BusinessTrends Blog

Keating on State of the Union for Fox Business

noreply@blogger.com (Raymond J. Keating) — Fri, 27 Jan 2012 16:09:00 +0000

SBE Council chief economist Ray Keating was quoted by Fox Business News on what President Obama had to say about small business in his State of the Union address.

Keating was quoted: "He was clear on things small business owners didn't want him to be clear on. (For example) taxes on high income earners—that means fewer resources in the hands of entrepreneurs and investors, and more dollars in the hands of politicians. It's difficult to see how that is positive for small businesses."

FOMC's Economic Outlook: Far From Robust

noreply@blogger.com (Raymond J. Keating) — Fri, 27 Jan 2012 16:07:00 +0000

In its statement released on January 25, the Federal Open Market Committee (FOMC) did not change its position on monetary policy.

Basically, the Fed's assessment is that the economy is growing moderately, with household spending up but business fixed investment slowing and housing still depressed. As for inflation, the Fed remains unconcerned. Looking ahead a bit on jobs, the Fed is looking for the unemployment rate to decline slowly.

But what was notable is the Fed's apparent expectation that a slow recovery will continue for the coming three years. Yes, that's three years.

Specifically, the FOMC statement declared: "[T]he Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

In Fed-speak, "accommodative" means the Fed is unconcerned about inflation, but worried that economic and employment growth will be lacking.

Looking at the new accompanying economic projections by FOMC members, the central tendency points to a range of real GDP growth for 2012 at 2.2%-2.7%, for 2013 at 2.8%-3.2%, for 2014 at 3.3%-4.0%, and the long range is put at 2.3%-2.6%.

Given that real annual growth since 1950 has averaged about 4.5 percent during recovery/expansion years, the Fed is working under the assumption that an under-performing economic recovery is going to persist for at least three more years. Indeed, real GDP growth, according to Fed expectations, is expected to run lower than the average 3.4 percent rate over the past six-plus decades including recession quarters.

Of course, monetary policy ultimately should be about price stability, and FOMC members naturally are projecting tame inflation. Why would we expect otherwise?

In the end, growth is about private sector investment, innovation, entrepreneurship and productivity. These certainly are affected by monetary policy and inflation - for example, in terms of interest rates, the value of the dollar and the ability to plan - but federal tax and regulatory policies are the measures that have significant and direct impact on incentives and therefore the economy. That's the job of the President and Congress, and according to Fed estimates, we need a dramatic shift in a pro-growth direction on taxes and regulations.

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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.

"Fairness" for Small Business Missing in State of the Union

noreply@blogger.com (Karen Kerrigan) — Wed, 25 Jan 2012 17:32:00 +0000

Small Business & Entrepreneurship Council (SBE Council) President & CEO Karen Kerrigan issued the following response to President Barack Obama's State of the Union address:

"Jobs and the economy are the top concerns for Americans, yet President Obama offered only vague statements about how he proposes to help job creators. For small business owners, the ‘fairness' that President Obama spoke about begins with addressing government costs and obstacles that are impeding their growth and ability to create jobs. Regulatory costs, rising health coverage costs, new burdens associated with ObamaCare, proposed workplace rules in the pipeline, the threat of new taxes, uncertainty regarding expiring tax rates and incentives, tough conditions for accessing capital and credit, and the exploding deficit are all weighing on entrepreneurs and small firms. It seems President Obama spent most of the evening defending the policy status quo rather than laying out a meaningful pro-growth agenda that will encourage investment and job creation.

"Remarkably, the President did not talk about health care. ObamaCare is collapsing, and just because it's unpopular with Americans does mean he should ignore the mess. The tax credits for small businesses are an abysmal failure, costs continue to spike higher, and the uninsured rate has now climbed to 17 percent according to Gallup. Once the new taxes and mandates kick in, costs will move even higher. More small businesses are preparing to drop coverage due to the forthcoming costs, burdens and penalties. ObamaCare is driving uncertainty for small business owners, and it remains a major impediment to job creation. The President has consistently said he is open to improving the new law, but little has been done thus far to make it better. Ignoring the new law's major flaws will not make them go away.

"It was distressing to hear the President talk about subsidizing his favored energy companies using our scarce tax dollars while just last week he rejected a true shovel-ready project that would have created 20,000 immediate jobs and 118,000 spin-off jobs using no tax dollars. Small businesses would have benefitted tremendously from Keystone XL - as vendors and suppliers in the energy industry, and as energy consumers. This remains a critical infrastructure project. Building out broadband also remains important to small businesses and their competitiveness, but his Administration sued to block the AT&T/T-Mobile merger which would have brought broadband to entrepreneurs who currently lack access. The merger would have created jobs, and provided work for small firms that are players in the telecommunications and technology industries. At a time when the U.S. needs to get its fiscal house in order, desperately needs jobs, and needs to promote reliable and affordable energy and broadband access, the blocking of multibillion dollar private-sector investment projects by the President makes no sense.

"Finally, the President is still talking about raising taxes on entrepreneurs and investors. Unfortunately, the economy will continue to limp along given this threat and the President's class warfare rhetoric which looks to be his central reelection theme. Nagging business owners into creating jobs, or badgering them to bring them home is not a reasonable strategy for job creation and sustained growth. Policy matters, and more importantly policies must be business friendly."

Karen Kerrigan, President & CEO

State of the Union: What Happened to Small Business?

noreply@blogger.com (Raymond J. Keating) — Wed, 25 Jan 2012 14:33:00 +0000

So, what happened to small business?

In his State of the Union, President Barack Obama offered no direct, substantive remarks about small business. That, of course, is a striking omission given the central role that entrepreneurial firms play in terms of innovation, economic growth and job creation.

However, the President did touch on some issues that affect the entrepreneurial sector of our economy.

Potential positives exist when the President spoke about comprehensive immigration reform, as well as protecting U.S. intellectual property in the international marketplace. But the details on such policymaking are critical. For example, placing further burdens on entrepreneurs and businesses in terms of policing immigration is unwarranted and unwise.

In addition, the President noted recent trade agreements approved by Congress. Those were positive steps. However, they were originally negotiated in the Bush administration, and the President has done nothing else to advance free trade and international opportunity for U.S. businesses and workers.

After these few items, the State of the Union speech simply came back to the anti-growth, anti-business policies that have been the unfortunate hallmark of the Obama years.

Most glaring, of course, was the President’s renewed call for higher taxes on upper income earners. That simply means fewer resources in the hands of private sector investors, entrepreneurs, businesses and consumers, and more resources to be wasted by government. That can only be a negative for the economy.

And Obama’s talk on taxing corporations was anything but friendly towards international businesses. Dressed up in populist rhetoric, the President’s declarations on outsourcing amounted to a clear signal that international firms should set up their headquarters in another nation.

In addition, the President showed no inclination to reduce the size of government. Instead, there were calls for more subsidies for and spending on non-economic energy ventures, politically driven infrastructure projects, and still more federal meddling and handouts on mortgages. Of course, his mortgage plan would come with more taxes on banks, which would mean fewer resources, again, available for the private sector.

This State of the Union was stunning in its lack of vision and substance on how the U.S. economy might get back on a track of robust growth. That was due in part to grossly misguided economic thinking, and to a view of small business that is at best ambivalent and at worst hostile.

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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.

Small Business to Obama: Walk the Walk

noreply@blogger.com (Raymond J. Keating) — Tue, 24 Jan 2012 13:42:00 +0000

SBE Council chief economist Ray Keating was asked to comment by Fox Business on what to expect from President Obama tonight in his State of the Union speech regarding small business.

Check out Keating's observations and other points in this article titled "Small Business to Obama: 'Walk the Walk.'"

The State of the Union and Small Business

noreply@blogger.com (Karen Kerrigan) — Mon, 23 Jan 2012 19:16:00 +0000

On Tuesday, January 24, President Obama will deliver the annual State of the Union address. Small business owners will quickly decode whether the speech is an official kick-off to the president's reelection campaign, or whether he intends to pursue pro-growth policies that will help entrepreneurs grow their firms and create jobs.

Here are some of the key issues that small business owners want policy details on:

Tax code stability, and no tax increases. What is the President's plan for bringing some certainty and stability to the array of tax incentives, tax rates and various provisions that either expired at the end of 2011, or are set to expire in 2012? If the president continues to call for tax increases on entrepreneurs and investors, he will continue to get the same gloomy performance from the economy. Our economy needs capital and certainty, and calling for tax increases works against both.

Health coverage affordability. The President said he would look at provisions of ObamaCare that are not working, so he needs to focus on repealing provisions that are driving cost (and will drive costs) higher, including: the health insurance tax, employer and individual mandates, the medical device manufacturers' tax, the essential benefits package, the grandfather rule and much more. Health insurance costs continue to go up, not down as promised.

Affordable energy. Fuel prices remain high, and the President needs to explain himself on the lack of progress regarding domestic energy development and production. Please explain the Keystone XL decision?

