7 ms·

The Simplicity Test: A Simple Policy Guide for Job Growth

89 points by stakent 17y ago

fortes 17y ago
Amen. (Although this will never happen). I have a simple S Corporation setup in Washington. I have to deal with: - City government (license & tax) - County government (property tax) - State government (license, 3 different taxes) - Federal government (payroll, etc) This is for a one-man corporation in a state without state taxes. The amount of paperwork and agencies is a total time-sink. Outsourcing it cheap for a small business either (need more volume to amortize the cost). Sadly, I don't see simplification happening in politics anytime soon. Not only does it require cooperation between different levels of government, it would create fewer loopholes for businesses. It's the same reason we'll never see a simple flat tax for personal taxes. Makes it too difficult to hide all the political favors.
- justinph 17y ago
  Fully agreed. I just shut down my S-Corporation because the tax savings weren't worth the extra hassle of all the paperwork and complexity.
- vaksel 17y ago
  why do you need licenses? Are you a brick and mortar business?
  - fortes 17y ago
    Doesn't matter if you're brick and mortar, you still need licenses having a basic business. In general, the laws aren't really made with small/virtual businesses in mind. You need physical locations, in-person meetings, non-electronic paperwork, etc, etc.
- kingkongreveng_ 17y ago
  Far better and simpler than flat taxes would be to eliminate all income taxes, both business and personal, and depend entirely on tariffs, excise taxes, and fees. Arithmetically this is completely feasible. Imagine if outside of import and export business and those industries affected by excise people had practically no interface with the federal government on a year by year basis.
  - krakensden 17y ago
    Wouldn't that violate our various free trade agreements and lose us our membership in the WTO?
    - anamax 17y ago
      You write that like membership in the WTO is necessarily a good thing. It isn't. International organizations range from "mostly harmless" to horrorshows. (The mostly harmless ones are a basically specialized phone books with an information exchange/meet people conference every year or so - think ACM.) Tariffs are a bad thing, but the US is a big enough gorilla that the WTO would figure out some way to accomodate the US in that circumstance.
      - krakensden 17y ago
        Let me rephrase that. Pissing on _every_ _single_ other country we do business with by unilaterally ending free trade after we've spent decades setting up free trade agreements (and organizations like the WTO) seems like a suboptimal stratagem to me.
        anamax 17y ago
        Yes, but that's different. It has almost nothing to do with membership in the WTO.
- jacoblyles 17y ago
  The Lessig video that I just submitted has a great analysis of the incentive facing government representatives and why these kind of reforms are impossible. You might want to check it out.
Eliezer 17y ago
Another brilliant idea that makes you cry with the impossibility of anyone ever doing it.
- runevault 17y ago
  Amen. While I don't always agree with what he says, Cuban is good at making points. Especially from the perspective of making things easier on entrepreneurs, since he started out and just happened to make that big deal to turn him into a billionaire.
- maukdaddy 17y ago
  The real impossibility is getting this idea passed through congress. Unfortunately, you don't get votes by simplifying things. Instead, you have to make "progress" by adding on pork projects, subsidies, tariffs, quotas, etc. that benefit your constituents.
  - cwan 17y ago
    That I think was the conventional thinking but it's gotten to a tipping point with massive new proposals for complexity / government spending/programs. I think a large part of the popularity of the tea party/'throw the bums out' movement and perceptions of corruption in Washington is the result of push back. Irrespective of political leanings, the loss of the seat Ted Kennedy for decades in Massachusetts to a Republican has to be a shocker (even to the republican leadership that didn't spend much time or energy backing their candidate until the last few days). Simplification means less corruption and fewer costs not only for small business but for everyone. A useful reference point is to consider the positive relationship between economic growth and reduced regulation and you can see that through the World Bank's Doing Business guide comparing various states (http://www.doingbusiness.org http://www.doingbusiness.org)
- mattmcknight 17y ago
  Another aspect of it that gets to me is the competitiveness drain that all of these add to a company. If a competitor in another county, state, or country has less bureaucracy to deal with, or has to pay lower fees (not in dollars, for example), they can win.
breck 17y ago
This is so true. When I was a teen I started an LLC in MA. It was simple and cost $100. 3 years ago I started another and the price had gone up to $500. For adding a row to a database, $500. >Like the administration before it, the current administration seems to have no concept of what it takes to start, run and grow a small business. None. Mitt Romney was governor during this increase in MA. I couldn't believe he would allow such a thing. But then I realized he had no experience starting a small business without millions of dollars in capital from the get go.
- loumf 17y ago
  The Romney administration increased fees across the board. They wanted to claim "no tax increase" and hid the tax increase in these fee increases. It's politically easier to increase a fee because not everyone pays it immediately or thinks that they necessarily will.
logicalmind 17y ago
I'm all for simplifying the overhead on companies, but to translate that into creating jobs is a bit of a stretch. If you cut all of the taxes on an existing company they would not simply add jobs to their company. The only way jobs are added is if they're necessary. This usually means an increase in sales/revenue and the need for more resources. To take a modern example, the recent recession caused companies to go on a spree of job cutting. This wasn't because of any change in tax or overhead. It was the result of lost revenue. Increased revenue causes job increases. Not the efficiencies of overhead.
