Our Collective Internal Revenue

Everyone is talking about the middle class, the taxpayer, the common man. I wrote earlier this week about “the forgotten man” of the Great Depression, and how he was used as a scapegoat or hero figure in what may well have been a manifestation of the nation’s collective dysfunction as much as it was the result of greed and overblown spending. I think one danger we’re in now as a nation is a similar tendency toward polarization and scapegoating.  In healthy families and collectives, there is no need to demonize people or paint them into one-dimensional roles. The fact that we are finger-pointing on a national level indicates to me that we are in danger spiritually as well as economically. Without some galvanizing outer event to bring us together, we will continue to splinter until we succeed at demonizing one segment while glorifying another. Theoretically, we may generate a world war, a national disaster, or an economic depression to achieve for us what we will not do for ourselves as a nation, which is to unite. I fear that we will take the wrong course and continue to blame and reject the “other,” and unconsciously bring disaster among ourselves until we can finally realize what we’ve done.

Joe the plumber

Joe Wurzelbacher is the Ohio plumber whose name has become a household word and a metaphor for the American dream. At an Obama rally outside Toledo on October 12, Wurzelbacher asked Barack Obama why Obama wants to punish him through higher taxes on the small business Wurzelbacher hopes to buy. Joe was mentioned several times in the most recent presidential debate, and has galvanized many small business owners and others who have struggled to get ahead and provide for their families to protest against Obama’s “spread the wealth” plan. In an already failing economy in which taxpayers will be footing the bill for a massive bailout, business owners are scared. What if they can’t keep their doors open? What if they can’t make their payroll? What if they can’t provide for their children? What if they lose everything they’ve worked for?

Many small business owners like my husband and I have survived two recessions during which we nearly lost everything we had. That bakery you buy from, the dry cleaners who clean your clothes, the restaurants you eat at, and the shop where you have your watch or auto repaired are all run by small business owners. They have a perspective that comes from starting with nothing and working their way up to becoming business owners—what we call “The American Dream.”

On the other hand we seem to have a lot of Americans who are angry with small business owners and large ones. They say business people are all greedy, that they’re selfish and have too much. They resent the fact that the middle class and upper middle class can drive better cars that get better gas mileage, can live in nicer neighborhoods and send their kids to private schools. They’re angry that their kids have to compete at school with children who have more stuff, wear more name brands, and whose iPod is more expensive. There are angry, hard-working Americans who want that stuff, too. And although the welfare and many of the working class pay zero in federal taxes, they want the people ahead of them to pay more so that they can get more free stuff that they didn’t work for, perhaps because no matter how hard they work or how many hours, they can’t get ahead. They want someone to help them along. They don’t always want to be the guy on the bottom, supporting the guy at the top so that he can buy his daughter the more expensive iPod.

It seems to all be about stuff and jealousy, and our human refusal to be content with what we have. And some level of discontentment can be good when it goads us to achieve. But when it goads us to achieve at another’s expense, or to generate a sense of entitlement that we think gives us the right to take what someone else worked for, what then? Are we even thinking about our assumptions?

John and Jane Q. Taxpayer

McCain and Obama alike refer to the taxpayer, to the middle class, to the American living on Main Street. But who is this American taxpayer? Based on statistics from the U.S. Census Bureau, the majority of Americans work at small firms and make under $50,000 a year. Over half of all Americans employed in the private sector are employed by small businesses, which produce more income and more jobs than the large business sector. Yet small businesses pay more per employee for government regulation and intervention than do large firms with over 500 employees, a fact published by the U.S. Small Business Administration.