Jobs, jobs, jobs and economic growth. Small business revenues remain depressed. Consumer and business confidence remains low. Jobs will not be created given such an outlook. What is the game plan on jobs? And, again, what was the rationale for killing Keystone XL?

Access to capital. Will the President use the power of his office to push through crowd fund investing legislation? What is his plan to bolster investor confidence, and improve the economy so that capital is flowing more abundantly again?

Regulatory relief and restraint. New regulations continue to cascade out of federal government agencies and departments. Is there any plan to rein in the out-of-control central planners in the Administration?

Global trade. Are there any new deals in the works? Will the President expedite action on existing efforts to strike agreements and accords?

Government spending. What, specifically, does the President plan to cut? How, specifically, will his Administration begin to act on entitlement reforms?

Small business owners and entrepreneurs will be listening on these issues, and many more. But more than talk, they want action on pro-growth policies. They want Washington to get out of the way. Please follow SBE Council President & CEO Karen Kerrigan on twitter @KarenKerrigan during the State of the Union address. SBE Council will also post updates on Facebook.

Karen Kerrigan, President & CEO

Picking Auction Winners and Losers

noreply@blogger.com (Raymond J. Keating) — Mon, 23 Jan 2012 15:00:00 +0000

Politicians and their appointees often exhibit unique talents for manipulating language to mislead. That was, in part, the case when Federal Communications Commission (FCC) Chairman Julius Genachowski spoke to the Consumer Electronics Show on January 13 on the topic of incentive spectrum auction legislation.

Genachowski identified the issue adequately: "If we don't authorize incentive auctions and make much more spectrum available for mobile broadband, we are going to get swamped by an ocean of demand and risk our competitive advantage in the race to lead the world in mobile innovation... And future innovators will be incentivized to launch their businesses in countries that beat us in the race for the best wireless infrastructure. The price of that will be measured in lost jobs, investment, and innovation. That's why the incentive auction concept needs to become law now."

So far, so good. After all, the idea behind these incentive auctions is that current licensees could, if they chose, give up their current license rights for a share of the auction proceeds, while the FCC would be able to auction spectrum it currently controls along with this spectrum held by private entities so as to increase the potential efficiency of spectrum usage. Consumers, including small business owners and their employees, investment, innovation and the economy would benefit.

However, Genachowski does not like the fact that the bipartisan legislation moving in Congress would allow any firms meeting technical, financial and character qualifications required to hold a license to participate in these auctions. That's an odd position for the FCC, especially if the commission truly is interested in the most efficient allocation of spectrum. But apparently Chairman Genachowski is interested in having the FCC free to pick the winners and losers when it comes to spectrum allocation.

But rather than simply making its case in a straightforward manner, Genachowski actually tries to dress up such political controls as being pro-market. For example, he said, "Why would it be a mistake to tie the agency's hands? This is an incredibly fast-moving space, and any policy that pre-judges or predicts the future runs a great risk of unintended and unfortunate consequences.

We don't know what the world will look like when the FCC adopts auction rules... We know how hard it is to change a law. In this dynamic space, locking restrictions into a statute would be a real mistake. And the consequences of a mistake are greater than in the past. We've never had more global competition, and the race to lead the world in mobile innovation is particularly intense. The costs of tying our hands could be devastating in the fast-moving and competitive global economy."

But the legislation does not tie the hands of the FCC. Instead, it merely protects against politics overruling economics by allowing all qualified competitors to compete in the auctions.

Genachowski even refers to a letter from various economists: "In endorsing incentive auctions, 112 leading economists from across the ideological spectrum wrote: ‘Giving the FCC the authority to implement incentive auctions with flexibility to design appropriate rules would increase social welfare.' That's economist-speak for more innovation, more economic growth, and more improvements in our quality of life."

But that statement does not refer to giving the FCC unfettered power to include and exclude certain firms from auctions. After all, that same letter clearly declared: "The United States has a long tradition of relying on private market transactions to guide resources to their highest value uses. Voluntary transactions in free markets ensure that trades happen only when the buyer and seller both benefit."

The incentive spectrum auction legislation merely seeks to allow qualified firms to participate in auctions, and prevent the FCC from excluding such entities due to non-economic, political preferences.

In the end, letting the market work through a free and open auction will ensure the most efficient allocation of spectrum, as ultimately dictated by consumers, not government appointees.

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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.

Latest on the Inflation Story

noreply@blogger.com (Raymond J. Keating) — Fri, 20 Jan 2012 14:45:00 +0000

In December, the consumer price index (CPI) was unchanged compared to November.

In late 2011, a dramatic shift down in inflation was most welcome, after CPI inflation had been running so hot from August 2010 through September 2011. In October, the change in CPI came in at -0.1%, with both November and December flat.

This recent downshifting can be attributed to some short term market price changes, a recent tightening by the Fed since July, along with the relative recent attractiveness of the dollar compared to other currencies over the past four-and-a-half months, thereby giving at least a short-term boost to money demand.

At the same time, 2011 and longer term monetary policy need to put in perspective.

From December 2010 to December 2011, CPI inflation ran at 3.0%. That was the highest inflation rate since 2007. And compared to the Dec-Dec average over the previous decade, CPI inflation in 2011 ran 50 percent faster: 2.0% average for 2001-2010 compared to 3.0% for 2011.

The pick up in inflation - again, particularly from August 2010 to September 2011 - was not surprising given the unprecedented expansion of the monetary base by the Federal Reserve for three years from September 2008 to July 2011.

Where might things be headed on inflation?

Under the most worrisome scenario, recent tame months on the inflation represent a breather, and the Fed's loose money for three years will lead to, once again, inflation accelerating.

In contrast, the positive outlook would have to include continued dollar demand and the Fed miraculously getting the timing absolutely right on a more substantive tightening of policy.

Hmmm, which seems more likely? Personally, I'm reluctant to count on policy miracles.

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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.

Playing Politics on Keystone XL

noreply@blogger.com (Raymond J. Keating) — Thu, 19 Jan 2012 15:21:00 +0000

President Obama continues to play politics with the economy and jobs. That was evident, once again, when it was announced on January 18 that the administration rejected the extension and expansion of the Keystone XL pipeline, which would transport Canadian sands crude oil to refineries on the Gulf Coast.

In order to avoid offending one of his key political constituencies - unions support the project while hard core environmental activists oppose it - the President wanted to put off deciding whether to approve the project or not until after the 2012 election. But legislation signed into law last month required a decision on the pipeline by February 21. So, the Obama White House sided with the environmental activists, and against the unions, not to mention against small business as well.

It's important to understand that opposition to this project stands solely on efforts by extreme green groups to stop the use of carbon-based energy. As TheHill.com summed up: "Environmentalists, who have made stopping Keystone a top priority, oppose it due to greenhouse gas emissions from Alberta's massive oil sands projects and other ecological concerns."

Meanwhile, supporting the project should have been obvious to anyone else, given the reality that the U.S., along with the rest of the world, needs to be able to access affordable, reliable sources of energy.

The global aspect of this need was made clear by comments from Canadian Prime Minister Stephen Harper on January 16. Harper made two critical points. The first was on the instability of oil coming from the Middle East, as exhibited of late with threats emanating from Iran. The second was that Canada has other options than bringing Canadian sands crude oil to the U.S.

Reuters quoted Harper observing the following on the Iran issue: "I think it's pretty obvious what the right decision is ... not just from an economic and environmental standpoint, but from an energy security standpoint... When you look at the Iranians threatening to block the Strait of Hormuz, I think that just illustrates how critical it is that supply for the United States be North American."

Various experts claim that Iran would not block the strait, as it would hurt itself and other oil producing nations in the region financially. That, of course, assumes Iranian leaders are acting and would act rationally - a dicey assumption. And it's not like we have not seen upheaval in that part of the world before.

As for other options, Harper noted the possibility of exporting oil to Asia, with a pipeline project from Alberta to British Colombia in the mix. As noted by TheHill.com, Harper was asked if the Asia markets would be under consideration if the Keystone project had already been approved. The prime minister said, "I think what's happened around the Keystone [pipeline] is a wake-up call [to] the degree to which we are dependent, or possibly held hostage, to the decisions in the United States and especially decisions that may be made for very bad political reasons."

There was nothing but upside for the U.S. on the Keystone pipeline project. We would have access to more secure sources of energy, boost our economy, generate tens of thousands of new jobs, improve energy affordability, and open new opportunities for small businesses in energy-related fields. Keep in mind, for example, that based on the latest Census Bureau data (2009), 98.7% of employer firms involved in supporting oil and gas operations have fewer than 500 workers, and 83.3% less than 20 employees. As for firms in the oil and gas pipeline construction industry, 94.9% have less than 500 employees, and 61.1% fewer than 20 workers.

Prime Minister Harper was spot on. The President's decision was all about bad politics, which translate into bad economics. No one should blame the Canadians if they now choose to go a different route because Mr. Obama chose to continue playing politics. Unfortunately, the Obama decision offers no alternative for U.S. consumers and businesses in need of affordable energy, and the firms and employees in the energy field seeking work.

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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.