- breck 17y ago
  > but to translate that into creating jobs is a bit of a stretch. I don't think it's too much of a stretch. It's generally not a good idea (or practiced in reality) to hire people until you have a corporation setup. The largest barrier to setting up a corporation is cost and paperwork time. If you reduced or eliminated those, you would very likely see a lot more corporations spring up and then a lot more jobs created. Even if many of these corporations went bust and the jobs didn't last at these ones, at least you would greatly reduce the time and cost for experimenting with a new company and you'd see the number of successful companies (which add permanent jobs) increase.
  - logicalmind 17y ago
    If your barrier to entry is the cost to incorporate, how could you afford to create a job? Surely, in any state in the union the cost of even a minimum wage salary exceeds the cost to incorporate. That's not even considering the salary cost of skilled labor.
    - jbellis 17y ago
      Typically you will only get (even angel) investment _after_ incorporation.
    - fortes 17y ago
      Hiring someone is far more complex than just having the funds to do so. Ignoring all the taxes, there is a lot of paperwork and agencies you have to deal with. I would hire someone right now if it were easier, but I can't afford to hire someone once I factor in the administrative and tax overhead.
larsberg 17y ago
What about people starting small businesses in accounting and law?
- lionhearted 17y ago
  Exceptionally smart and driven people generally - they'll move into doing more productive things than dealing with the government. Also, thinking that creating new bureaucracy creates new value through accounting/legal probably is an example of the Broken Window Fallacy: http://en.wikipedia.org/wiki/Parable_of_the_broken_window http://en.wikipedia.org/wiki/Parable_of_the_broken_window
  - logicalmind 17y ago
    Some of the smartest people I know work, or have worked, for NASA. Some of the most cutting edge work is done in aeronautics for military aircraft. The Manhattan Project had its share of exceptionally smart people. I think you're confusing exceptionally smart with exceptional business skills.
- krakensden 17y ago
  What about people starting small businesses manufacturing buggy whips?
Mz 17y ago
That government is best which governs least. -- Thomas Paine Something the American government seems to have completely forgotten.
- jbellis 17y ago
  The voters forgot first.
nazgulnarsil 17y ago
anyone that has ever run a small business know how taxation and regulation make it much harder to hire new employees. sure, monetarily, but also in terms of simple time and increased risk (lack of ability to make truly binding employment contracts). you discourage things by taxing them, you encourage things by subsidizing them. if you reduce taxation on new employment (such as, say, waiving payroll taxes for the first 3 months of employment) it will increase the ability of employers on the margin to hire.
- fortes 17y ago
  Just reducing the number of separate agencies you need to deal with would be a help, even if the net amount of taxes remains the same.
joelhaus 17y ago
The concept is sound; however, the execution is far from trivial. GAAP (http://en.wikipedia.org/wiki/GAAP http://en.wikipedia.org/wiki/GAAP) and IFRS (http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards http://en.wikipedia.org/wiki/International_Financial_Reporti...) are two great examples of accounting standards which approach regulation from two very different perspectives. I'd be interested if someone has info comparing administrative costs for businesses operating under each regime. Regarding the tax code, my opinion is that all corporate income tax should be eliminated in favor of steeper progressive tax rates for individual income taxes. Effectively eliminating this burden from corporations and shifting it to the wealthiest who can afford the administrative costs, while also having a neutral effect on government revenues. By its nature, capitalism demands regulations to inspire confidence in investors. So don't fool yourself into believing "all regulation is bad." The question remains, "what is the most effective & efficient means of regulation?" Finally, here's some advice, an LLC is generally the most effective form for a small business to take. When you get to the point where additional equity must be issued or raised, you might then consider the advantages of C or S corporation.
- skmurphy 17y ago
  In California an LLC pays a franchise tax on gross revenue that SubS is not subject to (in addition to all of the fees that both owe) Unless you have foreign nationals as founders SubS is probably preferable in California.
  - joelhaus 17y ago
    So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's not enough, you could always pick up shop and shift your nexus to another state. It's really up to the owners judgment, but a significant franchise tax bill on a small business might be preferred over the additional administrative requirements for running an S corp. At least in the former scenario, you are bringing in some nice revenue. [UPDATE: here's some info on California S corp vs. LLC: http://en.wikipedia.org/wiki/S_corporation#California.2C_New_York_City_additional_taxes http://en.wikipedia.org/wiki/S_corporation#California.2C_New...]
holdenc 17y ago
One way around the complexity: establish permanent residency in a more friendly tax home.
anigbrowl 17y ago
Forget government loan guarantees. Make capital gains on investments up to $1mm in small companies tax free. Make this process paperwork free for the small business and a 1 page form for the investor. Someone wasn't paying attention to the State of the Union speech... http://www.businessweek.com/smallbiz/running_small_business/archives/2010/01/what_obama_said.html http://www.businessweek.com/smallbiz/running_small_business/...

