No politics. That’s the promise I made for this blog. But, this is civics. And, it extends to a tremendous lesson for entrepreneurs. Nevertheless, I will work hard to keep my politics out of this discussion.
(I am MORE than willing to engage in a discussion off line- in person, over the phone, or via eMail, if you like.)
Our (US) federal elected officials finally agreed to a means to extend our debt ceiling. Of course, they are the same folks who spent all the money, but that’s not the discussion issue. What was the cost to us? Probably our AAA credit rating. And, the ability to spend money to fix our country’s infrastructure.
We have special taxes on fuel and airfares to build and maintain our transportation infrastructure. That’s about $ 30 to 40 billion in gas taxes and at least $ 10 billion for aviation. Unfortunately, it’s going to take thrice that amount to rebuild our highways and bridges over 5 years- maybe only twice that annualized amount, should we are able to extend the time frame over 10 years. But, it’s not likely we can wait that long, due to the deteriorated nature of our bridges and highways. Those numbers also only address the federal needs, not the state or local ones.
It also looks that we are not only going to shortchange this critical level of spending, but the same people who brought us ‘high drama’ for the past 60 days have every intention to make all the gas taxes expire in early 2012, when they are due for renewal or rate increases.
Moreover, now that we have cut expenditures as part of the deal to extend the debt ceiling, that means less funds will be transferred to the states and localities. Who are already desperately short of cash. Cities are filing bankruptcy- primarily over unfunded pensions. Another way our governments have been “adjusting” expenses over the years.
The Commonwealth of Virginia, where I reside, claims it has a balanced budget. (Just like last year- when the $ 400 million of federal stimulus funds to increase employment was used instead to balance the budget (leaving a $ 200 million “surplus”). That is another reason why the stimulus never stimulated the economy.) How did they balance the budget this year? By NOT paying $ 600 million in required funding for state employees’ pensions. To be deferred to 2013, when the next governor is elected. As an election present. (Virginia governors cannot stand for reelection.)
I have seen many an entrepreneur employ the same “logic” for his/her company, when it comes to their infrastructure. Money is tight. That $ 700 a month we were putting away to replace our bottling machine in four years. Stopped. The $ 5000 tax refund we were going to use to replace our servers. Not. These short term savings can only work out if sales pick up dramatically. And, the economy is saying otherwise.
But, the absolute dumbest thing I have seen companies do is balance their cash needs by not funding their payroll taxes. (Just like goverments do with their pensions.) But the difference to you is these taxes are the ONE way you can guarantee that the IRS will be banging down your door.
They don’t go away. Instead, the taxes become the personal responsibility for the officers and bookkeepers of the enterprise. That’s right- PERSONAL. Because that is money that theoretically belongs to your employees.
So, don’t be like the Feds or the States. Make sure you can keep your company going. If that means cutting back on your coffee, cutting back on a new car or a more expensive car (for image purposes) – keep in mind what your image will be when your company folds.
Hi Roy, I love it when you share your political views it brings me back to the days of “current events” in school. I think some people take politics too personal, if you make a comment which does not agree with their views some take it very offensively. People need to view politics as a system and formulate opinions based on observing the system and the outcomes from the system processes rather than on their love for their favorite politician or political party. I appreciate the share!
Thanks for your comments, Karla! Glad you found them of interest.
I worry that companies may emulate our states, localities, and the Feds … but they can’t print their own money!
Roy
Down here in Ecuador, South America (where I am writing from), America’s economy is a major issue lately. And information is partial and incomplete too. It ranges from America’s complete bankruptcy to a total end of the crisis.
I am going to use your info about public funds usage for debates among my friends (Some of them really think they know what’s happening. I’ll show them…)
I did not know you were Equator-laden, Gustavo!
No, we are not bankrupt (morally? psychically?). This money was committed long ago. And, the advantage a government has over a consumer is the ability to print money. Of course, that cheapens the currency (think Germany between the 2 WW). But, we have assets- and the ability to progress.
