Steve Odland appeared on CNBC’s Squawk on the Street program on August 31, 2018 to discuss the new Conference Board survey results on worker satisfaction, consumer confidence, and the economy.
Steve Odland appeared on CNBC’s Power Lunch on July 31, 2018 to discuss The Conference Board Consumer Confidence Index. The July results show continued very high confidence in the economy tied to growth and job creation.
Steve Odland appeared on CNBC’s Power Lunch June 15, 2018 to discuss trade and tariffs.
Steve Odland appeared on CNBC’s Power Lunch 5/31/18 to discuss whether the U.S. is in a trade war and the effect on markets.
Steve Odland, Committee for Economic Development, appeared on CNBC’s Power lunch on April 6, 2018 to discuss fears of a trade war rattling the market and how it could impact the retail industry.
He appeared on CNBC’s Closing Bell on February 20, 2018.
Steve Odland appeared on CNBC’s Squawk Alley on 12/26/17 to discuss holiday retail sales.
- 2017 Holiday retail sales this year projected +4.9%, to highest level in history
- Bricks and mortar retailers expected +2%
- Online projected to be up +18%, now about 10% of total sales
- Mobile drives 23% of ecommerce, 44% of site visits
- 60% of consumers plan to buy online
- Amazon collecting 60-70% online sales increases, 44% share of online retail, projected to exceed 50% in coming years
- WMT online sales +60%, but only to 3% of total; AMZN 10x WMT online
Steve Odland appeared on CNBC’s Squawk Alley on August 22, 2017 to discuss the relationship between the Administration and CEOs, as well as the role of CEOs in the debate over political issues.
Steve Odland appeared on CNBC’s Squawk Box on August 17, 2017. Commenting on the Manufacturing Council and the Strategy & Policy Forum disbanding, he urged business leaders to continue to engage and focus on policy, not politics.
Steve Odland appeared on CNBC’s Closing Bell August 16, 2017 to discuss the disbanding of the Manufacturing Council and the Strategy & Policy Forum in the wake of the Charlottesville events and Administration reaction.
Don Peebles, CEO of Peebles Corporation, and Steve Odland, Committee for Economic Development CEO, discuss how President Trump’s new Chief of Staff John Kelly might control the White House chaos and get the agenda back on track.
From CNBC’s Power Lunch Program on July 31, 2017.
Steve Odland appeared on CNBC’s Squawk Alley on June 16, 2017 to discuss Amazon’s purchase of Whole Foods. The acquisition is an inexpensive way for Amazon to acquire a high quality perishables distribution system with 450 brick and mortar sites in 42 states. This opens the door to a $1T non cyclical food industry in the US for Amazon, and will help them deepen share of wallet among current customers as well as access new customers with a much higher shopping frequency that their average customer.
Steve Odland appeared on CNBC’s Power Lunch on May 10, 2017 to discuss the Administration’s dismissal of James Comey and the impact on policy in Washington.
Steve Odland appeared on CNBC’s Squawk On The Street on April17, 2017 to discuss the series of PR issues at United Airlines.
Steve Odland appeared on CNBC’s Power Lunch on April 11, 2017 to discuss the Administration’s meetings with CEOs and what are the focal points. The national debt is the key issue, and tax, regulatory, and healthcare policies need to be developed to drive GDP growth to grow our way out of the debt.
Steve Odland appeared on CNBC’s Power Lunch program on April 4, 2017 to discuss the new Administration interactions with CEOs, immigration, H1-B visas.
Steve Odland appeared on CNBC’s Squawk Alley on 3/29/17 to discuss the job announcements by companies and their PR strategies.Job Creation Should Be Celebrated
Steve Odland appeared on CNBC’s Power Lunch program march 6, 2017 to discuss the management style of the new Administration.
Steve Odland appeared on CNBC’s Squawk on the Street on 2/21/17 to discuss Retail sector performance and the proposed border tax.
Steve Odland appeared on CNBC’s Squawk Box February 6, 2017 to introduce the new book Sustaining Capitalism. Business leaders need to re-engage in the public square to work with elected officials and drive public policy reforms to ensure capitalism is sustained over the long run.
