Growth & Justice Blog

Jousting with the King

(This is a response to the right honorable King Banaian, of SCSU Scholars blog, who has the coolest name in the Minnesota blogosphere, and who also is a fairly responsible adversary.)

Dear King,

You raise some fair points in your critique of our recent post, in which we demonstrate that Minnesota state and local governments actually are taking a smaller share of our income throughout this decade, and in which we further posit that this smaller government and lower tax rates have not delivered the economic boom that anti-tax conservatives promised. (More on this point today in the latest Capitol Report/Legal Ledger.)

As you point out, we do have a more volatile revenue system (bigger surpluses in expansions, bigger deficits in contractions) than most states, and this certainly is a factor in creating more severe budget shortages than in other states. And there is some random evidence, as you point out, that Minnesota's economy very recently is again doing better than the national average. (Big news this week was the #1 Twin Cities ranking in home value appreciation.)

Nevertheless, we don't see how you demonstrate that this volatility can be the main factor that permanently shrunk our revenues as a share of our income.

Revenues as a percentage of income are largely a function of tax rates. The shrinkage came from major and permanent income tax rate cuts, then a refusal to significantly raise state tax rates or impose new state taxes during the immediately ensuing shortfalls. Contrary to your argument, tax policies did make a major difference and Gov. Pawlenty himself takes credit for his policies shrinking government when he preaches to his conservative base. 

But we would also acknowledge that we would have had shortfalls even if we hadn't cut taxes, because the spending base would have been larger, and downturns always create shortages. That's a point you could have raised, but didn't. So give us points for fairness and good faith. 

Second, we think  there is a broad consensus that Minnesota's economic performance this decade, overall and relative to other states and the national averages, is not as impressive as it was in the three previous decades.  In the very same Budget Trends Commission document that you cite in making the point on volatility, this is the second main bullet point: "Despite continuing to rank high among many key social and economic indicators, Minnesota’s economy has underperformed recently relative to the nation."  

That's exactly what we said too, and there's a wealth of statistics in the commission report to back up that assertion.

Third, let me point our readers to G&J fellow Charlie Quimby's answer to your question: "Where has G&J been in the debate to reduce cyclicality of tax receipts?"

We specifically testified [before the governor's tax commission] in favor of reducing or eliminating the corporate franchise tax, of which the legislative report you quote said in the very next paragraph:

"Minnesota’s corporate franchise tax base, which constitutes 7 percent of general fund tax revenue and boasts the highest trend growth rate, is the most volatile of the three major revenue sources, extremely sensitive to economic cycles and thus subject to substantial uncertainty. In fact, the volatility of Minnesota’s corporate franchise tax base is almost four times greater than the volatility of the individual income tax base and nearly six times greater than the volatility of the general sales tax base."

This support was conditioned upon replacing revenue from other sources, including income and sales taxes, that would make the system less regressive as well as less volatile.

The other source you link to says that there are two ways to reduce fiscal distress from recessions. One is to reduce volatility, and the other is to "build savings during booms... (create and properly use a rainy day fund)."

Another measure we have supported.

Finally, the very funny promotional blurb on your blog that condemns your team as "self-absorbed moral cretins'' is really outrageous and unfair. You are among lots of very fine people who are just plain wrong about things once in awhile. 

— Dane Smith

Less Government? We Tried That. It's Not Working.

The Star Tribune's front-page story today finds that "less government'' is the overwhelming consensus "vision'' for Republican gubernatorial candidates. Peggy Lee and most Minnesotans want to know: Is that all there is?   

Leaving aside that this mantra sounds more like hard-right, activist-energizing radio talk than inclusive vision casting — and has to be extremely disappointing to hundreds of thousands of moderate and progressive Republican voters — we need some context here.   

The Price of Government, an official state Minnesota Management and Budget measure, shows that we DO have less government over the last decade, ever since the no-new-taxes religion, like some southern invasive species, got a hold on the North Star State. (See page 13 of the PowerPoint presented at the capitol last week by State Economist Tom Stinson and State Demographer Tom Gillaspy).