Combating Rogue Websites

noreply@blogger.com (Raymond J. Keating) — Wed, 18 Jan 2012 12:52:00 +0000

The following Technology & Entrepreneurs analysis addresses the issue of Internet piracy by foreign rogue websites. As widely reported, some websites today are "going dark" or protesting the Protect IP Act and the Stopping Online Piracy Act (SOPA) through other means. But as noted below, this legislation is about protecting IP, and those who say it infringes upon free speech or will shut down the Internet are simply toying with the truth. Rogue foreign websites are stealing American IP and raking in billions of dollars from such theft. So why do some U.S.-based Internet companies want to protect them?

Establishing and protecting intellectual property rights has been central to economic growth since the Industrial Revolution. And its importance has only been magnified in today's international, knowledge-based economy - especially with the vast advancements in telecommunications, digital technology and the Internet.

At the same time, new avenues of opportunity for entrepreneurs, businesses and consumers have opened more doors to criminal activity, and created new challenges for government to meet its critical obligation of protecting intellectual property. The latest step being considered by Congress is stepped up combating of Internet piracy by foreign rogue websites.

First, let's consider why this is so important to the U.S. economy.

In terms of the economic contributions made by intellectual property industries in general, a January 2011 study by NDP Consulting titled "Employment and Gross Output of Intellectual Property Companies in the United States" found:

• "IP companies in the manufacturing and non-manufacturing sectors generated more than $7.6 trillion in gross output in 2008, accounting for 33.1 percent of total U.S. gross output. IP companies in the manufacturing sector alone generated $3.9 trillion in output, constituting 75.2 percent of total U.S. manufacturing output. IP companies in the non-manufacturing sector generated $3.7 trillion in output, accounting for 20.8 percent of U.S. non-manufacturing gross output."

• "Based on the latest U.S. official data, we estimate that, in 2008, IP companies in manufacturing and non-manufacturing sectors employed more than 19 million full- and part-time (headcounts) workers and accounted for 16.3 percent of U.S. full- and part-time employment. Nearly 70 percent of U.S. manufacturing jobs and 9.3 million workers (full- and part-time) were in IP companies and less than 10 percent of U.S. non-manufacturing jobs and 9.8 million workers (full- and part-time) were in IP companies."

And focusing on copyright industries in particular, the 2011 edition of the "Copyright Industries in the U.S. Economy," prepared by Economists Incorporated for the International Intellectual Property Alliance, and released in November, reported that in 2010, the value added by total copyright industries registered at 11.1% of GDP, and total copyright industries accounted for 9.9% of private sector employment in 2010.

So, intellectual property ranks as a key driving force of U.S. economic growth and employment.

Second, IP protections are crucial to small businesses specifically. The bulk of enterprises in IP industries are small firms. Consider the following examples of employer firms based on the latest (2009) data from the Census Bureau in terms of the percentage that have fewer than 20 employees:

• Telecommunications industry: 84%

• Internet publishing and broadcasting and web search portals: 89%

• Newspaper, periodical, book, and directory publishers: 83%

• Software publishers: 70%

• Motion picture and sound recording industries: 93%

• Radio and television broadcasting business: 76%

It should be clear that enhancing IP protections are necessary for the well-being of small business and their employees, and again, for innovation and the overall economy. IP protections are critical for a range of sectors where small businesses are dominant - from manufacturing to fashion; retail to health care; technology to consumer goods, and many more.

Therefore, bipartisan support exists in Congress for legislation providing enhanced tools to counter and disrupt the efforts of foreign rogue websites that steal the intellectual property of U.S. entrepreneurs, businesses and workers. Using professional-looking website, consumers get lured in, and wind up with counterfeit and pirated products, as well as being placed at risk of identity theft and exposure of computer viruses. While tools are in place to prosecute domestic piracy, countering foreign piracy remains far more elusive.

In the U.S. Senate, the PROTECT IP Act (S.968) has 40 cosponsors and received unanimous Senate Judiciary Committee support, and is scheduled for floor debate later this month. Meanwhile, in the House of Representatives, the Stop Online Piracy Act (HR 3261) has been introduced, and received strong bipartisan support during the House Judiciary markup process.

With proper checks and balances and due process protections, and without risks to domestic sites, this legislative effort is focused on foreign Internet sites dedicated to infringing activities, that is, as described in the S.968 summary, sites that have "no significant use other than engaging in or facilitating copyright infringement, circumventing technology controlling access to copyrighted works, or selling or promoting counterfeit goods or services;" or are "designed, operated, or marketed and used to engage in such activities."

Scaremongering among certain groups in opposition has tried to gin up opposition, declaring, for example, that this legislation would somehow strangle the Internet with over-regulation. Any kind of regulatory overreach obviously is a concern of small businesses. After all, no group suffers more from excessive and misguided regulation than small enterprises.

But that's clearly not the case here. Instead, this is about government exercising its proper role of stopping criminal activity - in this case, online piracy from foreign sources - and protecting IP so that small businesses, the Internet and the economy can thrive.

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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.

Keystone XL is in the National Interest

noreply@blogger.com (Raymond J. Keating) — Tue, 17 Jan 2012 14:56:00 +0000

Is the extension and expansion of the Keystone XL pipeline, which would transport Canadian sands crude oil to refineries on the Gulf Coast, in the national interest? This is the question that President Obama must answer in the next few weeks.

On December 17, the President signed legislation that included a 60-day period in which Mr. Obama must make a decision on the pipeline. He can rule that the project is not in the national interest; rule in favor of the pipeline and thereby giving a green light to construction to begin in five of the six states it would cross; or not rule at all, thereby also allowing the construction to move ahead. The legislation signed into law allows for the pipeline owner (TransCanada), the state of Nebraska and the State Department to reach an accord to re-route part of the pipeline in that state.

From an environmental standpoint, the project has been under review for more than three years, and the Final Environmental Impact Statement issued by the State Department on August 26, 2011, satisfies all requirements needed for issuing a presidential permit. In addition, TransCanada agreed to the re-routing of the pipeline around the Nebraska Sandhills, thereby answering and removing the last environmental question. Of course, there will be activists that persist in scaremongering and opposing the project, but these are fringe players that oppose any and all expansion of carbon-based energy development and use.

As for the economic impact, approval of the pipeline should be a no-brainer.

First, Canada already tops the list of nations from which the U.S. imports oil. Canada provides almost 2.4 million barrels per day, or about a quarter of our imports. The pipeline could boost those imports to 4 million barrels a day. That would be twice what the U.S. imports from the Persian Gulf region today. Compare the stability of and our friendly relations with Canada to the ongoing troubles in the Persian Gulf - the latest being Iran's nuclear advancement - and it's clear that this pipeline is in the national interest, including providing a secure source of oil for consumers and businesses.

Second, beyond the obvious economic benefits of having a more secure source of oil, the project itself would be a major economic positive. The Canadian Economic Research Institute estimates that investment in this project would generate a $521 billion boost over 25 years in U.S. GDP, and growth in U.S. jobs from 21,000 jobs in 2010 to 465,000 jobs in 2035.

Third, the Keystone project would be a plus for small businesses. Based on the latest Census Bureau data (2009), 98.7% of employer firms involved in supporting oil and gas operations have fewer than 500 workers, and 83.3% have less than 20 employees. As for firms in the oil and gas pipeline construction industry, 94.9% have less than 500 employees, and 61.1% have fewer than 20 workers.

The Keystone project certainly is in the interest of small businesses - both as energy consumers, and as firms at work in the energy industry.

The benefits to the nation are clear. Let's hope that President Obama puts the nation ahead of whatever political calculations might also be at work.

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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.

Debit Card Price Controls Hurting Small Merchants

noreply@blogger.com (Raymond J. Keating) — Fri, 13 Jan 2012 18:41:00 +0000

Can consequences be both unintended, yet completely predictable? Well, consider countless actions taken by elected officials and their appointees that ignore inevitable negative economic consequences.

Price controls serve as one of the most glaring examples. When government decides to limit the price that can be charged for goods or services (and therefore, limit returns as well), the inevitable results include shortages, diminished quality, less investment and innovation, reduced service, and/or cost shifting.

That, of course, is exactly what's occurred since Congress via the Federal Reserve imposed price controls of debit card transaction fees. The 2010 Dodd-Frank financial regulation law included the Durbin amendment - named for Senator Richard Durbin (D-IL) - which imposes price caps on debit card interchange fees paid by merchants for each debit card transaction. Those price controls took effect on October 1, with fees capped at 21 cents per transaction, or less than half of what the average fee had been.

Various large retailers were behind this price control effort - something, by the way, they would be vehemently opposed to if the government sought to place price controls on their own businesses. Their claim was that consumers were paying more, and would experience savings if the price controls were imposed. In addition, small businesses supposedly would benefit.

It turns out, however, that consumers and small firms are not faring so well under this price control regime.

As for consumers, on December 13, The Wall Street Journal reported: "The Electronic Payments Coalition, an advocacy group that represents banks and credit unions, says 76% of retailers either raised prices or kept them the same since the lower fees were introduced... Large retailers are reaping the benefits but not giving back the rewards, analysts say. On average, customers are paying 1.7% more for the same items after Oct. 1, according to the study."