Steve Odland appeared on CNBC’s Squawk On The Street to discuss the meetings between CEOs and the new Administration. 2/2/17
Steve Odland appeared on 1/4/17 on CNBC’s Power Lunch to discuss how business leaders should engage with the new Trump Administration.
Steve Odland appeared with Yale’s Jeff Sonnenfeld on CNBC’s Power Lunch 12/29/16 to discuss how CEO’s should engage with the new Trump Administration.
Steve Odland appeared on CNBC’s Squawk Box on 12/28/16 to discuss holiday retail trends, consumer confidence, and the impact of online players on bricks and mortar retailers.
Steve Odland appeared on CNBC’s Squawk Alley on December 23, 2016 to discuss retail trends, and the possible policy impact of the new Administration and Congress on retail.
Steve Odland appeared on CNBC’s Closing Bell on December 6, 2016 to argue that trade lifts people and economies, that import tariffs reduce trade and are a tax on consumers and also input goods, and ultimately reduce manufacturing and exports. All in all, bad for the US economy. We need to address the issue through tax and regulatory reform instead.
Steve Odland appeared on CNBC’s Power Lunch show 12/2/16 to discuss the President-elect’s deal with Carrier. While this met his “deal maker” persona and met commitments made during the campaign, this strategy is best left to state and local governments. Ultimately the federal government needs to fix the tax and regulatory policies which have led to the loss of jobs and diminished business growth.
Steve Odland, former Office Depot CEO and Committee for Economic Development president and CEO, appeared on CNBC’s Squawk On The Street 11/23/16 to discuss the retail sector ahead of Black Friday and following the 2016 election.
Steve Odland appeared on CNBC’s Power Lunch November 18, 2016 to discuss CEO reaction to the new Administration.
Our new book, Sustaining Capitalism: Bipartisan Solutions to Restore Trust & Prosperity, now is available on Amazon.
In the wake of the financial disruptions of the last decade, most notably here in the United States but also in many other developed and developing free-enterprise economies, the most basic optimistic assumptions and attitudes about growth and prosperity have eroded. Today’s economy and society are reminiscent of the United States in the 1930s when fear begat fear, and the economy remained stagnant until the onset of World War II shocked it to life. People talked then of a “crisis of capitalism,” and believed that the booming wartime economy could fall right back into the Great Depression when the war ended.
And that is where we, the Committee for Economic Development (CED), enter this story. This book takes its inspiration from CED’s founding in 1942, when a small circle of U.S. business leaders gathered to identify solutions that would restore order to a global economy. Similarly, it was in response to a more recent crisis in American capitalism, following the financial downturn of 2008, that CED launched a multi-year research project on sustainable capitalism. This book, designed for business leaders and policymakers, is the culmination of those research efforts. Its publication appropriately coincides with the 75th anniversary of CED.
We at CED see an urgent need for revisions in both business practices and public policy if our economic system is to reestablish consistent economic growth and regain the trust of the American public. We write this book as our contribution toward resuming respectful dialog among what have become disparate and distrustful public factions. And we hope to convince our fellow business leaders that we need to engage the entire business community in public dialog and dedication to private best business practices. In the chapters that follow, we remind our readers of why the free enterprise system has earned—and deserves—its reputation as the preeminent form of economic organization, respond to what we believe are inaccurate accusations toward that system, and focus on remedies to legitimate concerns.
The analyses and recommendations presented in this book, aligned with other activities the CED is undertaking in connection with its 75th anniversary, underscore our fervent belief in the free-market economic system—our nation’s brand of capitalism, which has brought wealth and higher living standards to the United States and countries throughout the world. We see no more important task than to pursue CED’s ideals: long-term economic growth; efficient fiscal and regulatory policy; competitive and open markets; a globally competitive workforce; equal economic opportunity; and nonpartisanship in the nation’s interest. In short, we seek to make American capitalism sustainable, and to unite Americans of differing persuasions behind the core principle that the U.S. free-market economic system can be made to work for all of us.