The bar graphs clearly show that our governments are using about two percentage points less (15.5 percent in 2008 compared to about 17.5 percent through the 1990s) of our personal income share than those governments were spending when the economy was actually doing better. Huge income tax cuts in 1999 and 2000 left us with chronic  budget crises, and the promised payoff in sustained, tide-rising economic growth didn't materialize, either.  

Wealth concentration at the top got worse, bridge and road conditions deteriorated, public school course offerings were cut, and thousands of working low-income folks lost their health care. And our economy is slumping and beginning to underperform the national average on some key indicators.  

We surely could use some more judicious restructuring and redesign of how we do our government work. But the basic things government provides are essential for our shared prosperity and quality of life.  

NOTE: The Price of Government measure is one of the most comprehensive of all the measures we have to describe the size and role of government. It counts state and local government revenues as a percentage of total income and therefore accounts for inflation, population growth and economic growth. It was instituted at the behest and with the approval of business groups in the late 1980s.

— Dane Smith

Business leaders focus on success in schools, community priorities

Times are tough in the world of commerce these days but the Minnesota Business Partnership put on an uplifting and clever show Tuesday night, highlighted by a very funny Twitterfest orchestrated by partnership director Charlie Weaver. The fictitious tweets that flashed up on the big screen were inspired, including the one ascribed to Gov. Tim Pawlenty, under the name "veer2right'', in a reference to his presidential prospecting.  

Our favorite part, though, was the recognition afforded to two outstanding public schools, King Elementary in Deer River, and Dayton's Bluff Achievement Plus Elementary in St. Paul, for their progress on student achievement. The videos celebrating and explaining their success should be up soon on the partnership website. (The Partnership is comprised of the CEOs of Minnesota's 100 largest companies and obviously is a major player in policy matters.)

Qwest CEO John Stanoch, a valued member of the Growth & Justice Board of Advisers, and a leader of the partnership's education policy team, pointed out in his presentations of $10,000 awards that both schools have high percentages of poor and minority students and that those conditions "do not have to be synonymous" with low test scores. The principals at each school talked about setting goals and focusing constructive and energetic attention on the students and parents who need help.   

The evening's speakers were focused on community building, with relatively little of the dissing of the public sector or tax rates that sometimes occurs in business gatherings. Even Gov. Tim Pawlenty's keynote address was notable for its rather harsh denunciation of private-sector irresponsibility and arrogance, epitomized by General Motors.  

Doug Baker, CEO of Ecolab, Inc., current chairman of the partnership, took aim at Minnesota's corporate income taxes as a problem, and we agree that those rates could come down as part of an overall revenue-positive tax system reform. But Baker's speech also accurately summarized Minnesota's great tradition of community-minded rather than self-interested business leadership, going back to the Dayton's department store decision a half-century ago to donate 5 percent of its profits to the community. Corporate foundations currently invest about a billion dollars a year in Minnesota, Baker said, "and there's a culture here of stewardship.''  

— Dane Smith

The subsidy game: Slouching toward Wisconsin

The Star Tribune's Thomas Lee reports that "Another Minnesota company leaves for Wisconsin."

Dr. Joseph Ward, vice president of Marketing, said: “RJA Dispersions chose John Wold’s River Bluffs Business Center not only for its attractive location and economics, but also for the availability of industrial level power. Bill Rubin, director of the St Croix Economic Development Corporation coordinated key resources including availability of financial support from Char Gurney and the West Central Wisconsin Regional Planning Commission which is making our expansion plans possible in this difficult financing climate.”

Emphasis mine.

Hey, I get why a manufacturer might covet "availability of industrial level power," even though it's a mystery to me why the company could find better power in Hudson, Wisconsin, than is available in 3M's backyard. Just a hunch, but I think the "availability of financial support" probably played a bigger role.

Hudson is also home of the long-vacant St. Croix Meadows dog track, which promised big crowds, fancy restaurants and an influx of high-rolling tourism when it opened in 1991. You'd think communities would learn, but maybe the weeds growing up in the cracks in the parking lot aren't enough of a reminder.

