02 Mar 2012 16:50:00 +0000

Since having written a novel myself, I'm always looking for an idea or premise that would make for an interesting, exciting story.

How about the following? At the behest of authoritarian and communist regimes, the United Nations is used as a vehicle for gaining more control over the Internet, thereby allowing those governments to gain more resources and power, limit freedom, and undermine parts of our economy.

Unfortunately, this is not farfetched fiction. It's a very real concern due to a United Nations effort that was kicked off in Geneva in late February and will proceed to a culmination in Dubai towards the end of this year. The considerable risk is that a treaty, which would only need approval of a majority of 193 nations, would result in an attempt at centralized regulation of the Internet, which would result in a de facto fragmentation of the Internet. That, in turn, would restrict opportunity, communication, prosperity and freedom.

As reported on October 20, 2011 by Bill Gertz in The Washington Times, "Last month, Russia, China, Uzbekistan and Tajikistan submitted a resolution to the U.N. General Assembly calling for giving individual states the right to control the Internet. The resolution, submitted Sept. 14, calls for ‘an international code of conduct for information security.' It requests ‘international deliberations within the United Nations framework on such an international code, with the aim of achieving the earliest possible consensus on international norms and rules guiding the behavior of states in the information space.' China tightly controls the Internet through a cybersecurity police force estimated to be more than 10,000 people who monitor Internet users and websites. Russia's authoritarian government has taken steps in recent years to curb Internet freedoms. Uzbekistan and Tajikistan also are authoritarian regimes that seek to control Internet use."

Writing in The Wall Street Journal on February 21, 2011, FCC Commissioner Robert McDowell explained, "On Feb. 27, a diplomatic process will begin in Geneva that could result in a new treaty giving the United Nations unprecedented powers over the Internet. Dozens of countries, including Russia and China, are pushing hard to reach this goal by year's end. As Russian Prime Minister Vladimir Putin said last June, his goal and that of his allies is to establish ‘international control over the Internet' through the International Telecommunication Union (ITU), a treaty-based organization under U.N. auspices."

Concerns have come from various corners.

For example, Gertz reported, "The commander of the U.S. Cyber Command said Thursday that he does not favor giving the United Nations the power to regulate the Internet... But asked whether the U.N. should have a regulation role, [Army Gen. Keith Alexander, who is also director of the National Security Agency,] said: ‘No. I'm not for regulating, per se. I'm concerned about it, and this is a tough question. I would say, generally speaking, I'm not into that portion of regulating as you would espouse.'"

On February 27, FoxNews.com highlighted that a memorandum from the Obama administration. It was stated in the article, "The memo, dated Jan. 23, states that in January 2011, U.S. officials harbored ‘great and widespread concern' that the conference ‘would be a battle over investing the (International Telecommunication Union) with explicit Internet governance authority.' However, American diplomats, the memo maintains, succeeded in ‘narrowing the focus' of the conference by emphasizing the administration's ‘deregulatory position at every opportunity.' The memo concludes that the likelihood of the conference posing any ‘foundational' threats to the freedom of the Internet ‘seems low at this time.'"

That's a bit of a mixed message. While the emphasis on fighting off international regulation is correct, there seems to be a somewhat disconcerting lack of urgency.

FCC Commissioner McDowell is obviously far more concerned.

First, he noted the great success of Internet deregulation and privatization. He pointed out, "If successful, these new regulatory proposals would upend the Internet's flourishing regime, which has been in place since 1988. That year, delegates from 114 countries gathered in Australia to agree to a treaty that set the stage for dramatic liberalization of international telecommunications. This insulated the Internet from economic and technical regulation and quickly became the greatest deregulatory success story of all time." A bit later, he added, "This consensus-driven private-sector approach has been the key to the Net's phenomenal success. In 1995, shortly after it was privatized, only 16 million people used the Internet world-wide. By 2011, more than two billion were online-and that number is growing by as much as half a million every day. This explosive growth is the direct result of governments generally keeping their hands off the Internet sphere."

Second, McDowell warned, "Even though Internet-based technologies are improving billions of lives everywhere, some governments feel excluded and want more control. And let's face it, strong-arm regimes are threatened by popular outcries for political freedom that are empowered by unfettered Internet connectivity. They have formed impressive coalitions, and their efforts have progressed significantly." He also noted the desire to increase governmental revenues through possible and varied fees.

Third, he drove home the fundamental problem: "A top-down, centralized, international regulatory overlay is antithetical to the architecture of the Net, which is a global network of networks without borders. No government, let alone an intergovernmental body, can make engineering and economic decisions in lightning-fast Internet time. Productivity, rising living standards and the spread of freedom everywhere, but especially in the developing world, would grind to a halt as engineering and business decisions become politically paralyzed within a global regulatory body."