Although the term “sustainable” has environmental connotations today, we use the word in its more traditional business sense, meaning long-term successful duration. We do not directly address environmental sustainability in this volume.
Steve Odland appeared on CNBC’s Squawk on the Street on November 10, 2016 to discuss the election of Donald Trump and the likely policy focus of his Administration.
Steve Odland appeared on CNBC’s Squawk On The Street August 18, 2016 to discuss Amazon’s success and softness in other retail.
Steve Odland appeared on CNBC’s Power Lunch on July 12. 2016 to comment on the JP Morgan plan to raise salaries for the lowest paid employees in the firm.
Steve Odland appeared on CNBC’s Squawk on the Street program june 15, 2016 to discuss the BRT survey of CEOs regarding the economy.
Steve Odland appeared on CNBC’s Squawk On The Street on May 11, 2016 to discuss the Staples-Office Depot deal as well as Macy’s first quarter results.
Steve Odland appeared on CNBC’s Power Lunch 4/11/16 to argue that the corporate tax code is broken and needs fundamental reform.
Steve Odland appeared on CNBC’s Power Lunch on April 5, 2016 to argue that executive compensation should be tied to long term shareholder value creation.
Steve Odland appeared on CNBC’s Power Lunch on April 5, 2016 to discuss Corporate Inversions and argued that 1) companies are following the law; 2) politicians should stop the name calling; and 3) Congress needs to fix the underlying tax code.
Steve Odland appeared on CNBC’s Power Lunch on 3/24/16 to discuss whether America needs a CEO in the White House.
Steve Odland appeared on CNBC’s Power Lunch on 3/24/16 to discuss the attack on Yahoo by activists.
Steve Odland appeared on CNBC’s Power Lunch on 3/15/16 to argue that while normally executive compensation should be tied to creation of shareholder value, in the case of Chipotle, they need a higher focus on food safety to deal with the acute issues facing that company and perhaps compensation should be at least partially based directly on measurements related to safety.
Steve Odland appeared on CNBC’s Squawk On The Street 3/11/16 to argue that businesses simply follow the laws passed by Congress. Politicians should stop bashing business for the outcomes but should simply change the laws instead.
Steve Odland appeared on CNBC’s Squawk On The Street March 10, 2016 to discuss the 2016 U.S. Presidential Elections.
Steve Odland appeared on CNBC’s Power Lunch program on January 13, 2016 to discuss GE’s move of their headquarters from Connecticut to Boston.
Steve Odland appeared on CNBC’s Power Lunch on December 8, 2015 to discuss the food safety issues at Chipotle and what needs to be done within their company and then externally to reassure customers and shareholders.
Steve Odland appeared on CNBC’s Fast Money Halftime Report on November 25, 2015. He argued that retail inventories coming out of Q3 were high, trends were poor in most areas of retail, and so margins were going to be pressured. Winners currently are mobile, web-based, anything auto, anything, home improvement, and fast fashion.
Steve Odland appeared on Squawk On The Street on CNBC 11/13/15 to explain that retail sales misses with large inventory builds will create the need for retailers to drastically cut prices for clearance and thereby reduce retail margins for the holiday selling season.
Steve Odland appeared on CNBC October 26,2015 to discuss the Valeant Pharmaceutical situation. The independent committee of the board will need quickly to investigate the issue with Philidor and communicate openly and transparently to their customers and the investment community.
Steve Odland appeared on CNBC Wednesday, October 7, 2015 to discuss the VW Supervisory Board meeting, YUM, and the $2T in cash trapped offshore on US corporate balance sheets.
On September 25, 2015 Steve Odland appeared on CNBC to discuss China and Volkswagen.
Steve Odland appeared on CNBC Power Lunch on September 24, 2015 to argue that China is an important trading partner, business partner, geopolitical ally, but that they need to act responsibly when it comes to cyber security, counterfeiting of goods, and intellectual capital.
Three Steps Congress and the President Must Take to Energize Job Creation
We’re living in an economic twilight zone. A seemingly healthy economy is seen from afar; one with rising wages and a dropping unemployment rate that now stands at 5.3% – within the range of what’s considered to be full employment. But when you look up close you see an America that’s nowhere close to firing on all cylinders:
- More than one in four of the unemployed, over two million people, have been looking for work for six months or more.