This move is hardly on the same scale, but it brought to mind that only last week, Dell Inc. announced that it will shut down its state-of-the-art desktop computer manufacturing plant in Winston-Salem, N.C. facility by January, with the loss of 905 jobs.

Dell was promised more than $300 million in state and local incentives to open the [$130 million] plant. But it was required to invest $100 million, create 1,700 jobs by September 2010 and maintain those jobs for 10 more years. If those terms weren't met, the company would forfeit the incentive package.

Dell owed the state another 800 jobs in less than a year. Folding the state-of-the-art tent seems almost honorable.

Dell says it "will absolutely continue to comply with and honor all agreements with various governmental entities," which means it will pay back at least some of the help it received to locate there. As required.

[Winston-Salem Mayor Allen] Joines said he was assured by Kip Thompson, vice president for facilities, that Dell will honor its commitment to repay the $15.56 million the city has provided since Dell agreed to build the plant.

But millions of dollars won't be returned. Public agencies paid to prepare the Dell site for construction, widen roads leading to the plant, and equip community colleges to train company workers before the plant opened.

Our friends at Good Jobs First remind us that Dell was more aggressor than suitor. Greg Leroy's chapter on corporate tax dodges [PDF] details how Thompson ran the negotiations:

“Here’s what it’ll take,” Dell vice president Kip Thompson told Commerce Secretary Jim Fain in May 2004, according to Fain’s notes. “1) free land; 2) free bldg.; 3) no taxes; 4) training at $5m; 5) participation in creation of future value in the community.” The
following month, Thompson said to Fain: “[I am] not wowed here—not sure the state’s stepping up here ...If a state like N.C. can’t get after this, I’m worried for our country — there’s a certain amount of patriotism here.”

Meanwhile, Dell has announced that it would move its Irish operations to Poland in exchange for a 54 million Euro ($80 million) subsidy. The Poles are grateful, but say they are undeluded about the way the subsidy game works.

[W]ith wage costs rising, people here know they may have just a decade to make the most of the “Dell Effect” before the company vanishes again.

Although there's no specific talk of tax concessions in the brief story about the Minnesota company leaving for Wisconsin, the "another" in the headline implies it is part of a trend, and it may be tempting for readers to assume that our supposed unfriendly business tax climate is to blame.

But Wisconsin's total taxes as percent of income is now about 12.2 percent, ranking 13th, compared to 11.8 percent and a 19th ranking for Minnesota.

Let's hope Wisconsin doesn't decide to become Minnesota's Poland. Then, who will be Wisconsin's China?

— Charlie Quimby

After Labor Day, keep working on economic justice

I had the great privilege of delivering the Labor Day Sunday sermon at my church (Unity Church, Unitarian Universalist, in St. Paul). I offered the best I could find from Abraham Lincoln, the Bible, Catholic and Lutheran teachings on social justice, and recent economic studies to make the case that we have an inequality problem in Minnesota and the nation. And it was a treat to get Donna Summer's great song, "She Works Hard for the Money'' into the liturgy as the postlude.  

Here's one point I made about labor and fairness, and democratic and religious traditions.

As Americans we mark our progress by looking back at forms of liberation from exploitation of labor. In our western hemisphere, we look back in horror at the forced conversion and attempted enslavement of aboriginal people to Christendom and efforts to bring them under the English and Spanish or French yoke. We are proud of the American Revolution and our fight against the illegitimate seizure, without representation, of our labor. We are proud of the great fight led by liberal religious founders of our own Unitarian Universalist denomination against the enslavement of African people. Interestingly, southern defenders of slavery used the Bible’s apparent approval or neutrality on the subject to advance their secessionist cause.

In the last century, we’ve made enormous progress against the much more subtle forms of semi-slavery that come with unbridled capitalism and the slanted bargaining table set up between employers and employees: the simple and basic right to organize, child labor laws, the 40-hour work week and overtime compensation, the minimum wage, the civil rights movement and ongoing efforts to finish the Emancipation Proclamation and end the de facto slavery imposed on people of color, the migrant workers’ reforms, and in more recent years but throughout history, hugely important, the oppression of women in the workforce.