For good measure, in late February, Google's executive chairman Eric Schmidt declared his worries. At the Mobile World Congress 2012, as reported by ZDNet UK, "Schmidt said handing over control of things such as naming and DNS to the UN's International Telecommunications Union (ITU) would divide the Internet, allowing it to be further broken into pieces regulated in different ways. ‘That would be a disaster... To some, the openness and interoperability is one of the greatest achievements of mankind in our lifetime. Do not give that up easily. You will regret it. You will hate it, because all of a sudden all that freedom, all that flexibility, you'll find it shipped away for one good reason after another,' Schmidt said. ‘I cannot be more emphatic. Be very, very careful about moves which seem logical, but have the effect of balkanising the Internet,' he added, urging everyone to strongly resist the moves."

Entrepreneurs should take note, and be concerned. After all, few technological advancements or tools have expanded opportunity for entrepreneurs, small businesses and their employees more so than the Internet. Any move to international governance and regulation will only serve to reduce those opportunities - and drastically so. The Obama administration needs to make clear that UN regulation of the Internet is not an option, and it should be building an international coalition to protect Internet freedom and opportunity.

_______________

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Governors and Energy: Economics and Politics

noreply@blogger.com (Raymond J. Keating) — Thu, 01 Mar 2012 18:59:00 +0000

Apparently, federal energy policy is frustrating at least a couple of governors.

When politics mixes with anything in the economics realm, including energy and energy policy, one can never be quite sure as to what the outcome will be.

For example, after a lengthy process that dated back to the previous administration, President Obama wound up rejecting the proposed Keystone XL pipeline project, which would boost U.S. economic growth, employment, and energy affordability and security. The unmistakable political desire was to push the decision beyond the 2012 elections. For good measure, the Obama administration has been slowing or stopping offshore and onshore oil production, pushing increased taxes on domestic energy producers, and proceeding with EPA regulation of emissions.

Two governors spoke out recently on energy policy emanating from the nation's capital.

According to a February 26 report in TheHill.com, Indiana Governor Mitch Daniels, a Republican, provided an interesting reminder on what the objective of the Obama administration's policies seems to be. The article noted:

"‘Let's give the president credit for one domestic policy that works. He wanted higher gas prices and he got them,' said Daniels on Fox News Sunday. ‘Secretary Chu said $8 are about what they pay in Europe. It would be great. Secretary Salazar said $10 and it still wouldn't be for drilling in the places where we know there's an awful lot of domestic production. And so, they have gotten the doubling of gas prices and perhaps worse, it's a conscious policy of this administration. Maybe the one thing they set out to do and actually accomplished.' he said."

TheHill.com went on to explain, "Republicans have leaped on comments from Energy Secretary Steven Chu to the Wall Street Journal in September 2008 saying that government needed to ‘figure out how to boost the price of gasoline to the levels in Europe.'"

Daniels added, "When you have environmental regulations that are going to raise the price of refining gas, possibly put some of our scarce refineries out of business, guess what? You are going to get higher gas prices."

While as a Republican, Daniels obviously wants to score political points, his basic economics are undeniable.

Meanwhile, a Democratic governor is none too pleased as well. In a February 23 report by The Canadian Press, Montana's Brian Schweitzer criticized the politics swirling around the Keystone pipeline. But he did so in a rather unique fashion.

Schweitzer is a big supporter of the project. The most interesting aspect of the article was the following:

"Mr. Schweitzer said Keystone runs through Montana more than it does any other state and would be a boon for oil producers. Oil activity in Montana and North Dakota has picked up, he said, but the oil has to be transported to its destinations by rail. ‘Rail is not safe, it's not environmentally sound and it costs $20 [U.S.] to $30 a barrel more to get to market, so our producers are taking deep discounts because we don't have pipeline capacity and we've negotiated that with TransCanada."

That, of course, just adds more value to the project.

As for his criticisms, Schweitzer got colorful in pinning blame on Washington, D.C. But his wrath was not directed at the administration's political games. Instead, it was directed at Keystone supporters.

The Canadian Press quoted Schweitzer saying, ""Blah, blah, blah, Washington, D.C., politics. If you want to get something a) not done and b) cussed and discussed, send it to Washington, D.C. It's going to get built. Ninety per cent of these jackasses that are complaining about the Keystone pipeline in Washington, D.C., one year ago wouldn't have even known where the Keystone was. While we were doing the heavy lifting here in Montana and in South Dakota and in Kansas and Oklahoma ... in Washington, D.C. ... all these great defenders had never heard of Keystone before."

