Business Owner: Entrepreneurs Stunted by Excessive Taxes

Michael Whalen, policy chairman of the National Center for Policy Analysis and owner of a chain of restaurants and inns in Iowa, offers a personal anecdote about the struggles American entrepreneurs are facing — and he insinuates most elected officials have no clue about the impacts of the many taxes and charges placed upon business owners:

One of the properties my company owns is a 100-room limited-service hotel in Iowa. Let me talk about the taxes this one place pays.  I’ll use 2008 numbers.

For starters, we pay property taxes to the tune of about $199,000 annually.

Next, there is a 7 percent "pillow tax" that generates about $162,000 annually. Then we pay a 6 percent sales tax on revenue that yields about $124,000 annually. Then we also pay sales tax on things like toilet paper, shampoo, soap, continental breakfast food and amenities and other items that the state of Iowa says are not really part of the product we sell because it says we are selling space.  It may come as a surprise to you that toilet paper is not part of what you are buying when you rent a hotel room in Iowa, but the state considers it a gift. Those extra sales taxes come to about $1,800 per year.

Now on to Round 2. This little hotel also pays about $3,000 a year in various licenses and fees. Payroll taxes come to about $60,000. The federal government says the depreciable life of a hotel is 39.5 years, but we refurbish the hotel on a constant basis and pay sales tax on related purchases, such as new carpet, mattresses and bedding, and even paint. Anyone who does not believe we already have a partial value-added tax (VAT) like Europe, isn’t in business. Now, between Round 1 and Round 2, we are at $548,000 in taxes annually.

So, even if we don’t make a dime of profit, and before we pay the mortgage to the bank or buy new stuff, we pay $548,000 in various taxes, licenses and fees.

Round 3 is income taxes at the federal and state level.  I am not going to tell you these numbers, but I can tell you they can be substantial. Because the hotel is owned by a Subchapter S corporation, in which taxes are paid by shareholders rather than the corporation, the income is reported on my personal income-tax return even though it’s not really my personal money.   But President Obama and many in Congress think we don’t pay enough in taxes because we are "rich."

A few years back, I was telling this story of taxes on one little hotel to an important elected official. He replied, "You don’t pay those taxes, your customers do. I don’t get your point." I stood there dumbfounded and simply replied, "My customers pay all of our taxes? Where do you think money comes from?" I swear this is a true story.

I understand that most folks in state legislatures and Congress have never been in business, paid these taxes or met a payroll.  But I cite the experience of venerable pro-tax Sen. George McGovern, who went into the bed-and-breakfast business after he retired from the Senate. Unfortunately, he went bankrupt. When asked what this experience had taught him, he said that he would have voted a lot differently if he had been in business before going to Congress. He is an honest man.

McGovern Still Rejects EFCA — Explains it’s Destructive in More Ways than One

We highlighted former Democratic Senator and presidential nominee George McGovern’s cerebral objection to the Employee "Free Choice" Act back in August, but he explained himself even further in today’s Wall Street Journal. A must read for any business:

The recent news that Pennsylvania Sen. Arlen Specter has become a member of the Democratic caucus has given new life to legislation that many thought had been put to rest for this Congress — the Employee Free Choice Act (EFCA).

Last year, I wrote on these pages that I was opposed to this bill because it would eliminate secret ballots in union organizing elections. However, the bill has an additional feature that isn’t often mentioned but that is just as troublesome — compulsory arbitration.

This feature would give the government the power to step into labor disputes where employers and labor leaders cannot reach an agreement and compel both sides to accept a contract. Compulsory arbitration is bound to trigger the law of unintended consequences.

Currently, labor law maintains a careful balance between the rights of businesses, unions and individual employees. While bargaining power differs depending on individual circumstances, the rights of the parties are well balanced. When a union and a business enter negotiations, current law requires that both sides bargain "in good faith."

In a contract negotiation, each party typically perceives the other as too demanding. But no one loses their right to contract willingly or suffers being forced to agree to anything. Employees can strike if they feel that they have been dealt with unfairly, but it is a costly option. Employers are free to reject labor demands they find to be too difficult to accept, but running a business without experienced employees is itself difficult. Both sides have an incentive to press their demands, but they also have compelling reasons not to press their demands too far. EFCA would disrupt that balance by enabling government-appointed lawyers to decide what they believe is fair or reasonable.

A federally appointed arbitrator cannot be expected to understand the nuances specific to each business dispute, the competitive market position of the business, or the plethora of other factors unique to each case. Yet fundamental decisions on wages and benefit costs, rules for promotions, or even rules for exiting an unprofitable line of business could fall to federal arbitrators under EFCA.

House of Cards: Chicago Tribune Criticizes Employee Free Choice Act

The Chicago Tribune editorial page recently took a swipe at the proposed Employee Free Choice Act card-check bill, concluding, "the inaptly named Employee Free Choice Act would be good for labor bosses. But it wouldn’t be good for laborers."

The Trib writes:

The Employee Free Choice Act would allow unions to create local bargaining units without winning the vote of a majority of workers in a secret ballot.

The local unit would be certified if a majority of workers endorsed it by signing an authorization card handed out by union organizers.

Fair enough? Not really. The so-called card-check bill would not protect workers and it would not be "free choice." It would strip away their right to vote in secret, making it more likely they would face intimidation from organizers and other workers. The pressure would be on to check the card, whether or not they actually wanted a union.

Once the union was certified by a card check, the employer would have to accept arbitration if a contract couldn’t be negotiated within 120 days.

It’s clear why union bosses want this law. Union membership ticked up last year, but it has been plunging for half a century. In the 1950s, about one-third of U.S. workers belonged to a union. Now just 12.1 percent of U.S. workers—and just 7.5 percent of private-sector workers—are in a union.

There are many reasons for that decline, including the growth of the service sector economy, the movement of manufacturing jobs overseas—and the choice of workers who believe that a union would require them to pay dues but wouldn’t benefit them.

We’ve written about this before, noting that even George McGovern thinks this is a bad idea.

McGovern & Heritage Agree: Employee Free Choice Act Light on “Free”

James Sherk of the Heritage Foundation offers his assertion that the proposed Employee Free Choice Act effectively ends worker privacy and hinders their ability to make personal choices regarding union membership. He argues that while EFCA could be a boon to union dues, it would help little else and deliver a crushing blow to worker freedom:

Organized labor’s highest legislative priority is the deceptively named Employee Free Choice Act (EFCA). EFCA replaces secret ballot elections—the method by which most workers join unions—with publicly signed union cards. While eliminating secret ballots is extremely unpopular, many EFCA support­ers argue that the legislation merely gives workers the choice between organizing using secret ballots or pub­licly signed cards. This argument is false; nothing in the legislation gives workers any control over union organizing tactics. Though EFCA still allows for secret ballot elections under unusual circumstances, stan­dard union organizing tactics ensure that publicly signed union cards will dominate the recognition pro­cess. As a result, the misnamed Employee Free Choice Act effectively eliminates secret ballot elections.

Former Democratic Senator and presidential nominee George McGovern also penned this column for the Wall Street Journal earlier this month:

To my friends supporting EFCA I say this: We cannot be a party that strips working Americans of the right to a secret-ballot election … To fail to ensure the right to vote free of intimidation and coercion from all sides would be a betrayal of what we have always championed.