I urged the congregation to consider the mountains of evidence that show economic inequality growing once again, after we reached a high-water level of overall economic equality in the 1970s. And I urged folks to do whatever they possibly could to change policies and laws to bring about more equal outcomes, chiefly through more and better investment in human capital.   

The full text of the sermon is available here [PDF]. 

— Dane Smith

International study spotlights the health care-small business connection

Credit Lee Egerstrom of MN2020 with finding this study by the Center for Economic and Policy Research that compares U.S. small business employment with that in 20 other rich nations.

By every measure of small business employment, the United States has among the world’s smallest small-business sectors (as a proportion of total national employment). The lower taxes, less stringent regulations, and freer labor markets in the United States, it appears, have not yielded greater small-business employment here than elsewhere.

That's right. Although it's an article of faith in both parties that small businesses fuel America's job creation and innovation, we're worse than an also-ran in the global economy.

The study looked at:

• self-employment (the U.S. has the second lowest share of self-employed workers at 7.2 percent)
• shares of small business employment in manufacturing (only Ireland (9.6 percent) and Luxembourg (8.5 percent) ranked lower than the U.S. (11.1 percent)
• high-tech fields — computer-related services and research and development —where we ranked second- and third-lowest, respectively (Luxembourg spanked us in both categories)
• and lower-tech services (“restaurants, bars, and canteens”; “real estate activities”; and “renting of machinery and equipment etc.”) where we ranked dead last.

One comforting myth is that businesses are started by entrepreneurs with a design for a better mousetrap or maverick employees who wrote a business plan to exploit an opportunity their employer refused to invest in. These start ups will overcome obstacles and grow into healthy, profitable enterprises that provide good jobs and make the world a better place.

The job statistics will tell you that Minnesota’s smallest businesses (with 1-19 employees) account for about one-quarter of all new jobs annually. Even when its job losses are counted, this segment provides a net gain of jobs about equal to the state’s overall private sector job growth.

A lot of these small business simply deliver basic services and provide individuals a way to make a living in an economy that increasingly relies on part time labor and independent contractors. For every long-time mom and pop store or entrepreneur with a dream to build a company, there are several spouses supplementing the household income, displaced executives “consulting” between jobs, and painters, programmers and truck drivers who don’t know who they’ll be working for or what they’ll be making next month.

These may represent "new jobs," but they are hardly an engine of economic growth. Nearly three quarters of "small businesses" in Minnesota do not have employees.

I believe the downsizing and outsourcing by larger corporations is responsible in large part for this “job growth.”

Nearly three quarters of small businesses in Minnesota do not have employees. Most of these business owners will tell you the biggest decision they face is whether to hire some help; most never will. The second biggest is whether to offer "benefits" — which means health care and a 401(k) plan.

By outsourcing more work to small businesses, corporations can effectively buy the services without incurring the obligation to provide benefits. We've seen this gambit occur also in the retail sector, where employers use part-time work as a way of avoiding providing health care and other employee benefits.

The CERP study puts this practice in global perspective. In countries where there's national health care, a real barrier to entrepreneurial growth is removed. People are more likely to start businesses — and hire employees — knowing that health care will not be a cost that constrains their growth.

When I started my business I made an early decision to provide employee benefits that were competitive with what big companies offered — because those were our clients, and we wanted to attract talent that was comparable to what a major corporation would hire. That was the right strategic decision for my business at that time, but I know many start ups and sole proprietors who see health care as a major cost that they can't risk funding.

As Lee Egerstrom says:

Without a universal health care system that moves insurance costs off the backs of doing business, we will continue to thwart entrepreneurial development and we will continue to encourage large manufacturers and service providers to keep out-sourcing and off-shoring work and jobs.

Unless, of course, companies in those more enlightened countries simply take the business away from us.

— Charlie Quimby. Cross-posted from Across the Great Divide.

