Small Business Tax Relief

The two or three people out there that read this blog probably already know this but just in case you're someone that randomly stumbled across this insightful blog, let me tell you one thing about myself: I, along with one other person, own a small business (we fix broken iPhones). This was our first full year as a business and by my own standards, I think we did alright.

We did about $120K in sales and walked away with a profit of about $40K. Now that's not going to make us rich (remember, we have to divide that profit by 2), but I feel that that's a pretty good start for a first year business. On top of that, we run our business really lean so, of that $40K in profits, the business has about $20K in cash in the bank.

I don't give you these numbers to brag but rather to illustrate a very, very important point: While we have been successful so far, we are far from rich business owners. Yet I spoke with our accountant yesterday and discovered that we are going to owe about $15K in taxes to the federal government (social security, medicare, and income tax). In other words, we owe over a third of all our profits to the federal government.

Now that might not be a big deal if we made 1/2 a million dollars in profits, but given our actual profits, that puts us in a serious cash flow problem. Why? Because we are in the process of trying to start up a retail space. That means we need to buy a significant amount of inventory and we would like to hire a few employees. By reducing our current cash on hand from $20K to $5K, the federal government is severely hampering our ability to grow as a company.

If President Obama and the Democrats are serious about helping today's economy to recover and regrow, they really need to make sure that small businesses like mine - new, small, growing, and limited on resources - have an easier time succeeding.

My solution? (Because I hate it when people just point out problems without offering some sort of solution.) I think new businesses should be excluded from the full 15% payroll tax. One option might be something like this: 0% the first year, 5% the second year, 10% the third year, and the full 15% after that. This would give startup businesses the chance to really grow at a time when cash flow is absolutely critical.

So, if in 3 months we don't have 5 or 6 part-time employees working for us, you can blame the federal government for limiting our growth.

Why I Was Wrong

Last week I read of President Obama's plan to add a 15% tax to very large banks (those with over $50 billion in assets). Being a capitalist to my core, I assumed this was a bad idea. "The banks will just pass that on to their customers," was my thought.

I believe I was wrong.

I have to give thanks here to a friend of mine that discussed the issue with me. The conversation went something like this:

Me: Can you believe this tax? The banks are just going to pass that extra 15% on to their customers.

Friend: Actually, that's not true.

Me: What? I thought you studied economics? You should know better.

Friend: If the tax is assessed across all bank, you may be right. However, in this case, the tax is only being levied on banks over $50 billion in assets. That means those banks can't just pass on the tax or they give a competitive advantage to smaller banks.

Me: I see.

That's roughly how the conversation went and in the end, I have to say that my opinion was changed and I am now in full favor of this tax for a few reasons:

1. This whole thing about banks being too big to fail really makes me mad. Unfortunately, the way the system works today, it's a reality. We can't let an institution that holds a trillion dollars or more of US assets just go belly up. It would be devastating.
2. If we can agree on item 1) then the only solution is to make sure that banks don't get too big to fail. Yes, I realize this is a bit antithetical to capitalistic beliefs that I hold, but the fact is that banks are different from most other economic entities. They are a center point of the US (and the world) economy. By guaranteeing them the government will bail them out if they screw up, they lose the incentive to be cautious. This is a very, very bad situation as the past 18 months has shown us.
3. There are three basic options to limit the size of banks: Tons of government regulation that will be confusing, expensive, and ineffective; have the government force a break up if they get too big; or a tax policy that either discourages enormous banks from forming or provides a competitive advantage to their smaller competitors.

I don't think government regulation is generally effective (people are very smart about finding the loopholes) and I'm very opposed to the government breaking up just about any business. So that leaves the tax code as the only real option (as far as I'm concerned).

By levying this 15% tax on big banks, their growth will slow because they can't pass that cost on to consumers. If they try, it will drive people to smaller banks. Likewise, it will discourage mergers between mid-size banks because, if they go over the $50 billion threshold, they will be put at a disadvantage.

In short, I'm going to have to support this idea even if I don't support Obama's populist rhetoric to try to get it passed.

Bad Coffee Mug Design

I'm taking a break from political discussion to comment on coffee mug designs. After all, this blog is called THINK pickle so let's think about this for a second...

I'm having a cup of coffee in my favorite coffee shop and I just discovered something. The design of their coffee mugs is backwards. The mug has a small diameter on the bottom and a large diameter on the top. While aesthetically pleasing to gaze upon, it is horrible inefficient at doing one of it's two major tasks at hand.

The task in question is keeping my coffee warm. A well known fact amongst even high school physics students is that a larger surface area to volume ratio means more rapid cooling. By having the larger diameter at the top of the cup, we have created that larger surface area to volume ratio. This means my coffee, which, like my women, I enjoy hot, is cooling too fast.

There's also a secondary problem with this design and it relates to the second function of a coffee mug: To contain the beverage. As anyone that has tried to take a sharp corner in an SUV at a high speed knows, things with a high center of gravity tend to tip over. By having a higher diameter at the top, my coffee mug contains the bulk of it's volume, and hence, its center of gravity, up higher. This means my coffee mug is more likely to tip over. Not good for a hot cup of coffee (or in this case, a rapidly cooling cup of coffee).

In conclusion, while the "small on the bottom, big on the top" design may serve busty Hollywood actresses well, it has no business being the design of a coffee mug.