The American taxpayer is you and me, and it’s probably also your boss, unless you work for a large company (500+ employees) or the local, state, or federal government. Our economy is run by small businesses and by middle-class Americans who are already struggling to make their payroll, their payroll taxes, their high business and unemployment tax payments, their outrageous comprehensive, liability and vehicle insurance premiums, as well as their personal mortgage payments, tuition for their kids, and contributions to their own retirements. After all, we small business owners don’t have guaranteed retirement as do our legislators. We don’t have government-backed retirement plans like government workers. In the past week alone, my husband and I lost 33% of the value of our retirements, money we saved all by ourselves and which is not guaranteed by anyone. How selfish is it of politicians to tell Joe the Plumber that he is making too much money when they themselves are multimillionaires with guaranteed retirements and health insurance?

How is that loving your neighbor as yourself? And if our lawmakers are not acting out of real love, then from what energy are they acting? Do we want to know?

It appears to me that the bailout bill and the economic plans being proposed do little to improve things for the segment of American businesses or citizens who actually produce the most jobs and income for most taxpayers. It appears to me that the new taxation being proposed against small businesses and the middle class will do nothing to help those of us who have already done more than our fair share. Instead, it aims to penalize us for working so hard. It aims to force us to “spread the wealth around” before anyone even asks whether there is any “wealth,” and whether the current tax scheme is fair. Why do we not ask more questions about fairness, when the word “fair” is being bandied about by both candidates for the American presidency?

there’s a top line, and a bottom line

As the co-owner of a small business, I’m concerned about how a new tax-and-spend congress and president may affect the future of our country and our own business. With only half of our umpteen children raised, we cannot afford to go bankrupt. My husband is almost 55 years old and has literally worked with his hands all his adult life. Like many other small business owners who have Subchapter S corporations or LLCs, any business “profit” we make—even money we set aside for the business so that we can pay our payroll and keep our workers employed when our contractors do not pay us or pay late—is taxed to us as individual income. What we actually live on and what the business makes are two different things. Right now, in spite of a so-called conservative congress and president having been in power for six of the past eight years, we pay enough in business-related taxes to employ 4.5 additional workers who we can’t hire due to the prohibitive costs of doing business. Instead of hiring new people, my husband works almost every Saturday. So when I see Joe on television, I want to pat Joe on the back and say, “Joe, I understand.” Lots of us work 10-12 hour days and have everything we own at risk as we run businesses that are being bled dry by a burgeoning welfare class and bureaucrats in Washington, D.C.

Most people do not run small businesses and don’t know what it takes to run one successfully. Over the years, we have had several employees who had similar attitudes to those expressed by so many bloggers, commenters, and others who are criticizing Joe the plumber for “making over $250,000 a year.” They say Joe is rich if his business makes over $250,000 a year. They say they deserve a cut, too, and they go out and start their own business, and most of them fail. They fail because many people don’t have the right combination of work ethic, determination, intelligence, experience, ambition, and hope to be able to open and maintain a small business successfully. But they direct jealousy and hatred at those who do, and they say that Joe the Plumber must be rich if his business makes $250,000 a year.

I have news: They don’t know what they’re talking about. And over the next few days I’ll be explaining how Joe’s plumbing business is most likely to operate based on government statistics gathered from people’s tax returns, and why revenues of $250,000 to a plumbing business by no means make Joe “rich.” I’m going to explain the top line and the bottom line of an income statement and a tax return so that people will (I hope) stop accusing Joe of being “rich,” when what he actually said was that he hopes to buy a plumbing business that makes $250,000 to $270,000 a year (that’s gross, my friends).

My hope is that people who shop and do business every day at small businesses will be more aware of just how many services they use are provided by people who own small businesses. Even that restaurant chain you eat at is actually owned by a small business owner who bought into a franchise, borrowing what he hoped to be able to repay through incredibly hard work. When you stop and think about how Bill and Betty the Business Owners are the ones who have to go in and work the 8-hour shift whenever someone they hired doesn’t show up, or how they borrowed against the home they live in to be able to open the doors of that business, maybe you’ll think twice before you assume you know how “rich” those people are or how selfish and greedy they must be.