This initial assessment, again, was completely predictable, as retailers would have little incentive to pass on specific cost reductions related to government controls, and given the findings from other nations, such as Australia, that imposed price controls but no price benefits were found to be passed on to consumers.

Meanwhile, small businesses have found that they actually are paying, in many cases, higher debit card transaction fees. As a wide array of media reports attest, on low-dollar purchases, generally less than $10, the 21-cent government price control has replaced a previously lower fee. Due to the price controls being imposed, previous discounts on small charges have been eliminated. Vending machine operators, for example, have seen per transaction fees increase by 200 percent in some cases.

As the December 8 Wall Street Journal noted: "‘There will be some unhappy parties, as there always is when the government gets in the way of the free-market system,' says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn't sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts. Merchants now are trying to offset their higher rates by raising prices, encouraging customers to pay in cash or dropping card payments altogether."

Again, all of this was completely predictable, and was predicted by the Small Business & Entrepreneurship Council and others who grasp the basics of economics. Amazingly, though, some are arguing for even tighter price controls. But that, of course, would only make matters far worse, particularly in terms of restricting investment and innovation in card payment systems.

The correct response is to repeal the destructive and costly Durbin amendment. That's exactly what U.S. Reps. Jason Chaffetz (R-UT) and Congressman Bill Owens (D-NY) have proposed to do in legislation introduced in October. It would repeal the debit card interchange price control provisions of the Dodd-Frank bill. Here is legislation that makes economic sense, and deserves bipartisan support.

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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.

Copyright Industries and their Importance to Economy

noreply@blogger.com (Raymond J. Keating) — Thu, 12 Jan 2012 20:42:00 +0000

It's not unusual for intellectual property rights to be treated in cavalier fashion. I even see it when teaching MBA students, many of whom, upon entering my class, fail to grasp the importance of IP protections in the broader economy, and see few problems in personally subverting intellectual property through, for example, illegal downloading of their favorite music.

The attitude is summed up in assorted questions. Why get so hung up on protecting intellectual property? How do IP protections actually and substantively translate into the real-world economy? And isn't this all about big businesses that will prosper no matter what?

To help communicate and/or reinforce how important intellectual property is to the U.S. economy, consider the key findings in the 2011 edition of the "Copyright Industries in the U.S. Economy," prepared by Economists Incorporated for the International Intellectual Property Alliance, and released this past November.

In 2010, total copyright industries contributed significantly to the overall economy, with added value equal to 11.1% of GDP.

For good measure, during recent tough economic times, copyright industries grew at a much faster pace than the broader economy. From 2007-10, total copyright industries grew at an average annual rate of 1.47%, compared to 0.05% for the overall economy.

As for employment, total copyright industries accounted for 9.9% of private sector employment in 2010. In addition, average annual compensation in total copyright industries topped the U.S. average by 15%, with compensation in "core" copyright industries beating the national average by 27%.

Those are significant economic contributions and differences brought about by copyright industries.

As for this all being a "big business" issue, it pays to look at the breakdown of key copyright industries. In the IIPA study, core copyright industries are defined as "those industries whose primary purpose is to create, produce, distribute or exhibit copyright materials. These industries include newspapers and periodicals, motion pictures, recorded music, radio and television broadcasting, and computer software."

Based on Census Bureau data (2008 most recent), consider the make up of key parts of these core copyright industries:

• In terms of newspaper, periodical, book, and directory publishers, 83% had fewer than 20 employees.

• As for software publishers, 70% had less than 20 workers.

• In the motion picture and sound recording industries, it's 93% with less than 20 employees.

• And in the radio and television broadcasting business, 76% of firms had less than 20 workers.

So, copyright industries are both critical to the economy, and are overwhelmingly about small businesses. The data show a very different reality than what is widely presumed about intellectual property. In the end, protecting IP rights enhances economic opportunity, entrepreneurship and 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.

Keystone XL: In the National Interest

noreply@blogger.com (Karen Kerrigan) — Wed, 11 Jan 2012 16:58:00 +0000

The construction of Keystone XL -- a critical pipeline project that will immediately create 20,000 good paying jobs while enhancing America's energy security -- will move forward soon unless President Obama declares that the project is "not in the national interest."

SBE Council joined over 100 business organizations today, to urge the President to support the environmentally-friendly Keystone XL. Indeed, now more than ever, Keystone XL is in the national interest.

Karen Kerrigan, President & CEO

SBE Council Support Letter for Telecommuter Tax Fairness Act

noreply@blogger.com (Raymond J. Keating) — Wed, 11 Jan 2012 14:59:00 +0000

The following letter went to U.S. Senators Joseph Lieberman and Richard Blumenthal on January 5, 2012, in support of their sponsoring of S.1811, the Telecommuter Tax Fairness Act.

Dear Senator Lieberman:

On behalf of the Small Business & Entrepreneurship Council (SBE Council), thank you for your leadership in sponsoring the Telecommuter Tax Fairness Act (S.1811). Given the growing importance of telecommuting and a more mobile workforce, this would redress a serious tax problem for entrepreneurs, small businesses and workers.

According to the latest estimates from the U.S. Census Bureau released in early 2010, the number of self-employed who worked exclusively from home increased 25 percent between 1999 and 2005. Of course, it's not just entrepreneurs working from home, but employees as well. Those in the total U.S. workforce that worked at home exclusively rose by 21 percent, and those working some of the time from home increased by 20 percent over the same period. The ability to work from home has been greatly enhanced in the subsequent years given innovations in technology.

There are tremendous benefits derived from working at home, including for the environment, in terms of balancing home and work lives, and helping to save time and money for workers, as well as for employers. Overall, telecommuting enables businesses and workers to operate more flexibly.

Employers can draw from a larger geographic area in terms of hiring workers with skills that match their needs, and where such workers may not be readily available in their communities or region of the country. In addition, job relocation by one family member may not necessarily mean the severing of employment for their spouse, family member or significant other if telework in an option.

Unfortunately, some states have extended the reach of their state income taxes to the out-of-state, telecommuting employees of in-state firms, even if those employees only come into the state for work occasionally. In fact, a telecommuter's entire income can be vulnerable to being taxed by a different state from where one lives if telecommuting was for the person's convenience, and not due to a job requirement.

This is grossly unfair, can mean higher taxes imposed on entrepreneurs and workers; can increase tax compliance costs for small businesses and individuals; can rob states that credit taxpayers for taxes paid elsewhere of legitimate tax revenues; and can put taxpayers at risk of having to pay taxes twice on the same income in states offering no credits for income taxes paid to other states.

The Telecommuter Tax Fairness Act would eliminate such tax unfairness for telecommuters and small businesses by prohibiting a state from imposing an income tax on a nonresident individual for any period when not physically in the state, or from deeming the nonresident individual to be present because the individual works at home for convenience or because the individual's work at home fails any convenience of the employer test.

SBE Council strongly supports the Telecommuter Tax Fairness Act. It's sound pro-worker, pro-entrepreneur tax policy.

If you have any questions, or if we can be of assistance, please call SBE Council at 703-242-5840. Thank you again for your leadership and support of small business.

Sincerely,

Karen Kerrigan, President & CEO

Governor Scott Wants to Cut Taxes and Reduce Regulations for Small Businesses in Florida

noreply@blogger.com (Karen Kerrigan) — Tue, 10 Jan 2012 21:22:00 +0000

In his State of the Union speech today, Florida Governor Rick Scott reviewed the successes of his policies and what he will focus on in the coming year. Florida’s economic situation was pretty dire when Scott took office, but things are improving. Scott reported that Florida’s private sector created 135,000 jobs in the first 11 months of 2011. In addition, people continue to move to Florida.

Florida’s population growth is exploding – in fact, with more than a quarter million people moving to the Sunshine State over a 15-month period, Florida is the third fastest growing state.

Scott noted that in two years Florida will pass the state of New York in population.
In his speech Scott said: “To all our friends in New York, come on down!” He noted that the tax burden per citizen in New York is about twice as high as Florida’s.

“Think about it. The state of New York, which has just about the same population as Florida, has a budget roughly twice as large as ours,” Scott said.

That is why Florida ranks favorably (#8) while New York ranks miserably (#50) on SBE Council’s “Small Business Survival Index.” Bigger government means higher taxes and more burdens on small business owners and entrepreneurs.

Yet, Scott wants to make Florida even more attractive and friendly for small businesses. “This session, we need to lower burdensome taxes on small businesses and continue our mission of slashing red tape in Florida,” he remarked.

Florida ranks very high on SBE Council’s “Business Tax Index” as well, coming in at #6. New York ranks an abysmal 48th.

You can read highlights of Governor Scott’s speech by visiting this link. The Governor also lays out his vision for improving Florida’s education system and keeping Florida’s cost-of-living low.

