The American entrepreneur led by the small business sector is capable of driving the most powerful economy in the world but when it is handcuffed at every turn by a dysfunctional government that is more interested in one-upmanship than providing a clear leadership vision, the ability to grow the economy is limited.
Our leaders time and again prove that they have very little understanding of how our economy really works and what policies hurt or help our economy. This lack of knowledge certainly does not stop them from passing legislation that invariably makes things worse.
Let me lay out some basic principles that our leaders should follow:
●Governments should refrain from trying to pick winners and losers in our economic system. Invariably, they pick last year’s winners which may be next year’s losers. Even the playing field and let the entrepreneurs and innovators create the economic successes and suffer the economic losses if they fail.
●Allow businesses to do long term strategic planning to grow their businesses. The constant tinkering with the tax code causes havoc with our planning. The current approach of putting in provisions for one year at a time makes it impossible to make smart planned investments. The examples are numerous from the direct expensing provisions to bonus depreciation rules to R&D credits to jobs credits that change year to year. The latest battle over a two-month extension of a payroll tax deduction may have taken this absurdity to a new level.
●Some incentives do work. I would classify the Section 179 direct expensing provisions as one of them. Allowing a company the option of deducting the full purchase price of machinery and equipment in the year of purchase rather than depreciating it over a number of years helps the small business match its expenditure of cash with its tax deductions. From the government’s standpoint, it is only a timing difference on the ultimate deduction. From the small business’s standpoint, it can be a significant help in managing cash flow when access to capital and financing are under pressure.
●Jobs credits — especially targeted jobs credits — seldom work. Businesses generally do not make hiring decisions based on jobs credits. Often, under the way they are structured, the companies that are really growing the economy do not qualify for the credits because they are hiring the best available people for their jobs. So the credits go to other companies that are replacing workers lost to the fast-growing companies.
●In some cases, you have situations like the R&D credits in which Congress has had a constant on again off again availability of the credit. Research projects often take years of planning. To think that Congress can incentivize immediate responses period to period is ridiculous. We also have a situation in which Congress provides the credit and the IRS does everything within its power to limit and disallow the use of these credits.
●In general, our tax code needs to go back to basics. We need lower competitive taxes to compete in a global economy. We need fewer special deductions and credits which should broaden that tax base and we need a consistent tax code that encourages capital investment and allows for long term economic growth.
●The regulatory environment is strangling the growth of business enterprises. Applying some semblance of common sense is drastically needed by our regulators. We cannot and should not attempt to regulate every aspect of our society. We need flexibility, fairness and cost benefit analysis factored into our regulatory regime which is almost non-existent today.
●The budget deficit does matter. As a country we are spending way beyond our means and there appears no political will to address the spending issues.
Finally, and perhaps most importantly, we need leaders who have a clear vision and who are willing to make the hard decisions that need to be made to put our country back on the right track.
As I view the political horizon, I unfortunately do not see this type of leadership.
Grafton H. “Cap” Willey IV is managing director of the Providence, R.I. office of CBIZ Tofias, one of the largest CPA firms in New England.