And maybe, just maybe, we will start saying, “I’m not sure,” and maybe we’ll ask more questions of the people we do business with. Maybe we will pay as much attention to the internal revenue of our spirits, looking to our own hearts and our level of judgment and anger with as much vigor as we judge our neighbors.

One can always hope.

Small Business: The Backbone of America

Tomorrow I’ll be writing about small businesses, namely because I co-own and manage one and because I see that many folks don’t seem to understand how small businesses work, or what all the hullaballoo with Joe the Plumber is about. Small business owners and the self-employed are scared to death about Obama, and may well turn the election to the McCain side, all because Barack Obama said he wanted to “spread the wealth around,” and raise Joe the Plumber’s taxes. Obama said he was going to tax Joe’s revenue, and by using the word “revenue,” he struck fear into the hearts of small business owners everywhere who wondered with alarm if they’d heard him right (they did, but more about that tomorrow).

But Obama also said that small businesses are what make this nation succeed, and that small business provides all the new jobs in the U.S., and he was right about that. So, for your educational pleasure, here are some facts and statistics on small business for those of you who have never owned a small business, considered running one, or worked for one.

According to the Small Business Administration, a small business is a business that has fewer than 500 employees. When congress passes laws that affect small businesses, most usually any business with fewer than 50 employees is exempt. So, for example, if universal health care is ever passed, it’s possible that businesses with fewer than 50 employees will be exempt. Firms or businesses with fewer than 20 employees are the smallest of the small. This will give you an idea of what they mean when they say “small business.”

In the U.S., small businesses:

• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay nearly 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than half of nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 28.9 percent of the known
  export value in FY 2006.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
• Small businesses with fewer than 500 employees created 78.9 percent of all new jobs in the U.S.
• Large firms with 500+ employees added 21.1 percent of all new jobs over the past 10 years.
• Small businesses employ half of all U.S. workers.
• Very small businesses with fewer than 20 employees annually spend 45 percent more per employee than larger firms to comply with federal regulations.
• Small firms spend 4.5 times more per employee to comply with government regulations, and 67 percent more per employee on tax compliance than larger businesses.

According to The Small Business Economy: A Report to the President, from The Office of Advocacy of the U.S. Small Business Administration (SBA) 2007 report:

• In 2004, small businesses with fewer than 500 employees accounted for all of the net new jobs.
• Small firms had a net gain of 1.86 million new jobs.
• Larger firms with 500+ employees had a net loss of 181,000 jobs in the same year.
• Small firms employed 50.9 percent of all private sector work in 2006.
• As a group, small business purchasers outpace federal government purchasing.
• Most of the payroll (two-thirds) paid in the U.S. in the private sector was in firms with 20-499 employees.
• About half of 16.7 million small business owners were home based. That’s right: they were working from their kitchen tables, garages, home shops or home offices.

Most small businesses are family-owned and are being run by a fellow and his wife, or a mother and daughter, or whole families. A tailor shop in my community is run by a Vietnamese family. Father, mother, aunts, uncles, adult children, grandchildren, nieces, nephews and friends all work in the shop and have run it successfully for more than 15 years. This tailor shop is a small business. It is this type of small business that is coming under attack by the party that wants to penalize mom and pop for succeeding at working for 10-12 hours a day, six days a week, so that their own kids can go to college and work in an air-conditioned office and sit behind a desk rather than a sewing machine.

This is what has people up in arms. This is what I’m going to explain so that some understanding is generated about the furor over Joe the Plumber.

The Forgotten Man

It is a time of great economic gain, with strong positive aspects and a high stock market. Although unemployment is creeping upward, it’s not recession-level high and most U.S. businesses are reporting profits. But there are monetary and credit challenges, and international trade is falling off. There are economic setbacks caused by freakish weather—floods, hurricanes, fires in the west. With money and the weather down, some people are feeling a little helpless and worried about the future of the nation. And it’s an election year.