Karen Kerrigan, President & CEO

2012 Outlook for Small Business and the Economy

noreply@blogger.com (Raymond J. Keating) — Tue, 10 Jan 2012 18:19:00 +0000

American entrepreneurs, investors, businesses and workers are a hearty, resilient bunch. Despite government derailing the economy, and keeping it derailed for more than four years now, the private sector nonetheless continues to push ahead.

Assorted political supporters of and media apologists for big government activism have asserted that government has saved the private market from corruption and excess, not to mention unexplainable and/or unexpected shocks. If not for government action, they assert, the entire economy would have gone off a cliff. This is the same spin served up for more than three-quarters of a century regarding the Great Depression, so why not replay the fiction now?

In reality, of course, the economy of the 1930s plummeted off a cliff to great depths, and over the past four years, we fell into a deep recession followed by a grossly under-performing recovery. These were not cases of the private market failure, nor unforeseen shocks. Instead, these were unmistakable instances where misguided government policies caused great harm.

During the Great Depression, protectionism, high taxes, large increases in government spending, and unprecedented regulation wreaked havoc on private investment and business. In similar fashion in recent years, government subsidies, bailouts, so-called stimulus spending, regulatory activism, misguided monetary policy, and higher taxes, along with the threat of further tax increases, have raised costs and created uncertainties that have done real and considerable economic damage.

And even when considering the recent and potential effects of troubles in Europe, it must be recognized that Europe suffers from slow growth (and looming recession) and debt woes specifically because of government sucking up more than half of GDP, with commensurate and burdensome tax and regulatory structures.

Given the direction of public policy, it's a salute to entrepreneurs, businesses and investors that things have not been far worse over the last few years.

Keeping all of this in mind, as we look ahead, the key question is: Will policymaking change so as to unleash the private sector in 2012?

Given the political breakdown between the White House, Senate and House of Representatives, it's hard to visualize any significant changes for the positive.

Federal Spending. Some negatives could be avoided if, for example, spending is reined in during the current fiscal year. Unfortunately, though, federal outlays not only climbed to new heights in FY2011 - after unprecedented growth during FY2008 and FY2009, and a small, one-year breather in FY2010 - but are expected to increase once more in FY2012.

Tax Uncertainty. Will various temporary tax measures affecting entrepreneurs and businesses be extended for at least 2012? Unfortunately, tax uncertainty will continue to weigh on small business confidence and their general outlook in 2012.

In 2011, for example, Section 179 expensing allowed businesses to write off up to $500,000 in capital expenditures, including on new and used equipment, and new software, beginning to phase out dollar-for-dollar when total capital spending exceeds $2 million. In addition, though, for 2011, a 100% bonus depreciation applied to capital expenditures above $500,000 on new equipment, including for businesses spending in excess of $2 million. Unless changed, under current law for 2012, the Section 179 expensing level is scheduled to fall back to $125,000 (subsequently retreating to $25,000 for 2013), and bonus depreciation declines to 50%.

For good measure, at the end of this year, increases in personal income, capital gains and dividends tax rates are scheduled to take effect. At the very least, the President has called for increased tax rates on upper incomes, which would mean reduced incentives and resources for entrepreneurship, investment and job creation.

Regulatory Activism Will Abound. The Obama administration shows no inclination for reining in its regulatory activism. Just consider the President's pro-regulation recess appointments to kick off 2012 to the National Labor Relations Board and the Consumer Financial Protection Bureau. As a report from TheHill.com titled "President Obama starts new year with sweet pitch to his liberal base" makes clear, these were appointments meant to score political points, rather than decisions based on what makes sense for economic growth and job creation.

Given these actions and the President's campaign rhetoric, Mr. Obama seems intent on pushing a populist, liberal, class-warfare, anti-business agenda heading into the November election in the hopes that his liberal base will be energized.

These and other uncertainties and potential cost increases will continue to dampen entrepreneurial and business activity.

Considering this entire scenario, it's very difficult to envision the U.S. economy getting back to real annual GDP growth of better than 4 percent, which is where growth should be during recovery/expansion years. To the contrary, while the economy should continue to expand in 2012 due to those resilient private sector players, real growth promises to continue to be uneven and under-performing. Likewise, employment growth will continue to come up short compared to where it should be at this point in a recovery, with consumer confidence similarly restrained.

One factor that could change the outlook for 2012 is if business owners and investors see a pro-growth political majority emerging as the November elections approach. In that case, given that markets are forward-looking, growth could begin to pick up during 2012.

_______

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.

Courts Delay Costly EPA Rule

noreply@blogger.com (Raymond J. Keating) — Mon, 09 Jan 2012 15:57:00 +0000

The relentless regulatory assault by the Environmental Protection Agency (EPA) on energy producers and consumers - including small businesses - ran into an obstacle in a federal appeals court on December 30.

An EPA rule finalized in July would require power plants in 27 states to slash sulfur dioxide and nitrogen oxide emissions that potentially cross state lines. Scheduled to go into effect on January 1, the U.S. Court of Appeals for the District of Columbia Circuit granted a stay on the rules until legal challenges to the rules are decided.

As The Wall Street Journal reported that "the cross-state rule would have required pollution reductions in 2012. To comply, companies with older coal-fired power plants would have had to run those plants less often or pay for credits to offset the pollution."

In September, the American Coalition for Clean Coal Electricity released a study by National Economic Research Associates focused on the EPA's Cross-State Air Pollution Rule and proposed Maximum Achievable Control Technology, coal combustion residuals, and cooling water intake requirements for power plants. Over the 2012-2020 period, the study estimates a $21 billion per year cost to the power industry, a loss of 183,000 jobs annually, double-digit increases in electricity costs in many regions of the U.S., and a reduction in disposable income of $270 a year for the average American family.

BusinessWeek reported: "More than three dozen lawsuits in the Washington court seek to derail the EPA's Cross-State Air Pollution Rule, which was issued in July and revised in October. The court hasn't scheduled a date for argument, though today's order suggested the judges would hear the case by April. Southern Co., EME Homer City Generation LP, a unit of Edison International, and Energy Future Holdings Corp. units in Texas are among the power companies challenging the rule. The state of Texas, the National Mining Association and the International Brotherhood of Electrical Workers joined in parallel cases, saying the rule puts an undue financial burden on power producers and threatens electricity reliability by forcing companies to shut some older plants."

Also among the arguments challenging the EPA rules is that, under the Clean Air Act, states are empowered to set their own pollution guidelines.

The broad opposition to these rules speaks volumes as to the economic damage that would be done. But the bias of the Obama administration is unmistakable. The costs of regulation are largely ignored, while the potential benefits are grossly overstated. As a result, it's up to the courts or Congress or the people to stop the Obama regulatory onslaught.

_______

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, 06 Jan 2012 15:19:00 +0000

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

"The best way to sum up the latest jobs data is that the employment story is mixed but improving.

"The improvements can be found in a 212,000 increase in private payrolls in December. In addition, the unemployment rate declined for the fourth straight month, moving from 9.1% in August to 8.5% in December. But the big, positive news from a small business perspective is that employment has increased for six straight months, for total gains of 1.4 million, according to the household survey, which better captures start up and small business activity.

"The mixed part of the picture is found when digging a bit further into the data. For example, about a quarter of the decline in the unemployment rate in December was due to a shrinking of the labor force. The labor force has declined for two straight months, and was down in five of the last seven months. That shows continuing discouragement among workers. And it must be kept in mind that the labor force participation rate (64.0% in December) and the employment-population ratio (58.5%) remain at or near lows that were last seen in the period of 1983-84.

"The recent improvements in the jobs picture are most welcome, but the economy desperately needs government to get out of the way so that entrepreneurs and investors in the private sector can be unleashed to drive innovation, growth and jobs. An under-performing U.S. economy for more than four years now is an outrage, and it's due to big government raising costs and creating uncertainty for business and investment."

Venture Capital and Angel Investment in 2012

noreply@blogger.com (Raymond J. Keating) — Thu, 05 Jan 2012 13:45:00 +0000

Among the most formidable challenges for entrepreneurs is gaining access to the capital needed to start up, grow, build, innovate, and create jobs. That's the case in the best of economic times, so it's even more daunting in a bad economy - as we have seen over the past four years or so.

Two critical sources of small business funding are venture capital and angel investment.

Venture capital comes from formal firms or partnerships that raise capital from large institutional investors. Venture capital has become harder to come by in recent years, especially for start ups and very young, small businesses. Venture capital is most likely to be available for established businesses.

Meanwhile, angel investment tends to be more informal compared to venture capital. Angel investors invest their own money in entrepreneurial firms. They can be people that entrepreneurs know, including, for example, local professionals and business associates (such as suppliers, customers, and even employees), or they can be non-affiliated investors, reached through advertising, business brokers/matchmakers, networking, via the Internet, etc. Many angels tend to be entrepreneurs themselves.

So, what's the outlook for venture and angel investment in 2012?