Hmmm. Why would a Keystone supporter go out of his way to take his Keystone allies to task? Well, while Schweitzer apparently gets the economic benefits of the project, he apparently cannot turn off the politics on the issue. So, he ignores that his fellow Democrats in the White House are the problem, and instead, highlights a point, whether accurate or not, that is meaningless in terms of the substance of the issue.

Like I said, when politics mix with economic policy, especially energy, you never quite know what the outcome will be.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Small Business Groups Urge U.S. Senate Leaders to Advance Crowdfunding Legislation

noreply@blogger.com (Karen Kerrigan) — Wed, 29 Feb 2012 21:43:00 +0000

A coalition of the nation's most influential organizations representing small business owners and entrepreneurs is urging U.S. Senate leaders to work together to bring crowdfund investing legislation to the Senate floor for a vote. In a letter addressed to Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY), the groups note that crowdfund investing legislation passed the U.S. House 407-17, and President Barack Obama has expressed his support for the legislation through a Statement of Administration Policy as well as in his Startup Legislative agenda recently delivered to Capitol Hill.

(READ THE LETTER BY CLICKING HERE.)

Crowdfund investing platforms will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors through regulated, online platforms. As the groups note in the letter, "Americans will have the opportunity to invest in small businesses in their local communities, or support entrepreneurs in rural areas where business formation is critical to sustaining those communities." The letter points out that capital access remains a serious challenge for startups and growth-oriented businesses, and without "adequate sources of capital, the economy will continue to underperform, and the recovery will remain less than robust." Funding streams "remain cautious, locked or tentative," write the groups.

Two crowdfund investing bills have been introduced in the U.S. Senate. Majority Leader Reid announced yesterday that the U.S. Senate will address the package of capital formation bills that overwhelmingly passed the U.S. House. With respect to crowdfund investing legislation, state regulators have engaged in a campaign of "fear and fraud," which has deprived Senators from learning the facts about how crowdfunding currently works through gift-based platforms, and how technology -- and a new regulatory framework - will play a central role in rooting out potentially bad actors on crowdfund investing platforms.

As the groups note in their letter:

"On these platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses that have significant promise. Crowdfund investing platforms will be open and transparent, and operate under a new regulatory framework. The platforms will protect investors by utilizing proven technologies and tap into 'the sunshine' of social media. This is what has made gift-based crowdfunding so successful, and why crowdfund investing has been a major success in other parts of the world. Entrepreneurs looking to raise capital will be required to provide significant financial information to potential investors, as well as withstand the scrutiny of the crowd in regards to the feasibility of their business plans and models."

The small business groups are optimistic about the legislation's fate. In the letter, they communicate a belief that "a consensus is achievable for advancing legislation that enables effective crowdfund investing platforms for small businesses while protecting investors." Majority Leader Reid said the Senate Banking Committee will hold an additional hearing on the package of capital access bills next week, which the groups hope will include expert witnesses on crowdfunding so that Senators can be properly informed about existing platforms, and how the new space will protect investors.

The groups underscore the importance of the need to work together to enact solutions that will help small business owners invest, grow and create jobs "Capital is the lifeblood of our economy, and without it small business owners and entrepreneurs simply cannot generate the new jobs, breakthrough innovations and economic impact that are necessary for bringing our nation back to sustained growth," the groups conclude in the letter.

The letter was signed by Harry Alford, President & CEO, National Black Chamber of Commerce; Kristie Arslan, President & CEO, National Association for the Self-Employed; Roger Campos, President & CEO, Minority Business Roundtable; Allen Gutierrez, National Executive Director, The Latino Coalition; Barbara Kasoff, President & CEO, Women Impacting Public Policy (WIPP); Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council; and Todd McCracken, President, National Small Business Association.

Karen Kerrigan, President & CEO

Consumer Confidence: Up ... But Big Questions Continue

noreply@blogger.com (Raymond J. Keating) — Wed, 29 Feb 2012 17:09:00 +0000

On February 28, the Conference Board reported that its Consumer Confidence Index, which had declined in January, increased in February from 61.5 a month earlier to 70.8.

Consumers were more optimistic on their assessments of both current conditions and their short-term outlook. That's certainly welcome. But all of this needs to be put in perspective.

For example, before the deep recession and poor recovery took over, the Consumer Confidence Index was far higher. Five years ago, in February 2007, it came in at 111.2. Over the three years prior to the most recent recession, the index range ran between 85.2 and 111.9. For good measure, over the past three-and-a-half decades, the high was 144.7 in January 2000.

So, while consumer confidence is improved compared to where it's been over the past year - falling short of the 72.0 mark hit last February, which was the high mark for the past four years - we're still nowhere near where we should be, especially more than two-and-a-half years into a recovery.

In addition, while improved, consumers remain far from optimistic in terms of their outlooks for both business conditions and the labor market.