- Nearly 94 million people over age of 16 are outside the workforce—a record high.
- One in seven Americans still lives in poverty.
- Close to a million more people work part-time than before the Great Recession but want to be employed full-time.
- GDP growth is stuck in neutral at under 2%.
Our economy needs to expand faster and we need more full-time job creation. Congress will return from recess next week. Together with the President, they should take up an agenda with the following three steps – all of which have bi-partisan support – to ramp up job creation.
- Lift the Oil Export Ban
Dating back to the ‘70s fuel crisis, the U.S. energy sector is still barred from selling crude oil outside the country, with few exceptions. No longer does this make sense from an economic or a national security standpoint. Our newfound capabilities to efficiently extract energy from shale, of which we have in abundance, have helped put America at the top of the pack in oil and gas production.
It’s estimated that lifting the ban would lead to approximately 400,000 jobs being created annually from 2016-2030, along with adding $86 billion to our gross domestic product. To boot, national, state, and local governments, many of which suffer from strained coffers, would reap a combined $1.3 trillion in revenue. Finally, lifting the ban would contribute to lower gasoline prices and increased American energy security.
2. Reform the Corporate Tax Code for Businesses Large and Small
The U.S. corporate tax code makes our companies uncompetitive. At 35%, the tax rate is the highest among industrialized nations. U.S. multinational companies have an estimated $2 trillion in earnings currently trapped overseas. Just enacting a repatriation tax holiday could bring well over a half trillion dollars into the country. But the rate must be lowered permanently to incentivize corporations to invest and create more U.S. jobs.
Improving the individual tax code is equally important for job creation. Over half of the private sector workforce is actually in smaller companies – LLCs, LPs, etc. – that pay income tax at the individual rate. This rate tops off around 40% but can rise to 50% or more when state income taxes are included. Given that more businesses are now dying than being created, and that most small businesses – the sector accounting for two-thirds of net new jobs – pay at the individual rate, Congress and the President must modify the structure to lower the cost of doing business and make creating jobs easier.
3. Nurture Innovators and Entrepreneurs, Including Immigrants
Today, the U.S. grants less than one in ten green cards for economic reasons, yet some international competitors welcome up to half their immigrants for that purpose. Celebrated as the land of innovation, the rate of start-up creation in America actually has been declining for the last few decades.
Despite restrictive policies, foreigners who have been allowed into the U.S. have made immense economic contributions. A 2011 report suggests that nearly half of the top 50 venture-backed start-ups were founded or co-founded by immigrants. Another study indicates that nearly two jobs overall are created in industries associated with computers and engineering with the entrance of every one immigrant with a high-skilled work visa in those industries. Moreover, while immigrants comprise just over a tenth of the population, they account for about a fifth of small business owners. While comprehensive immigration reform is at a standstill, Congress and the President can increase job creation through legislation increasing visas and green cards to foreign innovators and entrepreneurs.
Implementing these three proposals by no means will cure all of our economic ills. But harnessing our abundant energy, making fixes to create a pro-growth tax code, and welcoming the best and brightest foreigners to apply their talent here will take a significant step toward restoring the dynamism that the U.S. economy can – and should – achieve.
Steve Odland, a CNBC contributor, is CEO of the Committee for Economic Development and former CEO of Office Depot and AutoZone.
Steve Odland Appeared on Fox Business Network’s Varney on 6/10/15 to discuss the new Department of Labor rule to extend overtime pay to all those making under $52,000 per year. This rule, if implemented, will raise compensation for some but the increased cost will cause businesses to reduce hours, eliminate jobs, automate positions, etc. and hurt the very people they are trying to help.
Steve Odland explains how the economy is not doing well driven by current public policy. This from Varney & Company on Fox Business Network June 1, 2015.