I am less sure about our states and localities. To some degree, this is analogous to the “Unified” Europe. they have one currency with different national interests. So, while Germany may be doing almost OK, Portugal, Italy, Greece, Spain, and Ireland are like many houses in America- deeply underwater. And, they are wedded to the Euro, which either means France, Germany, and a few other countries has to bulwark these states (and Spain and Italy are a little too large an economy to pull that off with finesse) or may other states may find themselves subject to Coriolis forces….
Thanks for your comments.
Roy
P.S. Please make sure your and your friends companies don’t follow those examples, as well.
While I’ve watched some of the debt negotiation (not much, it was too frustrating to see the showmanship and outright lies being thrown around by the politicians), I hadn’t thought of it this way. Good reminder to not just whine about what the government is doing, but to take smart action to be sure we aren’t making those same mistakes in our own businesses (and household checkbooks, too).
Michelle-
You are absolutely right- b…ing and whining is not going to stop our “illustrious” representatives/Senators from bloviating. We need to insure we learn the (negative) lessons to grow our businesses.
Roy
P.S. Thanks for the visit!
You’re welcome for the visit. Your blog always makes me really stop and think — and that’s a nice challenge!
Thanks, Michelle!!!
Roy
That sounds kind of scary for bookkeepers and employees who may or may not know of their level of responsibility if I’m reading you correctly. A great reminder that ignorance isn’t a strong defense. We need to understand exactly what our responsibilities are in all our relationships so we can consciously deliver on these. If an employer waivers on spending time clearly outlining expectations or says not to worry, that you’re covered but you think you may be open to being vulnerable, you have to advocate on behalf of yourself.
“Twilight Zone: The Movie” is a great example of this. There were at least a dozen professionals who had not only the right but the obligation to shut down filming the night of the helicopter accident that killed three actors (including two children). I, myself, was on a production job several years ago where I stood up to a producer who wanted to save money by not hiring a medic on a day with children on horses. To fail to do so opened up the production company and many crew to being liable in the case of an accident. Hoping it all works out is just not the way to get a good night’s sleep.
Tambre- you have it right. If you sign the forms, prepare the deposits, make the deposits, are an officer of the firm, OR own the firm (in whole or in part), the buck stopped right there!
There are similar rules for some 401(k) plans and pensions- unless you are from Central Falls, RI, which just walked away from its pension obligations…
Roy
No matter how you slice it, dice it, say it or not say it…. we are not in the best situation that is going to be easy to work out of. What gets my goat is I see my 18 year son, going off to college, I wonder about him, his future, his family, his dreams and goals.
Roy you have such great information. I just wonder how do we get more ‘smart’ people rounded up and really seriously look at getting things changed in a totally different direction. As I feel, it will take a huge change to get us out of this mess and maybe it will be the small business owners that will be key?
Lynn:
We absolutely need to adjust our spending. But, we also need to adjust our taxes (at least collecting them from the companies that pay zero or less than 5%- complaining the burden is too high and they can’t employ more workers, from those making more than 250-500K that pay effective rates of less than 15%, from the hedge fund managers who, finally, will pay real tax rates since the Court ruled that carried interest is pure BS). Changing the numerator is great. Changing the denominator too, helps us reach the goal quicker.
Roy
Hi Roy,
As you predicted the US credit rating got dropped. I can sense how strong you feel about this and it’s great you are taking a stance. I am not based in the US but the advice that you have given will for sure put companies in a better position. Yes, pay employees first!!
Thanks for your comments, Diana.
I am worried that this drop in credit will cause business folks to try to scrimp. That’s why I listed what NOT to use to cut corners.
Roy
It always amazes me – we teach people to do business one way and then we allow governments to do it differently. We also allow large companies especially our insurance and financial agencies to do what NO business owner would ever do if he or she wanted to stay out of prison.
Roberta:
I am glad you clarified that. It’s not just government, but the megabusiness they support that seem to have the bathroom pass hidden in their back pockets, keeping it away from the rest of us when we need it.
Roy