Recognizing business leaders and public leadership

Accepting a Hubert H. Humphrey Public Leadership Award earlier this month, Jim Campbell spoke about his upbringing in Byron, Minnesota, where his father the banker chaired the school board, the manager of the co-op was the volunteer fire chief, and other business owners ran community institutions.

In fact, the business community was indistinguishable from the community itself. The business people well recognized how their prosperity was intertwined with the prosperity of the place where they did business.

It was a picture of America that's familiar to anyone who grew up in a small town. Yes, there was no doubt some Gopher Prairie boosterism and self-dealing in those relationships, but in general, Campbell's nostalgic recollection is probably reasonably accurate. It made me reflect how local community interest can become blurred in the cause marketing/Big Box/high finance economy. And how public leadership is in danger of becoming a political specialty rather than a normal expectation of business leadership.

The Itasca Project founder and former Norwest Bank executive Campbell is one stellar example of how that old-fashioned business/public relationship can still work on a larger scale in the big city. Progressives, who may reflexively demean business for greed and contributing to social ills, need occasional reminders that Minnesota has more people like Campbell than Gordon Gekko.

— Charlie Quimby

Unenforced regulation benefits no one

Spending some quality time in another state inevitably invites comparisons back home. Nearly every day, I read a story in the Colorado press that evokes a comparison with Minnesota.

The story that prompted this post describes a suit against the Colorado insurance commission and department of public health:

State officials have allowed nursing homes to operate without insurance in violation of state law, leaving vulnerable residents without recourse when they are abused and neglected, lawyers charged in a lawsuit filed Friday.

Colorado state law requires nursing homes to have liability insurance. When the industry complained that the required $3-million policies were getting too expensive, the department of health adopted a policy allowing the homes to self-insure if they submitted affidavits to the insurance commission stating they had set aside up to $1 million to handle claims.

The lawsuit claims at least one company with a poor record with regulators submitted false information to the state, which did nothing to verify it. The suit asks the courts to require the state to make sure the homes are properly insured.

Stories like this raise broader questions about whether regulation is working the way it should, as well as arguments that government should not be regulating so many aspects of business operations.

The anti-regulation screed sounds something like this: "This is just one more example of a nanny state failure. Regulation adds to business costs and doesn't actually protect consumers who assume the government is taking care of a problem. Citizens would be safer if they took responsibility for their own affairs, instead of trusting government to regulate private businesses."

When small government advocates look for places to cut "non-essential" government services, this sort of regulation might well be on their list.

It certainly sounds like an agency fell down on the job — at least to the extent it trusted a national company to file truthful reports. We also know Colorado is one of the lowest-spending states on a per-dollar-of-personal-income basis, and in 2006 it ranked last among states on spending for public welfare. Presumably, officials in state agencies have to prioritize where they will spend their limited dollars. Monitoring compliance with insurance regulations may seem like a lower priority than making sure all patients are being taken care of appropriately.

If the company named in the suit was indeed skirting the liability coverage regulations, what other corners were being cut? And how do we know those shortcomings will come to light?

Starving government starts with starving inspections and audits that show taxpayers their dollars are being well-spent. Then, when problems surface, that's used as an example of how regulation isn't working and should be abolished.

But what's the alternative? If an underfunded agency can't verify a company was properly insured, how will individual consumers make that determination? How efficient is it for companies to handle individual queries that could be handled on a statewide basis? And what are the costs to society if "the marketplace" doesn't self-regulate?

These questions are not just about this specific issue of nursing home liability insurance. They apply broadly to the roles we want government to play on our behalf and what happens when we set the expectation without funding the follow through.

Finally, I wondered, does Minnesota require similar liability insurance coverage or reserves to handle claims? Speaking as a member of the general public, I can't easily tell whether state agencies or the nursing home companies have addressed this. And speaking as a taxpayer, I don't know how much those assurances would be worth to me.

[Note: Lee Egerstrom of Minnesota 2020 comes at insurance regulation from another angle, how closely the state reviews insurance products offered to consumers.]

— Charlie Quimby

Tax Commission report is reasoned, but...