On May 8, 2015, Steve Odland, the CEO of the Committee for Economic Development, appeared on Varney & Co. to discuss the April jobs report along with the recent UK elections. On the election front, Steve described why the recent outcome in the UK may very well be a harbinger of what’s to come politically in America. In regard to the jobs report, he noted that while April’s employment numbers were decent, the long-term economic outlook remains a concern. Steve concluded by citing a host of policies that Congress must reform so the economic dynamism that we’re capable of achieving is realized.
Steve Odland appeared on CNBC’s Closing Bell May 11, 2015, to discuss the new practice by Zappos.com to eliminate management layers and create “holacracy” or self-directed work teams.
Steve Odland appeared on Fox Business Network’s “After the Bell” program on March 12, 2015 to discuss retail sales and the economy. Retail sales, 70% of U.S. GDP, have declined sequentially for three straight months. Some of this is due to weather, and the gas price bump versus the dramatic declines of six months ago. But a longer term trend is the impact of deleveraging by the consumer. Consumers are devoting more of their discretionary income to paying down household debt. This is resulting in fewer dollars being expended in the retail sector.
Steve Odland appeared on Varney & Co. on Fox Business February 12, 2015, to discuss the attack on Staples over part time work.
Steve Odland appeared on CNBC’s Street Signs program on February 4, 2015 to comment on Staples’ proposed acquisition of Office Depot.
Steve Odland appeared on After the Bell with Liz Claman on the Fox Business Network on February 3, 2015 to discuss the rumored merger of Staples and Office Depot.
Steve Odland appeared on Cavuto on the Fox Business Channel January 27, 2015 to argue that further health care reforms are necessary to lower costs and increase access.
Steve Odland appeared on the Fox Business Cavuto show on January 13, 2015 to discuss Aetna’s move to increase their “minimum wage” to $16 per hour. Also discussed in a second segment was the Administration’s announcement of support for a free community college education.
Steve Odland appeared on Fox Business Network’s Cavuto show on December 2, 2014 to discuss the $18T in public debt. Without entitlement reform, our debt will grow from its current level of 75% debt/GDP to over 100% and all of the federal discretionary spending will go to paying the interest on the debt. Every dollar of debt is a future promise to pay. Stated differently, this generation of retirees are going to leave Millennials with an untenable amount of debt.
In this Fox Business Network appearance with Stuart Varney on 10/17/14 Steve Odland argues that we need leadership, not a Czar for the Ebola crisis. This leader needs to bring together the government, medical, and security communities in a collaborative fashion rather than dictate political outcomes.
In this 10/13/14 Cavuto appearance on the Fox Business network, Steve Odland argues that the lack of leadership from Washington is leading to a lack of trust among Americans and is rattling markets.
Steve Odland appeared on Bloomberg Surveillance as guest host September 19, 2014. He discussed a variety of subjects including:
Brick And Mortar Retail Still Relevant In A Digital World
iPhone 6: Full of Features But Android Is By Far And Away #1
iPhone 6 or Alibaba: Which Should You Line Up For
Larry Ellison Steps Down: What Does this Mean For Oracle
How Do CEO’s Manage Currency Risk?
Steve Odland appeared on Varney & Co. on the Fox Business Channel, September 3, 2014 to discuss the minimum wage debate. Government and business leaders need to de-politicize this issue and focus on creating equal opportunity for people to achieve the American Dream through education and hard work.
Steve Odland appeared on Fox Business’ Cavuto show on August 29, 2014 to talk about leadership. Washington needs to step up and commit to a course of action or leave a vacuum that bad actors will fill.
In this 8/4/14 appearance on CNBC’s Squawk On The Street, Steve Odland discusses the state of the economy, government policy, and business’ uncertainty. Government policy is causing businesses to hold back on investment, thereby slowing the rate of job growth and the economic recovery.
In this appearance on CNBC’s Closing Bell on July 14, 2014, Steve Odland argues that despite the new jobs added last month, the U.S. economy continues to struggle. GDP growth likely will be flat for the first half in total and up around 1.5% for 2014. This level of growth and job creation has us treading water and only absorbing new entrants to the workforce, not raising overall employment levels.
In this Varney & Co. appearance on Fox Business Network Steve Odland discusses the potential for the U.S. to slide into another recession. This clip appeared on June 26, 2014.