On business conditions, the Conference Board reported: "The proportion of consumers expecting business conditions to improve over the next six months increased to 18.7 percent from 16.7 percent, while those anticipating business conditions will worsen decreased to 11.8 percent from 14.6 percent." And on labor markets: "Those anticipating more jobs in the months ahead increased to 18.7 percent from 16.4 percent, while those anticipating fewer jobs declined to 16.9 percent from 19.1 percent.

Again, while any positive moves are appreciated, these levels hardly reflect a robust confidence in the economy. Indeed, it's quite the contrary.

Finally, it must be noted that this measure of consumer confidence might already be outdated. The cutoff date for these results was February 15. With the recent rise on gas prices, and expectations for rising costs at the pump in coming weeks and heading into the summer, especially with uncertainty swirling around Iran, it would not be surprising to see consumer confidence take a hit as a result.

In the end, of course, consumer confidence reflects the state of the economy and job creation, along with key costs like energy. Consumer uncertainty, along with business and investor uncertainty, need to be reduced via sound public policies, which mean a shift to smaller government, namely, substantive, permanent tax and regulatory relief, reduced federal spending, sound monetary policy focused on price stability, and stronger leadership on free trade in the global arena. That shift would be good for entrepreneurship, business, investment, growth, jobs and therefore, consumer confidence.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

France Fights to Protect IP

noreply@blogger.com (Raymond J. Keating) — Tue, 28 Feb 2012 23:37:00 +0000

The great early 19th century, French economist Jean-Baptiste Say noted the importance of property rights: "Political economy recognises the right of property solely as the most powerful of all encouragements to the multiplication of wealth."

On protecting private property as a necessary role of government, Say wrote: "Without this protection of each individual by the united force of the whole community, it is impossible to conceive any considerable development of the productive powers of man, of land and of capital; or even to conceive the existence of capital at all; for it is nothing more than accumulated value, operating under the safeguard of authority."

While the technological state of our economy is light years ahead of where it stood two hundred years ago, the protection of private property - including intellectual property - remains a critical duty of government, and central to economic development and growth.

On February 20, The New York Times ran an interesting article titled "A Piracy Law in France Appears to Curb File-Sharing and Lift Digital Music." The main point of the story was that two years ago France approved a measure to fight digital piracy, and the result has been a sharp decline in file-sharing piracy, growth in digital sales, and a stabilization of music industry revenues.

The article described the process under the French law: "The agency that administers the three-strikes system, known by the French abbreviation Hadopi, had sent 822,000 warnings by e-mail to suspected offenders as of the end of December. Those were followed up by 68,000 second warnings, issued through registered mail. Of those, 165 cases have gone on to the third stage, under which the courts are authorized to impose fines of €1,500, or nearly $2,000, and to suspend Internet connections for a month."

The piece also quoted Éric Walter, the secretary general of Hadopi, explaining: "Our work is to explain to people why piracy is a bad thing and why they should stop... When the people understand that, they stop. Of course, some people don't want to understand. Then we have to transfer their dossiers to the justice system."

A study on the impact of Hadopi by researchers from Carnegie Mellon University and Wellesley College was referenced in the article. That study, conducted by Brett Danaher, Michael D. Smith, Rahul Telang and Siwen Chen, summed up its key findings this way: "Our results suggest that increased consumer awareness of HADOPI caused iTunes song and album sales to increase by 22.5% and 25% respectively relative to changes in the control group. In terms of robustness, we find that these sales changes are similar for each of the four major music labels, suggesting that our results are not driven by one particular label. We also find that the observed sales increase is much larger in genres that, prior to HADOPI, experienced high piracy levels (e.g., Rap and Hip Hop) than for less pirated genres (e.g., Christian music, classical, and jazz). This tends to strengthen the causal interpretation of our results given that if HADOPI is causing pirates to become legitimate purchases, its effects should be stronger for heavily pirated music."

So, credit France for taking a significant and apparently powerful step to protect intellectual property. Jean-Baptiste Say would be pleased, and U.S. policymakers should take note.

_______________

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Rising Fuel Prices

noreply@blogger.com (Raymond J. Keating) — Mon, 27 Feb 2012 14:43:00 +0000

As recent as early October, the price of oil was below $80 a barrel. On February 22, it was just above $106. That's a nearly 40 percent increase in four-plus months.

At the gas pump, the national average price of a gallon of gas, according to Energy Information Administration data, came in at $3.65 on February 20. That was up by 30 cents a gallon versus early January.

Obviously, two big issues regarding prices at the gas pump are the price of crude oil and taxes. In fact, API's Chief Economist John Felmy noted on February 22 that 84 percent of the price of gasoline are accounted for by crude oil and taxes.