The Governor's business tax reduction commission — can we dispense with the "21st Century Tax Reform" bit and call a spade a spade? — released its report on Friday, with the lead recommendation of repealing the state corporate franchise (income) tax. Another recommendation would exempt from taxation 20 percent of "pass-through" business income to individuals.

Given the Republican and business tilt of the group, the panel's report [PDF] is not surprising — but predictable is not the same as wrong.

You won't hear complaints from this quarter about its assessment of Minnesota's economy, the need for investment in education and academic research and the importance of business in creating wealth and well-being in the region.

And you won't even get much argument with ending the corporate franchise tax, either. If you have to cut a tax, it's not a bad one to choose. It's regressive, volatile and has a negative — though over-dramatized, in our view — effect on some business decisions.

But as we must learn over and over, not everything that's good for business is unfailingly good for the public.

In good times, the corporate franchise tax contributes a lot of revenue to the state. The recommended cuts would cost the state about $1 billion a year. 

The glossed, the obscured and the skirted

The commission was originally charged to cover the costs of reform in its proposal, but the final report avoids a specific tally of how proposed taxes would counter the cuts — settling for recommendations to expand the sales tax base and increase the tax on cigarettes by up to $1 a pack.

The commission says Minnesota's high corporate income tax rate puts the state at a disadvantage. It seems to acknowledge that our poor business tax climate is more perception than reality, but believes we must address it. (Why the financial types who drive business decisions can't see the difference between a statutory tax rate and actual total tax burden is a subject for another day.)

In support of the competition argument, since 2002, the report says, six states have reduced corporate tax rates or replaced the corporate income tax. We looked up the most recent growth rates for those states and threw in other states with no corporate income tax, plus our business-friendly neighbor, South Dakota. The growth picture for those states is definitely mixed. 

 

To its credit, the commission did not try to oversell the stimulative benefits of its corporate tax cut and other reforms. We believe they are likely to help business. The open question is how much. And the unanswered question is how even revenue-neutral reforms will help address the state's revenue shortfall.

Another point, with which we agree, is Chairman Mike Vekich's "Businesses don't pay taxes. You and I do. Where we tax businesses, we are taxing our own wealth."

But on the other hand, the commission seems reluctant to tax that wealth. Where income flows from businesses to people, the Commission also wants to see a cut. It amounts to a backdoor personal income tax cut for higher earners.

Small businesses would get a special boost -- one-fifth of owners' profits would be exempt from taxation.

House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington, said she was "stunned" by that recommendation.

"What it means is a managing partner at a small law firm will pay a smaller top rate on income than the associate partner who makes less," Lenczewski said. "The boss gets a big tax break because he owns the business, but the secretary doesn't. I agree with some of the commission's recommendations, but this one just confounds me."

And this is really the most disappointing aspect of the report. The commission skirted the issue of fairness to individuals, only acknowledging that replacing a regressive business tax with regressive sales taxes probably wouldn't make the system more regressive.

Fair seems to mean fair for business. Indeed, the word "fairness" appears only three times in the report's 34 pages, always in a list of general principles. The commission's second principle for reform is:

Tied to benefits received. There should be a strong, direct relationship between the nature and level of business taxation in the state and the cost of benefits and services provided to businesses by state and local governments.

This so-called benefits principle is a particular favorite of conservative theorists, but the devil is in the details. It wasn't the commission's charter to think about business tax reform's impact on a single, unemployed mother with a child in public school, but the legislature will.

In all, the commission's report adds another useful, philosophical perspective to the budget discussions. Progressives — and the governor — should open their minds to what it has to say.

—Charlie Quimby

Joe the Plumber: Stopped by taxes?

Joe wants to buy the business that he has been in for all of these years, worked 10, 12 hours a day. And he wanted to buy the business but he looked at your tax plan and he saw that he was going to pay much higher taxes.

You were going to put him in a higher tax bracket which was going to increase his taxes, which was going to cause him not to be able to employ people, which Joe was trying to realize the American dream.
— John McCain during the last presidential debate

As a former small business owner hearing Joe Wurzelbacher’s story during the last presidential debate, I was immediately skeptical. The snippets about his business aspirations didn’t add up, and when I dug into the story, it was clear none of the parties — including Joe — really understood his situation.