And then the credit crisis balloons because of greed and opportunism and lack of individual responsibility. People need bailouts and the government steps in because lawmakers want to doctor the economy even though they are not economists and neither are they experts at tampering with business. Inspired by socialist or even fascist models abroad that seem to work for other countries that do not share our history or national temperament, Congress and the president demand government planning and intervention. They over-estimate the value of both.

Minimum wage is raised, and international tariffs increased; taxes are raised, too. Even though international markets are recovering after recession, the U.S. government makes devastating decisions involving regulation, aid, and relief agencies and vehicles that promise recovery but achieve nothing more than increased government spending.

Does this sound familiar? Does it sound like I’m describing what’s happening today?

Well, here’s a surprise: This was the situation during the Great Depression, an economic disaster for the American people that lasted more than a decade and started with something as simple as a downturn in the market fueled by a credit crisis, followed by a recession, followed by massive government intervention that pushed America to economic disaster while our European neighbors, with their less interventionist economic strategies, recovered years before we did.

history repeats itself

This is what Amity Shlaes writes in The Forgotten Man: A New History of the Great Depression (Harper Perennial, 2008). Shlaes is a senior fellow in economic history at the Council on Foreign Relations and a syndicated columnist at Bloomberg who has written for The Wall Street Journal, Financial Times, The New Yorker, Fortune, National Review, The New Republic, and Foreign Affairs. She also wrote The Greedy Hand, about the history and use of taxation in the U.S. Shlaes is one of numerous economists, historians, and writers who have studied the Depression and claim that Roosevelt’s New Deal extended the Depression by 7-10 years. The groundless optimism of the FDR administration, combined with massive government intervention and control, drove the U.S. into prolonged depression when economic recovery might have been achieved through letting business and the American consumer hash things out. Instead, too much government intervention inspired fear, conservatism, and caution among consumers and business people alike. Businesses refused to hire new help, cut costs by laying people off, and held on to capital rather than expanding, all because of uncertainty and mistrust for increased government demands.

Professor Harold L. Cole, head of UCLA’s economics program and co-author of a recent study of the economics of the delayed recovery from the Depression, said,

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

Between 1929, the year the stock market crash occurred, and 1940 when the economy began to turn around after World War II broke out, many of the people who influenced events and many of the events that occurred have eerie parallels to events of today. For example:

• International taxes or tariffs on international companies were increased.
• The stock market was up and down, but eventually plummeted to an all-time low.
• Several emergency international summits were convened for the purpose of addressing what was becoming (and eventually did become) a worldwide economic depression caused by the United States.
• Banks failed, just as bank failures are increasing today. By the end of 1930, 1,350 banks had failed.
• Unemployment increased as businesses lost confidence and stopped expanding.
• A moratorium on international debt is proposed.
• Race becomes an issue, too, as an impassioned black cult leader calls for black self-sufficiency, preaching a gospel of plenty at the expense of the forgotten man.
• The Federal Reserve lowers interest rates, which fails to help the economy.
• The Federal Reserve then raises interest rates twice in one week, stating that the rise was because “the previous easy-money policy had failed.”

• A federal entity is created to lend billions to ailing banks and businesses.
• The Minnesota Mortgage Moratorium Act is passed to try to end or slow farm foreclosures resulting from the Depression by giving distressed mortgage holders the ability to renegotiate their mortgages.
• Desperate heads of big businesses go to Washington to seek help because things are getting desperate.
• It’s an election year, and people expect that a new president will change the course of the nation.
• The incumbent, a conservative Republican, believes in individual liberty and less government intervention.
• The challenger, a liberal Democrat, believes in government intervention and control of the economy.
• The outgoing president then was named Calvin Coolidge; his name today is George W. Bush. The liberal challenger then, a Harvard educated Democrat, was Franklin Delano Roosevelt; the liberal challenger today, a Harvard educated Democrat, is Barak Obama.