Interestingly, policymakers can help on both fronts. First, and most obvious, is the tax issue. Quite simply, rolling back taxes on the energy sector will reduce costs. Consider that the average federal and state tax on a gallon of gasoline is 48.8 cents. For good measure, the President and various members of Congress need to stop the push for increased taxes on energy firms, as that will only reduce investment and production.

As for the price of crude oil, there clearly is an Iran fear premium at work. That is, the threat of the Iranian nuclear program and the potential reactions, including possible war with Israel, disruption of oil supplies as some 17 million barrels flow through the Strait of Hormuz daily, and how the U.S. might react, have pushed up oil prices. If Israel does take action, all bets are off as to how high oil might jump.

Beyond decisions made in terms of national security and foreign policy, policymakers can make a difference by removing obstacles and prohibitions on domestic energy production. A good place to start would be with H.R. 3408, which passed the House of Representatives by a bipartisan vote of 237-187 on February 16. As summed up in a House press release, the legislation would "require the Administration to move forward with new offshore energy production in areas containing the most oil and natural gas resources - including the Atlantic Coast, Pacific Coast and portions of the Eastern Gulf of Mexico;" open a small percentage of ANWR to oil and natural gas development; "encourage the development of 1.5 trillion barrels of oil shale in the Rocky Mountain West, and approve the Keystone XL pipeline."

Natural Resources Committee Chairman Doc Hastings offered a challenge: "As gasoline prices continue to rise to almost double what they were when President Obama took office and Iran continues to strain foreign oil supply, Americans are demanding action. Republicans are responding with this action plan to create jobs and grow the economy through new American energy production. The only question is, will the Democrat controlled Senate and President Obama stand in the way or become part of the solution?"

In the end, of course, more energy production, whether in the U.S. or any other nation, is positive for prices and the energy costs faced by U.S. consumers and businesses.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Crowdfunding Legislation: Time to Move Forward!

noreply@blogger.com (Raymond J. Keating) — Fri, 24 Feb 2012 16:40:00 +0000

Everybody seems to be onboard with crowdfunding. Well, almost everybody.

Using the Internet and social media, crowdfunding allows entrepreneurs to raise limited amounts of capital from a wide array of micro-angel investors. In this common-sense way of expanding the universe of potential investors, transparency and a large population - the crowd - wind up evaluating each investment opportunity.

Making crowdfunding legal makes sense given the capital needs of small firms, and the tremendous opportunities opened for small investors via the Internet and social media. And rare bipartisan support exists for this important economic measure.

For example, on November 3, the U.S. House of Representatives passed the Entrepreneur Access to Capital Act (H.R. 2930), which again allows small businesses and small investors to get together via the Internet, by a vote of 407-17. Specifically, the legislation allows crowdfunding when the total amount of capital to be raised is $2 million or less, with individual investments limited to $10,000, or 10 percent of an investor's income, whichever is less.

President Barack Obama has embraced crowdfunding. On November 2, the administration released the following in a "Statement of Administration" policy: "In the President's September 8th Address to a Joint Session of Congress on jobs and the economy, he called for cutting away the red tape that prevents many rapidly growing startup companies from raising needed capital, including through a ‘crowdfunding' exemption from the requirement to register public securities offerings with the Securities and Exchange Commission. This proposal, which would enable greater flexibility in soliciting relatively small equity investments, grew out of the President's Startup America initiative and has been endorsed by the President's Council on Jobs and Competitiveness. H.R. 2930 is broadly consistent with the President's proposal. This bill will make it easier for entrepreneurs to raise capital and create jobs."

Steve Case serves on the President's Council of Jobs and Competitiveness, and also is chief executive of investment firm Revolution and heads up the public-private Startup America Partnership. Speaking at the Washington Economic Club on February 23 about the importance of entrepreneurship in the U.S., as the Washington Post reported, Case "underlined the importance of improving access to capital by allowing entrepreneurs to tap into modern financing alternatives like online crowd-funding platforms."

So, what's the hold up? The U.S. Senate has yet to take action.

Senate bills would have different funding levels and tighter regulations. As reported by CNBC.com on February 14, "Karen Kerrigan, CEO of the Small Business & Entrepreneurship Council says she thinks it has an 80 percent chance of passing the Senate when it does come up for a vote. ‘It has deep bipartisan appeal and President Obama's support,' she says. The only roadblock seems to be state regulators, who fear massive potential unregistered securities fraud. ‘They're spreading fear and slowing the process,' she says."

In particular, state regulators want to prevent the preemption of state law, and are seeking to severely restrict the maximum amount that can be invested by an individual.