In mid-December, the National Venture Capital Association and Dow Jones VentureSource released the results of a survey of venture capital professionals (VCs) and venture-backed CEOs. In general, the tone of the survey was less than positive, to say the least. Among the key findings were:

• Among VCs, 32 percent expect to see venture capital investment levels rising in 2012, while 36 percent see overall levels decreasing. Meanwhile, 45 percent of CEOs predict increases in 2012, with 25 percent expecting decreases. "Both groups are less bullish than they were in last year's Venture View survey when 58 and 51 percent of CEOs and VCs expected investment increases respectively."

• In 2012, "there will be a seed and early stage funding shortage according to 58 percent of VCs. CEOs anticipate a difficult funding environment as well with 67 percent predicting that raising follow-on money will be equally or more difficult in 2012 than in 2011. Still, 75 percent of the CEOs plan to raise money in the coming year."

• "On the venture capital side, fundraising is expected to continue to be difficult with 73 percent of VCs predicting total commitments to remain the same or decline in 2012."

As for angel investment, the University of New Hampshire's Center for Venture Research offered the following in October 2011 in terms of its most recent assessment of the state of the angel investment market: "The angel investor market in Q1,2 2011 showed signs of stabilization since the 30% market correction in the second half of 2008 and the first half of 2009. Total investments in Q1,2 2011 were $8.9 billion, an increase of 4.7% over Q1,2 2010... A total of 26,300 entrepreneurial ventures received angel funding in Q1,2 2011, a 4.4% increase from Q1,2 2010, and the number of active investors in Q1,2 2011 was 124,900 individuals, virtually unchanged from Q1,2 2010... While the market exhibited a stabilization from Q1,2 2010, when compared to the market correction that occurred in 2008, these data indicate that the angel market appears to have reached its nadir in 2009 and has since demonstrated a slow recovery."

Looking ahead, as reported in the December 15 Wall Street Journal, "Jeffrey Sohl, director of the Center for Venture Research, says he expects start-up investing by angels to remain solid in 2012."

But as noted in a December 29 FoxBusiness report, the issue of uncertainty serves as a restraint: "While angel capital deals continued at a consistent pace this year, there was still hesitation in the marketplace. ‘We are stuck in an environment with volatility,' warned Greg Hext of Chapman, Hext, & Co. in Texas, ‘If the [entrepreneur's] equation has too many unknowns, then we are not comfortable investing.'"

But some key unknowns extend to broader issues beyond the control of entrepreneurs and investors.

Over the past four years, problems of raising costs and creating uncertainty across the economy have been government generated. Both venture capital and angel investment - and therefore, entrepreneurship, economic growth and job creation - would benefit tremendously from a public policy environment that not only removes uncertainties in terms of taxes and regulation, for example, but shifts policymaking in a pro-growth direction of substantive and permanent tax and regulatory relief.

In 2012, we still face questions regarding how capital expenditures will be treated from a tax perspective, and whether or not entrepreneurs, investors and the economy are going to get socked by major tax increases at the end of the year, when elected officials should be working together to implement pro-growth changes on the tax and regulatory fronts that would spur risk taking and economic growth.

_______

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.

Obama's NLRB Recess Appointments "Particularly Egregious"

noreply@blogger.com (Karen Kerrigan) — Thu, 05 Jan 2012 12:17:00 +0000

I am not in the habit of reposting the entire media statements of policiticans, but the following is one that I wholeheartedly agree with regarding President Obama's recess appointments this week. U.S. Senate Republican Leader Mitch McConnell issued the following statement on January 4, regarding the President’s unprecedented recess appointments to the National Labor Relations Board (NLRB):

“Just hours after he circumvented the American people by 'recess' appointing Richard Cordray to the CFPB, the President has upped the ante by making several additional recess appointments, this time to the NLRB. Although all of these appointments potentially raise legal and constitutional questions, the NLRB appointments are particularly egregious. Because the President waited to nominate Sharon Block and Richard Griffin until just two days before the Senate was scheduled to adjourn last month, neither has undergone a single confirmation hearing or a single day of debate by the representatives of the American people. Congress has a constitutional duty to examine presidential nominees, a responsibility that serves as a check on executive power. But what the President did today sets a terrible precedent that could allow any future President to completely cut the Senate out of the confirmation process, appointing his nominees immediately after sending their names up to Congress. This was surely not what the framers had in mind when they required the President to seek the advice and consent of the Senate in making appointments.”

President Obama has definitely upped the ante with the business community through these recess appointments. So, 2012 begins on bad note -- setting the stage for more policy battles, more uncertainty and, unfortunately, more business pessimism.

Karen Kerrigan, President & CEO

Immigrant Entrepreneurs and Venture Capital

noreply@blogger.com (Karen Kerrigan) — Wed, 04 Jan 2012 14:26:00 +0000

A study published by the National Foundation for American Policy (NFAPP) in December 2011 reported on the growing impact immigrant entrepreneurs are having on America’s economy. Nearly 50 percent (24 out of 50) of the top 50 venture-funded companies had a least one immigrant founder.

According to the study: ”Immigrants have started nearly half of America’s 50 top venture-funded companies and are key members of management or product development teams in more than 75 percent of our country’s leading cutting-edge companies.” The most common country of origin for an immigrant founder of a top 50 venture-backed company was India, Other leading countries included: Israel, Canada, Iran and New Zealand.

Karen Kerrigan, President & CEO

AP Reports Shows Real-World Impact of Regulation

noreply@blogger.com (Raymond J. Keating) — Tue, 03 Jan 2012 19:29:00 +0000

The latest escapade on the political Left has been to step up their fictional accounts of regulation, namely, the assertion that more government regulation miraculously comes without costs for businesses, workers, and consumers.

In the midst of this bizarre crusade against economic common sense comes a Decemer 19 report from the Associated Press titled "AP Impact: EPA rule threatens older power plants," written by Dina Cappiello.

No one is about to claim that AP is captured by the conservative movement.

Before getting into the findings, we must first deal with an accusation hurled in the AP report. It is declared: "The survey, based on interviews with 55 power plant operators and on the Environmental Protection Agency's own prediction of power plant retirements, rebuts claims by critics of the regulations and some electric power producers. They have predicted the EPA rules will kill coal as a power source and force blackouts, basing their argument on estimates from energy analysts, congressional offices, government regulators, unions and interest groups. Many of those studies inflate the number of plants retiring by counting those shutting down for reasons other than the two EPA rules."

Hmm. We are not treated to any citations here. Well, all I can say is that most analyses and assessments I've come across made no such grandiose claims as inevitable blackouts and killing "coal as a power source" - at least not in the near term. In the long term, if strict emissions caps or carbon taxes were imposed, the threat to coal as a power source in the U.S. would be quite real.

Having said this, the AP report makes clear that coal is under attack, and a significant share of coal-fired plants are being made non-economic. Indeed, parts of the story are somewhat contradictory, as the writer tries to assert that the EPA rules are not solely shutting down plants, but then reporting that de facto the rules are shutting down plants. One gets the sense that this is a reluctant report from AP, but the findings are unmistakable.

What did the AP report in its key findings? Consider the following directly from the report:

• "More than 32 mostly coal-fired power plants in a dozen states will be forced to shut down and an additional 36 might have to close because of new federal air pollution regulations, according to an Associated Press survey. Together, those plants - some of the oldest and dirtiest in the country - produce enough electricity for more than 22 million households, the AP survey found."

• In areas with these plants: "Tax revenues and jobs will be lost, and investments in new power plants and pollution controls probably will raise electric bills."

• What are the regulations focused on here? "The first rule curbs air pollution in states downwind from dirty power plants. The second, expected to be announced Monday, would set the first standards for mercury and other toxic pollutants from power plant smokestacks. Combined, the rules could do away with more than 8 percent of the coal-fired generation nationwide, the AP found."

• It is also important to note what is not being assessed: "Other rules in the works, dealing with cooling water intakes at power plants and coal ash disposal, could cause the retirement of additional generating plants. Those rules weren't included in the AP survey."

• "In addition to anticipated retirements, about 500 or more units will need to be idled temporarily in the next few years to install pollution controls. Some of those units are at critical junctions on the grid and are essential to restarting the electrical network in case of a blackout, or making sure voltage doesn't drain completely from electrical lines, like a hose that's lost its water pressure."

• "For many plant operators, the new regulations were the final blow. For others, the rules will speed retirements already planned to comply with state laws or to settle earlier enforcement cases with the EPA. In the AP's survey, not a single plant operator said the EPA rules were solely to blame for a closure, although some said it left them with no other choice. ‘The EPA regulation became a game changer and a deal changer for some of these units,' said Ryan Stensland, a spokesman for Alliant Energy, which has three units in Iowa and one in Minnesota that will be retired, and four in Iowa that are at risk of shutting down, depending on how the final rules look. ‘Absent the EPA regulations, I don't think we would be seeing the transition that we are seeing today. It became a situation where EPA broke the back of coal.'"

• "In some places, a job at the power plant is the best thing going. Thirty people work at the Central Electric Power Cooperative plant in Chamois, Mo., where EPA regulations have put the plant in danger of shutting down. Some employees are looking to see if there are other power plants where they could find work."