89 points by stakent 17y ago

Amen. (Although this will never happen). I have a simple S Corporation setup in Washington. I have to deal with: - City government (license & tax) - County government (property tax) - State government (license, 3 different taxes) - Federal government (payroll, etc) This is for a one-man corporation in a state without state taxes. The amount of paperwork and agencies is a total time-sink. Outsourcing it cheap for a small business either (need more volume to amortize the cost). Sadly, I don't see simplification happening in politics anytime soon. Not only does it require cooperation between different levels of government, it would create fewer loopholes for businesses. It's the same reason we'll never see a simple flat tax for personal taxes. Makes it too difficult to hide all the political favors.

justinph 17y ago
Fully agreed. I just shut down my S-Corporation because the tax savings weren't worth the extra hassle of all the paperwork and complexity.
vaksel 17y ago
why do you need licenses? Are you a brick and mortar business?
- fortes 17y ago
  Doesn't matter if you're brick and mortar, you still need licenses having a basic business. In general, the laws aren't really made with small/virtual businesses in mind. You need physical locations, in-person meetings, non-electronic paperwork, etc, etc.
kingkongreveng_ 17y ago
Far better and simpler than flat taxes would be to eliminate all income taxes, both business and personal, and depend entirely on tariffs, excise taxes, and fees. Arithmetically this is completely feasible. Imagine if outside of import and export business and those industries affected by excise people had practically no interface with the federal government on a year by year basis.
- krakensden 17y ago
  Wouldn't that violate our various free trade agreements and lose us our membership in the WTO?
  - anamax 17y ago
    You write that like membership in the WTO is necessarily a good thing. It isn't. International organizations range from "mostly harmless" to horrorshows. (The mostly harmless ones are a basically specialized phone books with an information exchange/meet people conference every year or so - think ACM.) Tariffs are a bad thing, but the US is a big enough gorilla that the WTO would figure out some way to accomodate the US in that circumstance.
    - krakensden 17y ago
      Let me rephrase that. Pissing on _every_ _single_ other country we do business with by unilaterally ending free trade after we've spent decades setting up free trade agreements (and organizations like the WTO) seems like a suboptimal stratagem to me.
      - anamax 17y ago
        Yes, but that's different. It has almost nothing to do with membership in the WTO.
jacoblyles 17y ago
The Lessig video that I just submitted has a great analysis of the incentive facing government representatives and why these kind of reforms are impossible. You might want to check it out.