The effort to over regulate in the Senate, in response largely to this lobbying from state regulators who in the end are seeking to protect their turf (as government regulators and bureaucrats do), places this common-sense, pro-entrepreneur crowdfunding measure at risk. With transparency and basic safeguards, as proposed by the House and the President, crowdfunding can be a tremendous opportunity for entrepreneurs to find the capital needed to start up and/or grow. It would be a clear plus for U.S. economic growth, competitiveness and job creation.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

SBE Council Chief Economist on Initial Jobless Claims

noreply@blogger.com (Raymond J. Keating) — Thu, 23 Feb 2012 15:53:00 +0000

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), released the following statement in response to the latest initial jobless claims released by the Department of Labor:

"The second week in a row of seasonally adjusted initial jobless claims coming in at 351,000 is a clear plus. That's the lowest level since early March 2008. And the trend, though uneven, has been positive since mid-September of last year.

"While moving below the 400,000 initial claims level is important, it must be pointed out that during periods of solid economic growth, initial jobless claims generally run in the range of 270,000 to 330,000. So, we still have plenty of work to do.

"Our economic recovery remains uncertain, uneven and under-performing largely due to an adverse policy climate for business and investment. To return to robust economic and employment growth, there needs to be a shift from anti-growth tax, regulatory and government spending policies to a pro-growth policy structure of tax and regulatory relief, and smaller government."

SBE Council Responds to President Obama's Corporate Tax Reform Plan

noreply@blogger.com (Raymond J. Keating) — Wed, 22 Feb 2012 18:23:00 +0000

The Small Business & Entrepreneurship Council (SBE Council) released the following statement in response to the Obama administration's corporate tax reform proposal:

"The idea of reducing tax breaks and credits in order to broaden the base and lower corporate income tax rates is sound. Unfortunately, President Obama's plan also proposes to increase overall taxes on corporations and investors, while still favoring certain industries over others. The last thing this economy needs is higher taxes on business, investment and the energy sector," said SBE Council chief economist Raymond J. Keating.

The plan reduces the corporate tax rate to make it more globally competitive, but does not reduce individual tax rates, a move that would help America's small business owners and the self-employed. However, the President did call for expanding small business expensing levels to $1 million, and making that permanent.

"The expensing proposal is a positive step. At the same time, though, substantive tax reform would offer expensing as an option for all businesses in terms of their capital expenditures," added Keating.

The proposal also calls for repeal of the last-in, first-out (LIFO) accounting method, which would hit many small businesses. In addition, taxing carried interest as ordinary income would undermine investment and hurt U.S. competitiveness.

"At the very least, tax reform should strive to be revenue neutral. Ideally, we need substantially lower tax rates and overall tax relief to help get this economy back on a path of robust economic growth. And both corporate income and personal income tax rates must be reduced, so that all businesses, including small firms, can benefit and drive innovation, economic growth and job creation forward," concluded Keating.

Steve Jobs' IP Grammy

noreply@blogger.com (Raymond J. Keating) — Tue, 21 Feb 2012 19:53:00 +0000

The 54th Grammy Awards on February 11 claimed boffo ratings. Some 44 million viewers tuned in, up from 27 million people watching last year.

Perhaps that was not surprising given the salute to Whitney Houston after her untimely death, along with a reuniting of the Beach Boys, the comeback of Adele, and Paul McCartney taking the stage, among other top performers.

But one of the most interesting Grammies awarded this year did not go to a singer or musician. Instead, it went to a businessman. The late Steve Jobs, co-founder of Apple Computer Inc., received a Trustees Award.

At the Recording Academy's Special Merit Awards Ceremony on February 11, as noted on the Grammy's website, "Jobs' Trustees Award was accepted by Eddy Cue, Apple's senior vice president of Internet software and services, who made note of Jobs' love of music. ‘Music shaped his life and made him who he was,' said Cue. ‘When he introduced the iPod in 2001, people asked, "Why are you doing this?" He said, "We love music and it's always good to do something you love.'"

If anyone deserved being honored by the music industry, it would be Jobs, who, arguably, saved the industry.

It's worth reminding ourselves that online theft of music took off in the late 1990s, in particular with the creation of the Napster file sharing business in 1999. Jobs responded with the iPod and iTunes in 2001, which made online purchases of songs affordable, easy and appealing.

Music theft online continues, of course. Indeed, it remains a major problem. The RIAA, for example, reports: "While the music business has increased its digital revenues by 1,000 percent from 2004 to 2010, digital music theft has been a major factor behind the overall global market decline of around 31 percent in the same period. And although use of peer-to-peer sites has flattened during recent years, other forms of digital theft are emerging, most notably digital storage lockers used to distribute copyrighted music." The RIAA numbers show how daunting music theft is: "Since peer-to-peer (p2p) file-sharing site Napster emerged in 1999, music sales in the U.S. have dropped 53 percent, from $14.6 billion to $6.9 billion in 2010. From 2004 through 2009 alone, approximately 30 billion songs were illegally downloaded on file-sharing networks."

