Thursday, September 1, 2011

Do regulations have the same desired effect on a big business versus a small business?

Here is my point, Government tries to be fair, or at the least that is their claim. They usually seek out help from the larger companies to see what they can do to implement a new regulation. The problem is due to a business’s economies of scale, and a person’s self preservation instinct. These big businesses usually promote regulations, laws or taxes that give them market advantages. a small one person start up with little capitol cannot operate under a regulation that is designed for a multinational corporation, yet far too many times we do not make those concessions for small businesses. Instead of nurturing a business we tend to abuse small operations. Without a checks and balance system to make sure government is not being used by big business or big unions, I fear this jobs crisis that we find ourselves in will only continue. The only solution that I can see is let big business make the bench mark for regulatory compliance levels, but phase back compliance, fee, and tax issues for smaller operations. If we do not start to nurture business we will never regroup and grow this economy to bring back jobs.
The progressive wings of our political leadership in both parties use the key word of funding sources as a key part of raising taxes, to promote pet projects for personal gains. Without consideration for a business’s ability to pay and be compliant we are having a government that is out of control and destructive to job creation from the private sector. When I testified in Carson City against former Governor Guinn’s Gross receipts tax I mentioned that due to buying power and economies of scale a flat gross tax rate would have a negative effect on a small businesses ability to compete. The effective tax rate would not be flat but very regressive in nature due to the cost of goods sold.
 A case in point is a very simple example of a large companies buying power versus a small operations. Let’s say Wal-Mart buys milk for resale, they can buy in large quantities, thus since milk is a perishable item a distributor like Model Dairy wants to sell as much as possible to keep their product from being returned due to a date to remove product from shelves. A small business does not have that buying power and will not sell the volume that Wal-Mart sells. That is why a C store sells milk for let’s say $4.00 versus Wal-Mart being able to sell the same product for $2.89 a gallon. If we have a tax that is at 4% as the Guinn administration proposed the effective tax rate on gross receipts would have a negative and punitive tax rate of 40% on the small operations versus an effective tax rate for Wal-Mart.the Cost of the milk for the C store let’s say is $3.75 a gallon versus Wal-Mart having a cost of milk of $2.19 a gallon. That discount for large operations happens all the time, remember Milk is perishable; it will go bad and must be sold for the Dairy to make a profit. So many of you think the C store is overcharging you, well I am sorry to say you are wrong. In fact the Wal-Mart’s of the world have a greater profit per gallon due to that buying power, and potential to sell greater quantities. So if both stores sold 100 units, Wal-Mart would have gross sales of $289.00for that milk, the small operator would have gross sales of $400.00. The tax at 4% would be $11.56 for Wal-Mart for the small operator it would be $16.00. The profit for Wal-Mart would be $70.00 the small operations would have a profit of $25.00 on that same sale of 100 gallons of milk. Tell me what if far about that?
I had to point out to our legislature that the two states that they wanted to copy was Washington and Michigan, both started out with one rate and it had to grow into multiple rates per industry and the added cost and size of the staff needed to oversee this form of taxation negated any benefit this form of taxation would have brought in. That is why I am against many forms of funding sources that our leaderships are looking at. If we really want jobs to return we have to understand how the market place works and unfortunately we have hired far too many attorneys to act as our political leaders and they just do not understand market forces.
I have heard from some to say that the small operator should not be in business, well are we going to start selecting who should be in business and who should not. For all of those who were against big box stores are you telling me that is all there is. Whatever happened to the ability to grow oneself? At one time Wal-Mart was a small operation. We need small operations to grow new ideas, let’s not destroy that ability. For Big business needs that competition, it is how they change their product and guarantee that it does not become less competitive. We must be aware of the double edge part of any tax idea, and weigh it over the real need for the added revenue. Far too many times we have had public policy hurt the ability for business to grow. If we really want our economy to turn around we need new people in government that understands the economy.

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