Eliezer 17y ago

Another brilliant idea that makes you cry with the impossibility of anyone ever doing it.

runevault 17y ago
Amen. While I don't always agree with what he says, Cuban is good at making points. Especially from the perspective of making things easier on entrepreneurs, since he started out and just happened to make that big deal to turn him into a billionaire.
maukdaddy 17y ago
The real impossibility is getting this idea passed through congress. Unfortunately, you don't get votes by simplifying things. Instead, you have to make "progress" by adding on pork projects, subsidies, tariffs, quotas, etc. that benefit your constituents.
- cwan 17y ago
  That I think was the conventional thinking but it's gotten to a tipping point with massive new proposals for complexity / government spending/programs. I think a large part of the popularity of the tea party/'throw the bums out' movement and perceptions of corruption in Washington is the result of push back. Irrespective of political leanings, the loss of the seat Ted Kennedy for decades in Massachusetts to a Republican has to be a shocker (even to the republican leadership that didn't spend much time or energy backing their candidate until the last few days). Simplification means less corruption and fewer costs not only for small business but for everyone. A useful reference point is to consider the positive relationship between economic growth and reduced regulation and you can see that through the World Bank's Doing Business guide comparing various states (http://www.doingbusiness.org http://www.doingbusiness.org)
mattmcknight 17y ago
Another aspect of it that gets to me is the competitiveness drain that all of these add to a company. If a competitor in another county, state, or country has less bureaucracy to deal with, or has to pay lower fees (not in dollars, for example), they can win.

breck 17y ago

This is so true. When I was a teen I started an LLC in MA. It was simple and cost $100. 3 years ago I started another and the price had gone up to $500. For adding a row to a database, $500. >Like the administration before it, the current administration seems to have no concept of what it takes to start, run and grow a small business. None. Mitt Romney was governor during this increase in MA. I couldn't believe he would allow such a thing. But then I realized he had no experience starting a small business without millions of dollars in capital from the get go.

loumf 17y ago
The Romney administration increased fees across the board. They wanted to claim "no tax increase" and hid the tax increase in these fee increases. It's politically easier to increase a fee because not everyone pays it immediately or thinks that they necessarily will.

logicalmind 17y ago

I'm all for simplifying the overhead on companies, but to translate that into creating jobs is a bit of a stretch. If you cut all of the taxes on an existing company they would not simply add jobs to their company. The only way jobs are added is if they're necessary. This usually means an increase in sales/revenue and the need for more resources. To take a modern example, the recent recession caused companies to go on a spree of job cutting. This wasn't because of any change in tax or overhead. It was the result of lost revenue. Increased revenue causes job increases. Not the efficiencies of overhead.

breck 17y ago
> but to translate that into creating jobs is a bit of a stretch. I don't think it's too much of a stretch. It's generally not a good idea (or practiced in reality) to hire people until you have a corporation setup. The largest barrier to setting up a corporation is cost and paperwork time. If you reduced or eliminated those, you would very likely see a lot more corporations spring up and then a lot more jobs created. Even if many of these corporations went bust and the jobs didn't last at these ones, at least you would greatly reduce the time and cost for experimenting with a new company and you'd see the number of successful companies (which add permanent jobs) increase.
- logicalmind 17y ago
  If your barrier to entry is the cost to incorporate, how could you afford to create a job? Surely, in any state in the union the cost of even a minimum wage salary exceeds the cost to incorporate. That's not even considering the salary cost of skilled labor.
  - jbellis 17y ago
    Typically you will only get (even angel) investment _after_ incorporation.
  - fortes 17y ago
    Hiring someone is far more complex than just having the funds to do so. Ignoring all the taxes, there is a lot of paperwork and agencies you have to deal with. I would hire someone right now if it were easier, but I can't afford to hire someone once I factor in the administrative and tax overhead.