After I sat down that night to write Joe a letter, more details have come out. As I suspected, he makes a very modest income, and the business is much smaller than early media reports indicated. Joe also lacks the plumbing license that would be required for him to actually operate the company, and  he's fallen behind on his property taxes.

The real Joe doesn't quite fit the symbolic image of a working man on the verge of prosperity. But the fundamental points in my message to him still hold…

Dear Joe the Plumber:

It seems like your heart is in the right place, and you've worked hard at an honorable job. Now you have some hope of buying the other half of your two-man shop. Ownership and its rewards are a big part of your personal American Dream.

Good for you.

Now, thanks to the latest presidential debate, you've become a temporary national figure. The exposure could be worth more than a full-page ad in the Yellow Pages and a top level Google ad, so I guess you could say you have tax cutters to thank for boosting your company's growth.

Or at least you would have, if you'd remembered to mention the name of the business during all the media attention.

If I were your boss, first thing in the morning, I'd change the company's name to Joe the Plumber, get a new phone listing and throw up a web page.

Or not.

The interest in your political thinking will be good for less than a week, but people will always have clogged drains and faulty water heaters. And the real issues you face as a future business owner aren't about national policy, including any plan to tax high earners.

In fact, I'm concerned that your thinking about owning a business may be clouded by all the political rhetoric. Here's what I, as a former small business owner, think you should be concerned about.

Know what you're buying. According to reports, you want to buy the two-man plumbing shop you work for and plan to pay for it over a number of years. What, exactly, are you buying? A name and phone number, two used trucks, tools and inventory, maybe some relationships with customers or contractors that you've had a role in building. And the opportunity to pay for it over time, out of the cash flow from the business.

This may be a good plan, depending on how much you're paying for good will — which shouldn't be very much for this small business. Otherwise, this decision will cost you far more than any income tax plans being proposed.

Don't feel bad. Most Americans don't know what they've been buying.

Separate your American Dream from Small Business Reality. Sorry, but considering that your ambitions call for only one or two employees, the chances of you generating enough sales to pay off your purchase and still earn $250,000 a year are very remote. That makes me wonder whether you quite grasp the financial side of running a business.

Instead of worrying about paying higher taxes some day, look at the realities facing you now. That is, most small businesses fail or fail to grow, and almost all of them earn less than $250,000 in taxable income for their owners.

The reasons have nothing to do with their income taxes — unless they fail to pay them.

I applaud your hard work and desire to control your own destiny. That's where you should focus. If you do, you'll discover that paying a slightly higher marginal tax rate some day is probably the smallest problem you've had to overcome.

Decide how much you need and invest the rest. If you do surpass the $250,000 threshold, you'd only pay 3 percent more on the dollars you earn above that amount. If you pay yourself $300,000, that means $1,500 in additional taxes.

I'm guessing right now, if I offered you $50,000 but said you'd have to pay $1,500 more in taxes, you'd take it in a heartbeat. Well, that $50,000 is an even better deal when you're wealthier, because it wouldn't be subject to the FICA you pay on all your earnings today. And it would come on top of having your basic needs in life pretty well covered.

If you don't like that deal, you'd have another choice. You could put those extra dollars into healthcare for your employees, send them to training, buy a new truck, beef up your advertising, get some help to do the paper work or even hire another plumber who could produce more revenue.

And then write your income back down to $249,999.

Your business will grow and your life will probably get better because you can spend more time doing what you like — whether it's thawing pipes, selling or just helping people in a jam.

The anti-tax zealots want you to believe the scary stories that your future business prospects will be hamstrung by taxes you haven't even started to pay yet. That's not really how it works, and if you don't understand that, stop listening to the small government advocates and start talking to a real small business advocate.

Oh, and get that plumbing license, too.

Good luck,

Charlie Quimby, a guy who reached the American Dream, taxes and all

[Note: This piece appeared today in the print edition of Finance and Commerce.]