After the Election

• The new president (Roosevelt) unveils a new plan that promises to solve the problem. Roosevelt calls it the “New Deal.”
• The president closes banks, has government auditors sort through them, and reopens the banks, claiming that all will be well now that he and the New Deal Democrats are in power. Conservatives protest throughout the course of the New Deal years, claiming that the liberals are keeping the Depression alive while Europe recovers, but are ignored.
• The Dow climbs 15% the day after the banks re-open.
• Congress (Democrat controlled) passes the Civilian Conservation Corps bill, creating 50,000 government-created jobs.
• Congress passes another bill to bail out poor folks in southern states (Tennessee Valley Authority).
• Congress passes another emergency relief bill to help the economy (The Federal Emergency Relief Act).
• Congress and FDR create the Agricultural Adjustment Administration to artificially lower output and increase farm prices. Farmers who are too productive are forced by the government to slaughter their own animals or let “excess” crops rot in the fields.
• Congress and FDR pass three more massive bills funded by massive federal spending and establishing new entities, including the Banking Act of 1933 (established the FDIC), the National Industry Recovery Act (creating the National Recovery Administration and the Public Works Administration), and the National Labor Board, a new regulatory board for organized labor.

• At the end of the first One Hundred Days of FDR’s presidency, the Dow Jones Industrial Average closes at 99, below the highs of the preceding summer.
• Congress and FDR pass another federal measure designed to help people, the Farm Mortgage Refinancing Act, which helps farmers with their mortgage payments.
• FDR establishes the Export-Import Bank to encourage more international trade again.
• Individual states pass price control laws in an attempt to control the economic problem.
• The Supreme Court begins to hear and decide on lawsuits filed by citizens against the massive federal intervention undertaken in previous years. Some laws are upheld, and others struck down.
• Congress and FDR pass an amendment to the Home Owners Loan Act of 1933 which gives an additional $300 million for the “remodeling and rebuilding of homes.”
• Congress and FDR pass the National Housing Act, which establishes the FHA.
• Congress and FDR pass the Federal Farm Bankruptcy Act, which allows a moratoria on mortgage foreclosures. Now nobody can be foreclosed on! Yippee!
• Congress and FDR pass the Emergency Relief Appropriation Act, which moves poor families to “more productive Greenbelt regions.” Now the government is telling people that they need to move in order to prosper.
• FDR establishes the Works Progress Administration (WPA), which provides millions with work through government construction projects, all paid for by the taxpayers who do have jobs and who still manage to keep their small businesses open.
• Corporate income taxes are introduced and increased.
• Taxes on the middle class are increased.
• Congress and FDR enact the Social Security Act.
• Congress and FDR pass the Revenue Act, which raises estate taxes, gift taxes, the individual tax rate, corporate dividend taxes, and corporate income taxes.
• The Supreme Court strikes down the Farm Act. Congress passes a new act which subsidizes farmers in a different and legal way.
• Federal Reserve bank reserve requirements are increased.
• The Dow hits a low of 119.
• Even though it has been 10 years, the nation is still in a Depression. The government decides to continue controlling agriculture.
• Congress and FDR (re-elected) pump another $1 billion into the failing Works Progress Administration, claiming more federal dollars will fuel a recovery.
• Congress and FDR increase government control of labor through the Fair Labor Standards Act (FLSA).
• World War II begins, and eventually the Depression ends due to war-time industrial production.

The forgotten man

Who is the forgotten man? According to Shlaes:

About half a century before the Depression, a Yale philosopher named William Graham Sumner penned a lecture against the progressives of his own day and in defense of classical liberalism. The lecture eventually became an essay, titled “The Forgotten Man.” Applying his own elegant algebra of politics, Sumner warned that well-intentioned social progressives often coerced unwitting average citizens into funding dubious social projects. Sumner wrote:

“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine…what A, B, and C shall do for X. But what about C? There was nothing wrong with A and B helping X. What was wrong was the law, and the indenturing of C to the cause. C was the forgotten man, the man who paid, the man who never is thought of.”

