Why Job Creation is so Anemic

With the dismal jobs report this morning a post I have been preparing for sometime is now most relevant.

I am one of those people who are willing to take serious risks. In the last ten years I personally have tried and failed at 2 businesses. So what did I do, quit my job and started a personal business. Albeit a one person personal business right now, but I have been very successful this time. All this started when I quit my employment almost three years ago to begin this quest right before and obviously not knowing about the coming 2008 economic debacle, but my confidence in my skills led me to believe I could make it. I am making much more than when I left my job. I expect I could continue operating at this level for as long as I want to work.

At this point I have considered expanding and and increasing my income significantly. That expansion would likely immediately employ one or two new people, require my CPA to add some billable hours, require me to employ some legal help, and consider renting a new office locally. I also would be taking out a loan at the local bank. All of these actions would be a positive to the economy, as well as create additional employment there too.

After some soul searching and fact finding with my CPA, some legal advice, and prospective partners I have decided to hold off for now. Why? Many reasons. One, simply no assurance capital gains or individual tax rates are going to remain the same. The silliness of extending the tax rates only two years means nothing to prospective business owners who need to plan long term when considering investing serious money in a venture. I can only assume rates will go up since the current administration wants them to, but by how much? Two, this government has become so anti-business I fear what is coming next from them that would hurt any further investment Three, I have no idea what will eventually be required of me from the current health care laws and therefore how much it will cost me for employee insurance. I do suspect it will be significantly more than I now expect. Four, getting a bank loan has become very difficult.

Finally considering all above and the fact that I could be pushed to the maximum federal rate in annual taxable earnings I frankly am not sure that additional hours of hard work and the resulting increase in income would not be taxed away at a rate that makes the additional risk and work worthwhile.

The tax rate my additional income could be subject to is as follows. NC state income tax 7.75%, new health care law medicare tax 3.8% when applied, top federal tax rate desired by the current administration 39.6%, and Social Security and Medicare tax on first $106800 of 15.3% once the current reduced tax rates expire in two years. So on my first $106800 of business income my rate would be 39.6%+7.75%+3.8%+15.3 % = 66.45% total on first $106.8k of additional income. Now I know some might think, I wish I could make that kind of money I would be glad to pay the tax. Maybe so, but consider if you were RISKING several hundred thousand dollars of your own capital to start a business that might fail and you will make only 33.55 cents clear on every dollar of profit would you be willing to risk your money? I suspect many would not.

Just about one month ago I considered the possible opportunity to purchase a ongoing business of which I had significant understanding. The price would likely be good and the chance of adding profit high. But again after considering the current anti-business climate and future tax burden outlined above I figured the additional work was not worth the trouble.

I expect there are other entrepreneurs amd small town investors out there who think like I do. With all this in mind it is easy to see why job creation is so anemic.