Four Years Later, What Is Holding Us Back?

Where are we headed?

I started this blog in September 2009 and back then the economy was on everyone’s mind and still is today.     In September 2009 we were about 1 year removed from the financial crisis and had recovered significantly in the stock market from the lows on the DOW of about 6,600 to about 9,600.  As I begin year 4 of this blog, I want to briefly reflect on how things are going now compared to 2009 and offer two reasons we are still stuck going nowhere.

We were in fragile times back in September 2009 and the stock markets were skittish worrying about the next big event to happen.  Since 2009, we have muddled through and have made strides in stabilizing the economy but have not made strides in turning the economic engine back on.  The recovery has been anemic considering how hard and fast we fell.  The typical post-recession “snap back” we were expecting has not come and there are two factors I believe that have contributed to this. 

They are:

1)  This recession was not a normal one but one involving the banking sector. 

We were close to having a collapse of our banking system.  How close?  I can’t say and probably no one really can for certain but that is not important.   The banking system was as close as it has ever been to collapse since 1929.  When the credit markets seized up; individuals, businesses and governments worldwide had to reduce their massive debt loads.  This is still going on today.  National governments in Europe are continuing to deal with it now and state, county and local governments in the US have been dealing with it and some are still dealing with it.  Foreclosures are still an issue in many areas but it appears we may be finally getting close to seeing an uptick in real estate values that will become a long term trend.  Fairly new existing homes selling at significantly less than replacement cost can’t continue forever.

2)  Stifling government regulation is choking business expansion.

The EPA, the Department of Labor, The Dodd-Frank Banking regulation and the Affordable Care Act (Obama care) have all contributed to putting the brakes on expansion.  One thing that could be a stimulus without affecting tax rates, printing money, going further into debt and risking inflation is cutting back on regulations that do nothing but make busy work for business owners and achieve no results.  This knee jerk reaction of the government to fix things has done little to help.  What the government can do is get out of the way.  I am not saying all regulation is bad by any means but laws that are written that have over 2000 pages in them are ridiculous.  The Sarbanes-Oxley act that was passed in 2002 in reaction to the Enron and WorldCom accounting scandals was considered bad law and ineffective.  10 years later it has had mixed reviews.  That bill was 66 pages long.  The Dodd-Frank bill is 2,319 pages long!  That is staggering to think about.  It is over 200 pages longer than the Affordable Care Act (Obama care).  We need to enforce laws that we have before writing more.  If you want to read about what the National Federation of Independent Business (NFIB) thinks about regulatory conditions click here to read more.

Have a great week guiding your business to recovery.

What are YOU doing this Holiday season?

Finding a winner

This week I will postpone our update on the healthcare reform to kickoff the holiday season.  Last December I focused on the Holiday season and it was well received by readers of my blog.  I will do the same this year.  I will try to fit in the health care update later in December.

Last Thanksgiving in My post “Over the river and through the woods…” I gave a list of things I thought most Americans would be doing for that Holiday.  Read that post by clicking here. 

This year my list will be a humorous musing about the Christmas Holiday season.

According to my unscientific research, during December:

11% of Americans will vow to do their shopping earlier

25% of Americans will injure themselves or damage their property rigging up the lights in icy, wind-blown conditions

32% of those injured rigging up the lights will vow to do their outdoor decorations earlier

44% of Americans will receive a gift they don’t want or need and 22% will re-gift the item

53% of Americans will eat too much and vow to stop overeating during the holidays

67% of Americans will shop on-line for at least one gift

73% of American men wrap gifts that look like a third grader wearing mittens did the wrapping

80% of Dentists (4 out of 5) recommend Trident to their patients that chew gum

83% of Americans chew gum

96% of people deny “re-gifting”

100% of this is list is nonsense

Have a great week and a wonderful start to the Holiday season. Be careful with those outdoor decorations!

Health Care Reform – a closer look at tax credits for small business

Despite the controversy surrounding the passage of the new Health Care Reform Legislation, it is now the law of the land. There is a provision for a Small Business Health Care Tax Credit which is available to small businesses that provide health insurance to their employees. It is in effect for 2010 tax returns. To keep things as simple as possible, I will include an IRS example (from Question #5 of the Q & A provided) of how this will work below.

The facts: (rules effective for years 2010-2013)

• 9 full time equivalent employees (FTE’s) in a for profit company
• Average wage per employee is less than $25,000
• Employer paid premiums = $72,000 (an 80%-20% split is assumed with no Sec 125 deduction)
• 35% = maximum amount of employer expenses that count towards the credit
• Calculation of credit: (35% X $72,000) = $25,200

That may sound like a good deal but to qualify for the credit there are some strings attached:

1. The credit is phased out as total employees exceed 10 and is not available for firms with 25 or more employees.

2. In addition, if average wages per employee exceed $25,000 a phase out begins and if average employee wages are greater than $50,000 the company is not eligible.

3. The phase out for employee total and average wages work together so a company with 12 employees and average wages of $30,000 would have a reduced credit as calculated below:

Phase out range for employee total is between 10 and 25 employees (range = 15) and the company is over by 2 employees. Calculation is 2/15 X $25,200 = $3,360 reduction for employee total > 10

Phase out range for average wage is between $25,000 and $50,000 (range = 25,000) and the average wage is $30,000 – greater by $5,000. Calculation is 5,000/25,000 X $25,200 = $3,150

Recap:
• Total maximum original credit    25,200
• Reduction for 12 employees          (3,360)
• Reduction for average wages         (3,150)

• Allowable credit                                  18,690

Another problem:

Section 125 cafeteria plans count against the employer portion of the expenses paid. I assume Congress did not want to allow a “double dip” benefit of the reduction for the Section 125 cafeteria plan AND allowing that as part of the qualifying employer expenses.

The biggest problem with qualifying for the credit is:

 An employer must pay at least 50% of the medical premiums – which sounds reasonable.   However, the portion that the employee deducts using a Section 125 cafeteria plan counts against the employer’s portion of medical premiums paid.  This means if a company has a Section 125 cafeteria plan for the employee portion of  medical premiums this will greatly reduce the ability for firms to take advantage of the credit due to the “50% employer paid rule”.

Suppose an employer pays 74.5% of the premium and the employees pay 25.5% of the premium the employer will not qualify for the tax credit – if the 25.5% employee portion is deducted using a “premium only” Section 125 cafeteria plan. The company will not qualify because they do not meet the 50% employer paid rule.

See below for a numerical example that may better illustrate the problem:

• Employee pays                                25.5%
• Cafeteria plan deduction             25.5%
• Total                                                     51.0% – Employer pays only 49% and is NOT eligible for credit

In summary, it will be very difficult for many firms, especially ones that are already taking advantage of cafeteria plans, to take advantage of this new tax credit. Perhaps, based on the massive deficit we are operating under that is a good thing. We do not need to add to national our debt.

To read more about this I have included several useful links to the IRS web site below.

Click below to read an IRS news release on the tax credit:
http://www.irs.gov/newsroom/article/0,,id=220848,00.html?portlet=7

Click below for a 22 point Q & A on the tax credit:
http://www.irs.gov/newsroom/article/0,,id=220839,00.html

Click below for a simple way (according to the IRS) to determine if your firm qualifies for the credit:
http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf

Health Care Reform Poll – Vote Here.

Click below to see the Lawsuit filed:

States AG lawsuit against healthcare bill

The House of Representatives voted, now it’s your turn.