In 1932, a member of Roosevelt’s brain trust, Ray Moley, recalled the phrase, although not its provenance. He inserted it into the candidate’s first great speech. If elected, Roosevelt promised, he would act in the name of “the forgotten man at the bottom of the economic pyramid.” Whereas C had been Sumner’s forgotten man, the New Deal made X the forgotten man—the poor man, the old man, labor, or any other recipient of government help.

Roosevelt’s work on behalf of his version of the forgotten man generated a new tradition. To justify giving to one forgotten man, the administration found, it had to make a scapegoat of another.

Businessmen and businesses were the target.

Bad memories, or denial?

I find that reading the history of the Depression, talking with elderly people who survived the world wars and the Great Depression, and reading in economics has been fascinating and sometimes downright disturbing lately. Being as steeped in psychology and religion as I am, though, I can’t help seeing that it is not only the system holding A, B, C, and X that keeps forgetting someone. A and B think X has been forgotten, and X often does not disagree. X may be angry and disenfranchised, willing to have someone help him because he truly believes he cannot help himself. And then C is angry, C the responsible one. C, the one making the money and paying the house payment while A and B are over there, bailing out X who, for God knows what reason, can’t pay his rent, much less a mortgage payment.

This is the way the debate sounds today. As during the Great Depression, X needs help and C is the scapegoat, the one with too much, the one we’re going to take stuff from so we can give it to X, so we can spread the wealth around, so that everyone will be happy and equal and all will be fair. This is the story that is being debated in our system today.

What I see is the possibility that the system is flawed because the system is ill. Sick systems, like sick families, need a scapegoat. They always need someone besides themselves to blame. Maybe the system is like a big, dysfunctional family. Maybe, as Anne Wilson Schaef says, the bigger it gets the greater the probability that it is a toxic system. And I’m not suggesting that nobody is responsible, or that nobody is to blame for individual or collective bad behavior. What I am suggesting is that millions are being misled due to a collective blindless and fear, and that we’ve made this same mistake before, and that we may be poised to make it again. And if we do make it, we’re all going to go through the consequences of our true or false beliefs and behaviors together, and no amount of government bail outs or political promises will save us if we are making the same grave error made by the politicians who ran things when our grandparents were alive.

And so we’d better look carefully at whether we are providing a reasonable balance of power, of accountability, for the people we are going to trust to lead us. If all the system has is an out-of-control dad enabled by a cowed, codependent mom always wishing for the best but never taking decisive, personal action, then the less powerful members of the family are in trouble. But if you get some outside accountability or scrutiny, and build that into your sick family system, then you have a chance of making the family healthier. It is ony a chance, but a chance is better than no chance at all. This is what I’m mulling over about our political system and the decision we have to make soon.

It is systems I’ll be writing about for the next week, and about how different systems work in my experience, and then I’ll meander into what some of the spiritual and psychological antidotes are for the toxicity in our systems.

Stay tuned, and we’ll see what we discover together, because even I am not quite sure yet what my conclusion will be. But I do expect to come to at least a personal decision about what I am going to do, and why, by the time this series is finished. I will most probably finish up with the impossible, fantastic demands of great spiritual tradition just as I started out that way, for it is by demanding the impossible that we are brought right up against our powerlessness and thus to the throne of the Divine.

Recommended Reading

• FDIC list of failed banks, 2008. Look at the increases over the past 12 months.
• Chief Executive Survey: Job Creators Prefer McCain to Obama 4-to-1.
• UCLA Economics Prof: How FDR Prolonged the Great Depression
• McCain’s Economic Plan: Web Site
• McCain’s Economic Plan in .pdf format
• Obama’s Economic Plan: Web Site
• Obama’s Economic Plan in .pdf format