Years ago, when we were buying land, income properties and businesses, our decision to buy would be based on a series of known factors. In the case of raw land, we would add the cost of the land, permits, improvements and costs of sales and then subtract the total of those expenses from the total market price of the smaller parcels we would sell from the larger one, in order to determine our profit. This is somewhat over simplified, but we’re sure you get the picture.
The profit was intended to be high so as to offset the risk of the project and the risks were usually considerable. The uncertainties of the permit process and changes in costs of materials and construction and fluctuations in the market, which cannot be known with any degree of certainty, in addition to the contingencies of time and the cost of money, can rapidly erode profits. In many cases we would end up as an un-paid employee of the institution lending the money for the project, when profits were either nil or negative because of the uncertainties.
The same is true for income properties where changes in the market can affect the vacancy rate of the tenants, along with the up and down costs of money, maintenance and taxes. All of these uncertainties can have a deleterious effect on return on investment, thus profits.
In the capitalistic system profits are commensurate with risks. If the risks are high, the profits are purposely designed to be high to offset those risks. Where the uncertainties and contingencies are high, the risk is correspondingly high. This is true in almost any form of business or investment, unless you are a national sports figure or a politician.
Here is an example of what happens in a business with uncertainties, regulation and taxes. We met a log truck driver, turned business man, during the closing of a real estate transaction. He was the son of the seller and happened to be in the room when the seller was signing the closing papers. He started in by telling us he was once a log truck driver. Thinking that he could do better as the owner of the log trucks where he hired the drivers, he went into hock up to his eyebrows to buy seven log trucks and then hired seven drivers. His business contracted out to log cutters to haul the logs they were cutting, to the mill. After a while, he was working 12 hours a day, seven days a week, filling out forms for local, state and the federal government, paying taxes, paying wages, paying interest payments on loans he took out to buy the log trucks, hiring and firing drivers, negotiating contracts with log cutters and other duties that come with owning a business. After a year he determined that he was making less money than his log truck drivers and working longer hours. He longed to be a log truck driver again. But alas he was stuck making payments on his loans and honoring contracts he entered into to haul logs.
Now it is quite possible that he was a lousy business man, or that he couldn’t negotiate enough contracts to keep the log trucks running all the time. Or maybe the market for logs went down because of a decrease in the housing market. We’ll never know for sure. But running a business is risky at best and beset with many uncertainties that directly affect the bottom line and thus the profits of the business owner.
Today, in the Obama world, uncertainties and contingencies increase almost by the day. New regulations coming out of Obama care, increasing taxes, increasing regulation and rapidly increasing uncertainties, work against the business owner from making any profit at all. Under these circumstances why would anyone in their right mind, start a business in America today? America has become business unfriendly.
But if Americans don’t start businesses, or continue and expand in the business they are now operating, who will hire the employees to make a product or offer a service to bring us out of the current recession? Small businesses represent 60% to 70% of the American employee base.
If Obama and company allow the Bush tax cuts to expire on January 1, 2011, (and they will) the effect on businesses and consumers nationwide could be devastating while we are in a recession. Everyone will be affected and everyone will pay more, whether it is in the form of direct taxes, or in the form of increased costs for everything we buy.
With the IRS adding volumes of new forms to administer Obama care, costs for accounting and legal services for individuals and businesses will skyrocket. If the IRS determines that the health care plan being offered by a business does not meet the standards set for Obama care, the business will be penalized with fines and penalties. The business will pass these added costs to the product or service they provide. Those who are not fined or penalized will have a competitive advantage.
The cost for the IRS to administer Obama care will require billions of our tax dollars for a massive increase in IRS employment. Compliance with the new tax laws will drop like a rock. Mistakes will be made by individuals and businesses and mistakes will be made by the IRS. In the end, there will be many hapless victims stuck in an unforgiving IRS nightmare, everything will cost more and taxes will increase across the board. It is a given. When taxes increase, production, job creation and consumer spending decrease.
On top of this recipe for national economic suicide, Obama and the Democrat congress are determined to shove bank and wall street regulations, (already passed with the help of a few turncoat Republicans) cap and trade legislation and amnesty for illegal aliens down our collective throats, in spite of overwhelming opposition from the American people. What will be the effect of all this nonsense? Greater uncertainty in the market place and an environment in which entrepreneurs will be very reluctant to start a new business, or hire any new employees in an existing business. Government employment will increase dramatically and private-sector job creation will plummet. A second recession is all but assured.
So again we ask, why would anyone start a business in America today? Hang onto your hats folks, because we are headed for a very bumpy ride, unless we can stop Obama and his minions before it is too late. Out-of-business signs will pop up all over America.
© Copyright July 18, 2010 – All Rights Reserved
~ The Author ~
Ron Ewart is the President of The National Association of Rural Landowners and nationally recognized author on freedom and property rights issues. Ron may reached for comment via email at firstname.lastname@example.org.