• "Kentucky Utilities expects its customers to see as much as a 14 percent rate increase to make up for the $800 million it is spending to replace what will be retired, and the $1.1 billion it plans to spend on anti-pollution upgrades. Other power companies have applied to recoup the cost of retrofits or of building new gas-fired power plants. The EPA estimates that industry will spend $11 billion complying with the two rules by 2016. For others, the biggest issue with plant retirements is the loss of property taxes. As plants wind down and close, their assessed value drops, reducing what they pay to local governments."

These are quotes directly from AP's report. No editorializing involved. And the outcomes reported line up exactly with what economics tells us about the impact of regulation, on both an individual and cumulative basis. That is, with regulation comes increased costs that will result in closed businesses, increased costs for businesses, higher prices for consumers, and reduced economic activity that translates into lost tax revenues. Those are the straightforward and very unfortunate realities when government steps in and piles on with regulations.

_______

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.

Dear Santa: An Energy Christmas List

noreply@blogger.com (Raymond J. Keating) — Mon, 02 Jan 2012 17:40:00 +0000

Since we're still in the midst of the 12 days of Christmas, take a look at the following letter that went off to Santa earlier.

Dear Santa,

I trust you had a good year. We're kind of stuck here in the U.S. in a still-under-performing economy. But I'm sure you know that, and hopefully you'll be doling out some coal to wrongheaded politicians and their appointees.

Speaking of coal, though, I'd like to look at the positive side of carbon-based energy for a moment, focusing my Christmas List on seeing if you could work some of your magic to somehow get positive changes through the Senate and Obama White House regarding energy policy.

While your sleigh obviously runs on reindeer power, the rest of us rely on oil, natural gas and coal in a big way to run all aspects of our lives, from our homes to transportation to our businesses and jobs. Unfortunately, too many politicians still think they can wave magic wands, wishing away affordable and efficient carbon-based energy, and replacing it with very costly and still unreliable alternative sources.

For example, the House of Representatives passed a number of bills that would help domestic energy production, which would be good news for consumers, small businesses and our overall economy. Could you get the Senate and President Obama to move on any of the following?

• The Coal Residuals Reuse and Management Act (HR 2273) is a response to costly EPA rules that would limit the safe and beneficial reuse of coal combustion residuals (CCRs) - the byproduct of coal combustion - wipe out jobs, and raise the costs of power production. The bill would accomplish important environmental goals, while not costing jobs and hurting electricity consumers. HR 2273 passed the House 267-144, with 37 Democrats joining 230 Republicans.

• The North American-Made Energy Security Act (HR 1938) requires an expedited decision from the Obama administration on TransCanada's plan to increase the capacity of its Keystone pipeline system to bring more Canadian crude oil to U.S. refineries along the Gulf of Mexico. The pipeline would expand U.S. access to reliable, affordable energy. The measure passed the House 279-147, with 47 Democrats joining 232 Republicans in support.

• By eliminating permitting and bureaucratic delays, the Jobs and Energy Permitting Act of 2011 (HR 2021) would expand energy production opportunities off the coast of Alaska. Again, this would be good news for domestic energy production. HR 2021 passed the House 253-166, with 23 Democrats joining 230 Republicans voting in favor.

• The Putting the Gulf of Mexico Back to Work Act (HR 1229) would require the Secretary of the Interior to decide whether to issue an offshore drilling permit within 30 days after receiving an application for the permit, while also allowing this period to be extended for up to 30 days if the Secretary provided written notice of the delay to the applicant. This would limit bureaucratic delays, and allow U.S. offshore energy production to advance forward. The measure passed 263-163, with 235 Republicans and 28 Democrats voting "yes."

• The Restarting American Offshore Leasing Now Act (HR 1230) would expand domestic energy production by requiring the Department of the Interior to auction offshore oil and gas leases in the Central and Western Gulf of Mexico, and an area off the coast of Virginia. This passed 266-149, with 33 Democrats and 233 Republicans voting in favor.

• Finally, the Energy Tax Prevention Act of 2011 (HR 910) is a very important measure. As explained on the gop.gov site, it "would prohibit the Environmental Protection Agency (EPA) from regulating greenhouse gases (GHG) to address climate change under the Clean Air Act. More specifically, the bill would prohibit the EPA from regulating: water vapor; carbon dioxide; methane; nitrous oxide; sulfur hexafluoride; hydrofluorocarbons; perfluorocarbons; and any other substance subject to regulation, action or consideration under the Clean Air Act to address climate change. The bill would also repeal a number of EPA rules and actions, including the mandatory reporting of greenhouse gases." EPA greenhouse gas regulations pose serious threats to U.S. businesses and our nation's competitiveness. The bill passed the House 255-172, with 236 Republicans and 19 Democrats in support.

Making these measures into law would provide a big boost to U.S. consumers and businesses by eliminating uncertainties, reducing costs, and providing significant opportunities.

By the way, there's been a great deal of bad information circulated by extreme environmentalists, and now the EPA, about hydraulic fracturing. The U.S. has a fantastic opportunity to safely access vast domestic oil and natural gas resources through the use of fracking. But state and local officials must not be misled, and the EPA must not become overly intrusive, if the U.S. is going to boost domestic production, and provide a commensurate boost to jobs and the economy.

Hey, I'm realistic though, and realize this all probably lies beyond even your abilities. But I had to give it a shot. If it's not doable, I sure could use an iPad and new winter coat.

Take care, and give my best to Mrs. Claus, the elves and Rudolph. By the way, what's the source of power for that red nose? Careful that the EPA doesn't investigate.

Sincerely,

Ray Keating*

(*A long time member of your "Nice" list.)

_______

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.

Top Policy Developments for Small Business in 2011

noreply@blogger.com (Karen Kerrigan) — Thu, 29 Dec 2011 21:22:00 +0000

The past year was a rollercoaster ride when it came to the economy and government policies. While entrepreneurs can claim some policy victories in 2011, Washington came up woefully short on the types of policies needed to boost business confidence and strong economic growth. Unfortunately, it looks like similar conditions will prevail in 2012.

Here are the policy developments -- the good, the bad, the ugly and the unfinished -- that in big ways and small will continue to impact business conditions and confidence in 2012. SBE Council's "Top Policy Highlights and Lowlights for Small Business in 2011" include:

Burdensome 1099 Reporting Requirement in ObamaCare Repealed. One of the many misguided provisions included within the "Patient Protection and Affordable Care Act" was a mandate requiring small business owners to file a 1099-MISC to the Internal Revenue Service (IRS) for all payments made to vendors totaling $600 or more in a tax year. This also meant that they would have to collect W-9 information from every vendor they purchase more than $600 worth of goods or services from each year. This unreasonable reporting mandate would have vastly increased costs and the paperwork burden on small business owners. On April 14, President Obama signed H.R. 4, the "Small Business Paperwork Elimination Act," which repealed the 1099 mandate.

3% Withholding Tax Mandate Repealed. Since its inclusion as a "pay for" in the "Tax Increase Prevention and Reconciliation Act of 2005," SBE Council and other business groups warned about the costly and unintended consequences of the 3% withholding mandate on government contractors. Set to kick in January 1, 2013, SBE Council argued that new government and private sector costs associated with the mandate would far exceed anticipated revenue gains. Small firms would become less able to compete for government contracts due to new cash flow constraints and costs spawned by the mandate, and taxpayer costs would also increase. Repeal legislation (H.R. 674) passed the House and Senate unanimously, and the President signed the bill into law on November 21.

U.S. Supreme Court to Consider Constitutionality of Individual Mandate in ObamaCare. On November 14, the U.S. Supreme Court granted certiorari to hear arguments regarding the constitutionality of several aspects of the "Patient Protection and Affordable Care Act" (PPACA). America's largest bloc of small business owners - the 14.5 million self-employed - has an immense stake in the outcome of the Court's decision regarding the constitutionality of the individual mandate in PPACA. The mandate requires that individuals purchase a government-approved health insurance plan, or pay a tax if they refuse to buy coverage or cannot afford it. The court will hear five hours of arguments on several partitions: whether Congress exceeded its authority under Article I of the Constitution in passing the individual mandate; whether the suits challenging the new law should be barred by the Anti-Injunction Act; whether the individual mandate can be severed from the rest of the law; and the federalism issue as it pertains to Medicaid expansion in PPACA. Already, the number of self-employed Americans is dramatically decreasing due to policy uncertainties on tax, health care and other issues, as well as a general lack of confidence in the future of the U.S. economy. SBE Council agrees that individuals should not be forced by the federal government to buy a product or service. Oral arguments are expected to begin this March.