The RIAA also notes a striking correlation between the decline in music sales and a decline in the number of people working as "musical groups and artists" according to Bureau of Labor Statistics numbers (see the analysis here.) The RIAA analysis sums up: "Selling music is an important motivator to creating music, and ... the decline in sales has correlated with fewer people making a living in music."

Keep in mind that the music business is overwhelmingly about small firms. For example, in that industry category of "musical groups and artists," 93.6 percent of firms with employees had less than 20 workers, and 99.9 percent (i.e., all but five firms) had less than 500 employees (according to the latest Census Bureau data from 2009).

Jobs' love of music, combined with his business common sense, led him to understand the need to protect intellectual property if the music business were to survive.

In another recent SBE Council Technology & Entrepreneurs analysis, we quoted the recent biography Steve Jobs by Walter Isaacson, when the author wrote about Jobs, piracy and protecting IP. That is worth highlighting here once more:

"At this point Jobs could have decided simply to indulge piracy. Free music meant more valuable iPods. Yet because he really liked music, and the artists who made it, he was opposed to what he saw as the theft of creative products. As he later told me:

"‘From the earliest days at Apple, I realized that we thrived when we created intellectual property. If people copied or stole our software, we'd be out of business. If it weren't protected, there'd be no incentive for us to make new software or product designs. If protection of intellectual property begins to disappear, creative companies will disappear or never get started. But there's a simpler reason: It's wrong to steal. It hurts other people. And it hurts your character.'

"He knew, however, that the best way to stop piracy - in fact the only way - was to offer an alternative that was more attractive than the brain-dead services that music companies were concocting."

Steve Jobs combined an understanding of the importance of IP with an incredible talent for innovating, and the result allowed the music industry to have a fighting chance in competing with "free," that is, online piracy.

Depending on your music tastes, you can always debate who did or did not deserve a Grammy. But whatever kind of music you happen to favor, there's no debating the Grammy honor awarded to Steve Jobs.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

The Truth About Private Equity

noreply@blogger.com (Raymond J. Keating) — Mon, 20 Feb 2012 14:39:00 +0000

Political expediency too often overrules common sense economics. That has been the case recently when it comes to private equity.

Private equity has become a favorite political target of President Obama, certain members of Congress and other assorted politicians who are pushing a class warfare agenda. For example, in a February 14 Bloomberg report, it was asserted, "Private equity managers' preferential tax treatment, less than half the rate paid by ordinary wage earners, is ‘indefensible,' the investment chief of the California Public Employees' Retirement System said." On the presidential campaign trail, some Republican candidates have even taken potshots at fellow candidate Mitt Romney for his work in private equity.

The standard line against private equity firms seems to go something like the following: private equity groups gut companies and eliminate jobs just so partners can enrich themselves. It's all about greed.

The President has called longstanding law on taxing carried interest at the capital gains tax rate "inappropriate." The Obama budget calls for boosting the tax on carried interest from the current 15 percent capital gains tax rate to a top personal income tax rate of 39.6 percent, or as much as 43.4 percent when the Medicare income tax is included. That's a near tripling of the tax rate on carried interest.

Following the lead of elected officials, no doubt, the Securities and Exchange Commission has begun an examination of the private equity industry.

Do any of these and other attacks on private equity make sense? Specifically, what's the real role of private equity in our economy?

Well, quite simply, private equity provides capital and expertise needed to grow and increase the value of businesses. By the way, that's a good thing.

Specifically, private equity partnerships set up funds that raise capital from various sophisticated investors, including pension funds and foundations. In fact, according to a 2011 Preqin report, 63 percent of capital invested in private equity funds in 2010 came from public and private pension funds, endowments and foundations. They like the higher returns that come with private equity. These investors are limited partners, with the private equity firms serving as the general partners, who also invest their own capital and run the fund. The general point of private equity funds is to buy companies, with the objective of increasing the value of the enterprise and eventually selling the business for a profit.

A key positive of the private equity model is the alignment of incentives. With publicly traded companies, it's often a significant challenge to line up the interests of management with those of the owners (i.e., shareholders). Private equity funds get directly involved in owning and operating companies, including laying out goals and strategies, and selecting the management team, who usually have to invest in the firms as well. The interests and incentives then are uniform, with the focus being to enhance the firm's value.