Steve Odland discusses retail trends in the first part of 2014 on this Fox Business After the Bell segment with Liz Clayman on May 23, 2014.
Steve Odland discusses India’s newly-elected leader and his pro-business stance on Fox Business Network’s Opening Bell with Maria Bartiromo on May 16, 2014.
Steve Odland discusses the state of CEO pay on Fox Business Opening Bell program with Maria Bartiromo on May 16, 2014.
Steve Odland discusses the state of the consumer on Fox Business Opening Bell program with Maria Bartiromo on May 16, 2014.
Published on Apr 11, 2014
In an effort to maintain a high level of employees who are happy in their jobs, Amazon.com is offering to pay unhappy employees $5,000 to quit. Dr. Gina Loudon and Steve Odland join FBN’s Neil Cavuto to weigh in on the pros and cons of this idea.
In this appearance on After the Bell on Fox Business Network on March 13, 2014, Steve Odland explains how February 2014 retail sales grew by only .3% and January sales were adjusted down to -.6%. So unfortunately, while February looks a little better, January became worse so in the past quarter retail sales in total still are down. This is an issue since 70% of our GDP is reliant on consumer spending and retail sales are the earliest predictor of GDP trends.
Weather clearly was an issue and while some of those sales will bounce back, some will be lost permanently. Luxury goods and E-commerce sales are doing well while most mass merchants and department stores are not. This indicates that those with money at the high end are spending but the mass markets are not. Clearly, economic weakness is the over-riding concern long term as the weather picture will ease after short-term impact.
- Experts say that 30% of our GDP is vulnerable to weather
- Weather in January hit GDP by about a half percentage point
- With February storms, could hit another half point dragging Q1 GDP below 3% to close to 2%
- Significance is driven by where the weather happens. Upper Midwest and Great Lakes regions are accustomed to it and so less impact
- But these storms hit broadly across the eastern half of the US with majority of population and significant percent of GDP
- Weather has significant impact on retail; and consumer is 70% of GDP
- In retail sectors like food, demand gets compressed to pre and post storms
- Hurts restaurant sales—permanent loss of sales
- Hurts all discretionary sales. Historically some of that came back, but not as much any more
- Sales get shifted now to online; that trains people to move more from bricks & mortar to online permanently
- So bad weather in general is bad for traditional retailer and could be permanently damaging while good for online and permanently impactful
- Inclement weather has a way of prioritizing consumer spending. Large retailers like Home Depot, Walmart, grocery stores and gas stations tend to do well leading up to large storms because consumers feel the need to stockpile “essentials” like food, gas, and home supplies.
- For brick and mortar stores, these winter storms have no doubt led to plunging sales. Businesses which heed warnings to close for safety reasons lose days of profits.
- For southern states, the weather has been paralyzing. But, we could see nuances in different parts of the country. Many states that are accustomed to the weather are likely to rebound faster.
- But, there is certainly a correlation between weather and sales. In March of 1993, a blizzard forced retail sales to drop 1%. And in late December of 2010, a major storm in the northeast cost retailers $1B. It’ll be interesting to see estimates from this year.
- The National Retail Federation predicted that sales would rise 4.1 percent in 2014, outpacing 2013’s 3.7 percent growth last year.
- Higher than normal heating bills could be the cause of lower consumer spending.
Holiday sales grew only 2.7%, the lowest level since the depth of the Great Recession in 2009. And this is on top of a weak year ago. Further, GDP grew $4.1% in the third quarter mostly due to inventory build up in advance of the holiday season. So large inventory less weak sales equals surplus! This should lead to large January markdowns.
We’re stuck in a five year pattern of very slow growth while we have trillions of dollars held in cash on consumer and business balance sheets. This means people don’t have the confidence to invest. And the primary reason for that comes back to uncertainty over government policy: taxation, debt, deficit, entitlement reform. Businesses can’t plan since they don’t know what will be their costs, especially on the labor side. We need government economic reform to drive certainty and unleash investment.