Small Business Health Care Tax Credit is a Flop. ObamaCare supporters touted the inclusion of the small business health care tax credit in PPACA as an argument for advancing the legislation. They continued to hype the tax credit well after passage even though SBE Council communicated it would not work. The tax credit is not robust enough, is too restrictive in its eligibility criteria, and it is temporary. It has little practical utility for most small businesses, and this was confirmed by the June 2011 results of an "Economy and Entrepreneurs Outlook Survey" released by SBE Council. Overall, only 7 percent of small businesses said they used the new small business health care tax credit. A November 15 House Ways and Means hearing uncovered similar findings. A U.S. Treasury Department Inspector General report found that of mid-October 2011, only 309,000 small business taxpayers had claimed the credit. The IRS had earlier communicated that 4.4 million taxpayers would be eligible. The good news is that the total payout for the credit was $416 million, while the CBO estimated that $2 billion would be paid out in 2010 alone - so PPACA is under budget! The bad news is that many small business owners have no effective tool to help them deal with ever-increasing health coverage costs, and many owners and their employees remain uninsured due to the high costs of insurance. With the passage of PPACA nothing much has changed for small business, except for higher costs and more uncertainty, which means "affordable health coverage" and ObamaCare is set to be a major campaign issue in 2012.

States Cut Taxes More than They Increased Them. According to the National Council of State Legislatures (NCSL), for the first time in ten years states experienced a net state tax reduction. While the NCSL reports that we should not draw "hasty conclusions" from this data being the aggregate cut came from a handful of larger states cutting and raising taxes, SBE Council believes the overall trend is generally a good one. Most state officials have come to understand that a low tax environment is critical to attracting businesses and investment, which is a great trend for entrepreneurs.

Tax Uncertainty Embedded for 2012. Small business owners and entrepreneurs hoping for clarity on federal taxes in 2012 will be disappointed. The year ended with a minor skirmish over extending the payroll tax holiday and unemployment benefits for two months. Businesses preferred some certainty with a one-year extension of the payroll tax cut. But now Congress will be back fighting over how to pay for (read: proposed tax increases on small business owners and investors) a full-year extension as soon as they return in January. Moreover, Congress left town without extending the R&D tax credit, the AMT patch, the state and local sales tax deduction and a host of other provisions expiring on December 31, 2011. Meanwhile, Section 179 expensing drops to $125,000 from $500,000 in 2012, and falls to $25,000 in 2013. Adding more uncertainty in the mix is the December 31, 2012 expiration of lower individual tax rates, capital gains and dividend taxes and the whole host of tax cuts and credits that were included in the 2001,2003 and 2006 tax cut packages. Looks like 2012 will be a rewrite of 2011 - that is, along with the weak economy, tax policy uncertainties will continue to drag small business confidence down.

Access to Capital Bills Reforming Outdated SEC Rules Sweep Through the U.S. House. Access to capital remains a key challenge for entrepreneurs. Costly regulations from Dodd-Frank and economic uncertainty are making it increasingly difficult to secure capital or raise funds to support business growth and investment. By a vote of 407-17 on November 3, legislation passed the House (H.R. 2930, the "Entrepreneurs Access to Capital Act") that would modernize outdated Securities and Exchange Commission (SEC) rules to allow for crowd fund investing. President Obama supported the legislation. This approach is being used with great success in other parts of the world, and the gift-based platforms in the U.S. (Kick Starter, Kiva and many other sites) prove their workability. Crowdfund investing would provide entrepreneurs access to sources of capital they currently cannot tap into without triggering complex SEC rules. The U.S. Senate is considering two bills (S.1791 and S. 1970), but with distinct approaches to allow for crowdfund investing. The former is more workable than the latter. Also on November 3, H.R. 2940, the "Access to Capital for Job Creators Act" passed by a vote of 263-112, which would also widen the universe of potential investors for small businesses allowed under the Securities Act of 1933 without subjecting these businesses to the onerous costs of registration with the SEC. This bill has been introduced in the Senate (S.1831). Strong bipartisan support for these bills in 2011 sets the stage for action in 2012.

New Trade Agreements Penned with Panama, Columbia and South Korea. Small and mid-size U.S. businesses overwhelmingly dominate the trade landscape, but the U.S. has dramatically slowed its work in cutting new trade agreements. Our major international competitors have outpaced the U.S. with regard to signing new trade accords, putting U.S. businesses at a competitive disadvantage across the globe. On October 21, President Obama finally signed trade agreements with Panama, Columbia and South Korea, which have been in the works for many years. The accords will eliminate tariffs on most U.S. exports to these countries and open service markets to American businesses. It is expected that U.S. exports will increase by $11 billion as a result of the South Korea pact alone. These agreements also include strong IP protections for American businesses. Increasingly, U.S. entrepreneurs are looking overseas for growth opportunities. A survey released by the Financial Services Forum and SBE Council in November 2011 found that 21 percent of small businesses will pursue overseas expansion as part of their growth strategy for the next five years. The signing of these three trade accords should fuel momentum for finalizing other important agreements that will open new markets for U.S. good and services, benefitting small businesses and their workers alike.

America Invents Act Signed into Law: Long Overdue Patent Reform Helps U.S. Entrepreneurs. President Obama signed the Leahy-Smith "America Invents Act" (H.R. 1249) into law on September 16. This important legislation updates the U.S. patent system, bringing certainty, simplicity and savings to U.S. entrepreneurs. Strong IP protection is critical for small business looking to effectively expand and attract investment. The new law effectively enables such protection by modernizing key aspects of the patent process, aligning the U.S. system to the rest of the world. The first-inventor-to-file approach will reduce legal costs and improve transparency. The fast-track examination cuts costs in half for small businesses, and other fee reductions are available for qualifying small firms. Implementation of the law's provisions will bring the U.S. patent system into the 21st century, help spur American innovation and improve U.S. competitiveness. As a side note, the U.S. Patent and Trademark Office awarded patent number 8 million to a California-based small business on September 8. Second Sight Medical Products, a firm with 85 employees, received the patent for a "visual prosthesis apparatus."

The Debt Ceiling and Failure of the "Super Committee." For the first time in history, Congress tied conditions for allowing an increase in the debt ceiling. SBE Council agreed that it was a good thing to tie spending reductions to a rise in the debt ceiling, and Congress assigned a "super committee" to address the challenge. But the committee could not reach an agreement, which means automatic spending cuts will occur with the 2013 budget. Small business owners have a major stake in getting the nation's fiscal mess in order. The future of entrepreneurship, robust economic growth, tax rates and access to affordable capital all rest on getting spending and debt under control. Out-of-control spending will continue to consume more and more private sector resources suffocating growth, pushing capital abroad and killing U.S. competitiveness. According to the Financial Services Forum and SBE Council survey noted above, small business owners said the number one thing Washington could do to help the economy was to develop a credible plan to get the nation's fiscal situation under control. The failure of the super committee, the lack of leadership from the White House in supporting even certain elements of the Bowles-Simpson plan, and the fact that the Senate has not passed a budget in over 900 days will continue to drive uncertainty casting a long shadow over the economy. Such conditions will continue to hurt small business in 2012 and in the mid-term.

Decision Time for President Obama on Keystone XL. The rise in fuel prices has had a significant impact on small businesses. In a June 2011 "Entrepreneurs and Economy Survey" released by SBE Council 74 percent of small business owners reported that higher prices were having an impact on their firms -- 41 percent raised their prices because of high prices, 26 percent had to cut employees or their hours worked, and 47 percent said higher prices were affecting their plans to hire. A staggering 38 percent of small business owners said if gas prices remain high or increase further their business will not survive. Fuel prices are on the rise again, and with instability mounting in the Mideast along with Iran threatening to close off the Strait of Hormuz, the U.S. needs to get serious about domestic production. The payroll tax extension bill agreed to by Congress includes a provision allowing the Keystone XL project to move forward (except in Nebraska) unless the president determines within 60 days of enactment that the project is not in the national interest. Even without threatening rhetoric from Iran - or if fuel prices were lower - this project should have been approved. More than three years worth of risk assessment has already been conducted, and numerous government agencies have affirmed that the pipeline poses no significant environmental risk. The $13 billion project would create more than 13,000 construction jobs, 7,000 manufacturing jobs, and more importantly a stable and secure supply of oil for the U.S. That means more affordable energy for small businesses.

What happened to Broadband for Everyone? Unfortunately, many small business owners and individuals are still without broadband access. That means their economic opportunities are limited. The Federal Communications Commission (FCC) issued a National Broadband Plan in March of 2010, and as recently as April 2011 said that increasing broadband deployment "is one of the great infrastructure challenges of our time." Unfortunately, the federal government and FCC continue to stymie private sector initiatives that would accelerate broadband deployment and keep investment flowing into wireless technologies. For one, the FCC's unprecedented bias and backward view of competition in reviewing the AT&T/T-Mobile merger (and the DoJ's decision to sue to stop the deal) killed an important development that would have brought high speed wireless access to many areas of the country. Despite overwhelming support from unions, entrepreneurs, politicians from all levels of government and the technology sector, the FCC listened to hard leftists, proving it does not grasp how markets and business work. On September 23, the FCC also moved forward with "net neutrality" regulations, even though it lacks the authority to regulate broadband markets. This regulatory overreach and the uncertainty that comes with it serve as real disincentives for investing in broadband innovations and service. That is bad news for small businesses that have benefited so much from the expansion of and innovations in broadband networks as consumers, content providers and telecommunications players.

Karen Kerrigan, President & CEO