As for carried interest, that simply is the share of profits earned by the general partners. Carried interest is not the same as a wage or salary, as it is completely tied to the investment in and performance of the firm. Carried interest is all about firm profitability - no profits mean no carried interest - and it is not only typical in private equity, but also in real estate and venture capital. For good measure, clawback provisions mean that limited partners in the fund must first be paid a certain profit, and if other investments fail to meet profit criteria, then general partners have to return their carried interest to the fund. Of course, that is never the case with wages or salaries.

It makes sense then that carried interest not be taxed the same as wages and salaries, but instead be treated as capital gains given the reality that this is a return on risk taking, i.e., on entrepreneurship and investment. And in fact, carried interest has been taxed as capital gains for decades. The only reason this has come up is due to economic ignorance and/or political calculation.

As for what private equity achieves, it's obviously not about gutting companies and randomly firing employees, since the objective is to increase a firm's value in order to eventually sell it at a profit. Instead, the point is to work to improve and build an enterprise, and when successful, that's good news for customers, employees, and owners.

On the issue of jobs, which has been central to the political assault on private equity, the Private Equity Growth Capital Council points out: "According to a 2008 World Economic Forum report that studied 5,000 transactions over 25 years, prior to their acquisition, private equity companies were, on average, losing jobs at existing facilities at a rate one to three percent faster than their competitors. The WEF study also concluded that in the first two years of investment, private equity firms increased the rate of job growth at U.S. facilities by their portfolio companies to six percent above the peer industry average."

Steve Judge, president and CEO of the council, recently offered the bottom line on private equity in our economy: "Private equity is a vital source of capital, having invested nearly $150 billion in over 1,200 companies in 2010 alone."

In a piece summarizing their findings in The Atlantic, economists Kevin Hassett and Steven J. Davis explained, "Private equity firms operate in just about every sector. Some of them focus on leveraged buyouts (LBO), in which a firm uses debt, i.e.: leverage, to buy out a controlling stake in a company. Others specialize in providing capital to new ventures, offering growth capital to promising existing ventures, or turning around distressed companies."

They concluded: "Summing up, the academic literature supports three conclusions about private equity firms. First, they provide attractive returns for their investors. Second, the effect of private equity buyouts on employment in target firms is, on average, quite small. The venture capital side of private equity almost certainly has a positive effect on employment. Third, private equity buyouts accelerate the process of creative destruction: old jobs disappear more rapidly, new jobs get created more rapidly, and productivity growth increases as a result. In this respect, private equity looks like a potent form of capitalism."

Of course, that's exactly what our economy needs, i.e., investment to build up and improve U.S. businesses, enhance productivity and therefore boosting output and incomes, and innovation to drive our economy forward.

Consider private equity's role in the energy sector, where it has been a source of capital for new and expanding enterprises. The February 13 Wall Street Journal noted: "Private equity occupies a crucial slot in the sector's food chain, fortifying small, cash-hungry explorers until they are ready to be consumed by large producers or go public. Firms typically team up with management groups with energy experience to lessen risk." Indeed, private equity's role is a considerable one: "Deal makers are excited because advances in drilling techniques such as horizontal drilling and hydraulic fracturing, or fracking, have made it easier to extract oil and natural gas from shale and other rock formations, creating an opening for private-equity firms to place big bets in a capital-hungry business. Some early investors already have extracted billions of dollars of profits. Private-equity firms completed $24.8 billion of energy deals last year, nearly triple the $8.5 billion in 2010, while the value of all deals last year rose just 17%, according to data-tracker Preqin."

In a related February 13 story on private equity's involvement with energy start-ups, the Journal added: "Private-equity firms don't often start companies from scratch, but in oil and gas they often pair with management groups in exploration start-ups."

Clearly, all of this is good news for energy entrepreneurs in need of capital, for workers in the energy sector, and ultimately, for energy consumers.

Despite the obvious economic value in private equity, attacks continue. Tamara Mellon is the co-founder of Jimmy Choo. She experienced big success running the firm under private equity ownership, and got quite wealthy as a result. But according to a February 10 Wall Street Journal report, Mellon has been taking potshots at private equity via Twitter, and is promising some kind of expose. This, of course, sounds like another political agenda being vented, and/or perhaps some revenge for a work relationship gone awry. But one of her tweets is worth noting here: "Remember - Its (sic) entrepreneurs that create jobs, not Private Equity or Investment bankers."

But what Mellon, along with President Obama and assorted others in the political class, fail to grasp is that entrepreneurs need capital to grow, expand, achieve success, and sometimes to reclaim success. Private equity plays a crucial role in the process of allocating capital, and therefore, the job of private equity is worthy of praise, rather than being set up as a punching bag for political purposes. As we've seen time and time again, sacrificing common-sense economics at the altar of politics never turns out well for entrepreneurship, investment, economic growth and job creation.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.