larsberg 17y ago

What about people starting small businesses in accounting and law?

lionhearted 17y ago
Exceptionally smart and driven people generally - they'll move into doing more productive things than dealing with the government. Also, thinking that creating new bureaucracy creates new value through accounting/legal probably is an example of the Broken Window Fallacy: http://en.wikipedia.org/wiki/Parable_of_the_broken_window http://en.wikipedia.org/wiki/Parable_of_the_broken_window
- logicalmind 17y ago
  Some of the smartest people I know work, or have worked, for NASA. Some of the most cutting edge work is done in aeronautics for military aircraft. The Manhattan Project had its share of exceptionally smart people. I think you're confusing exceptionally smart with exceptional business skills.
krakensden 17y ago
What about people starting small businesses manufacturing buggy whips?

Mz 17y ago

That government is best which governs least. -- Thomas Paine Something the American government seems to have completely forgotten.

jbellis 17y ago
The voters forgot first.

nazgulnarsil 17y ago

anyone that has ever run a small business know how taxation and regulation make it much harder to hire new employees. sure, monetarily, but also in terms of simple time and increased risk (lack of ability to make truly binding employment contracts). you discourage things by taxing them, you encourage things by subsidizing them. if you reduce taxation on new employment (such as, say, waiving payroll taxes for the first 3 months of employment) it will increase the ability of employers on the margin to hire.

fortes 17y ago
Just reducing the number of separate agencies you need to deal with would be a help, even if the net amount of taxes remains the same.

joelhaus 17y ago

The concept is sound; however, the execution is far from trivial. GAAP (http://en.wikipedia.org/wiki/GAAP http://en.wikipedia.org/wiki/GAAP) and IFRS (http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards http://en.wikipedia.org/wiki/International_Financial_Reporti...) are two great examples of accounting standards which approach regulation from two very different perspectives. I'd be interested if someone has info comparing administrative costs for businesses operating under each regime. Regarding the tax code, my opinion is that all corporate income tax should be eliminated in favor of steeper progressive tax rates for individual income taxes. Effectively eliminating this burden from corporations and shifting it to the wealthiest who can afford the administrative costs, while also having a neutral effect on government revenues. By its nature, capitalism demands regulations to inspire confidence in investors. So don't fool yourself into believing "all regulation is bad." The question remains, "what is the most effective & efficient means of regulation?" Finally, here's some advice, an LLC is generally the most effective form for a small business to take. When you get to the point where additional equity must be issued or raised, you might then consider the advantages of C or S corporation.

skmurphy 17y ago
In California an LLC pays a franchise tax on gross revenue that SubS is not subject to (in addition to all of the fees that both owe) Unless you have foreign nationals as founders SubS is probably preferable in California.
- joelhaus 17y ago
  So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's not enough, you could always pick up shop and shift your nexus to another state. It's really up to the owners judgment, but a significant franchise tax bill on a small business might be preferred over the additional administrative requirements for running an S corp. At least in the former scenario, you are bringing in some nice revenue. [UPDATE: here's some info on California S corp vs. LLC: http://en.wikipedia.org/wiki/S_corporation#California.2C_New_York_City_additional_taxes http://en.wikipedia.org/wiki/S_corporation#California.2C_New...]

holdenc 17y ago

One way around the complexity: establish permanent residency in a more friendly tax home.

anigbrowl 17y ago

Forget government loan guarantees. Make capital gains on investments up to $1mm in small companies tax free. Make this process paperwork free for the small business and a 1 page form for the investor. Someone wasn't paying attention to the State of the Union speech... http://www.businessweek.com/smallbiz/running_small_business/archives/2010/01/what_obama_said.html http://www.businessweek.com/smallbiz/running_small_business/...