In this segment on the Cavuto Show with Charles Payne on December 23, 2013, Steve Odland discusses the Target credit card data breach and what steps retailers and consumers can take to safeguard their data.
In this appearance on Varney & Co. on December 16, 2013, Steve Odland says that the only way traditional bricks and mortar retailers can survive long term versus online retailers is to create a compelling shopping experience, get competitive on pricing, and create an online experience of their own.
In this interview with Neil Cavuto on Your World, Steve Odland argues that “sorry” is good, but now we need a fix to the ACA issues. And not just the website, a policy fix to allow private competition, tort reform, regional exchanges, etc. to lower costs, increase access, and improve quality.
In this appearance on Cavuto on October 28, 2013, Steve Odland argues that the ACA government website is a disaster–but a man-made one. Time and money will fix it. But the larger issue is whether this portends the kind of governance we will see around our healthcare once new coverage takes effect. More to come.
What the Budget Conference Can Accomplish
This post assesses the task facing the budget negotiators on Capitol Hill. It concludes that those negotiators could achieve real progress by laying out a budget plan based on those fundamental issues on which the two parties should be able to agree. So rather than trading mini-concessions that would have little long-term payoff, the two sides instead should build the framework of a plan that would have true ultimate beneficial impact.
By Joe Minarik, SVP and Director of Research, Committee for Economic Development
With the debt limit / shutdown standoff now on temporary hold (thank goodness), attention has shifted to the newly appointed conference committee for the fiscal year 2014 budget resolution, whose formation was a part of the shutdown-settlement deal. This conference committee is just a bit late – given that it was supposed to produce a resolution to be passed by both chambers of the Congress back on April 15, and the fiscal year already is more than three weeks underway; but better late than never.
In fact, the budget conference committee faces a formidable task. Job one will be to find a way past the new deadlines of January 15 (when the continuing resolution for the annual appropriations expires, and also when the second round of the budget “sequester” kicks in), and February 7 (when the Treasury again hits the debt limit). These deadlines might suggest a game of small-ball – finding a few dollars here and a few dollars there to justify another punt, like the one that was played a couple of weeks ago.
But small-ball far understates the occasion. The last few months have been a disaster for the economy and for U.S. business. Both businesses and households reacted to the uncertainty of the indefinite shutdown and the impending default by going into a freeze – businesses on hiring and investing, and households on spending. Meanwhile, government employees who weren’t getting paid and government contractors who were in economic limbo were not engaging in much commerce either. All of this scrubbed off some of what little momentum the already stumbling economy had. Washington cannot revert to this self-destructive pattern barely a quarter of a year later, when appropriations could again expire, and the debt limit could again constrain the nation’s ability to pay its bills. In fact, any hint now of a relapse into shutdown showdown and default deadlock could impose an even greater economic toll. The nation – in the person of the budget conference committee – must find a better way.
The suggested game of small-ball would exchange a few dollars of entitlement (or “mandatory”) spending cuts for relief from a few dollars of appropriated (or “discretionary”) spending cuts that were mandated by the 2011 spending caps and the sequester. But just about everyone understands that such a game of small-ball today would be a waste of time. On the discretionary side of that transaction, the Congress could argue about the levels of the statutory caps on appropriations, but just about everyone agrees that the current cap levels are too low. Why? People differ, but many say that the defense levels are too low; others say that the non-defense numbers are too low, and still others say that both category caps are too low. Taken together, these three groups almost certainly constitute a congressional majority. And you can add to those a certain majority of economists who say that the constraint on appropriations meaningfully holds back an already weak economy.
The proof of all this? The House could not pass appropriations bills at those caps. In the months before the shutdown, the House and the Senate were in a battle over appropriations levels. The House customarily acts first on appropriations, and it jealously guards that prerogative. Nothing would have strengthened the House’s hand more than completing all of its bills. Yet it could pass only the easiest four (Defense, Homeland Security, Veterans, and Energy & Water) of its 12 required bills. When the time came just before the August recess to consider the first controversial bill – for the Departments of Transportation and Housing & Urban Development (THUD) – the process fell to a halt. House Appropriations Committee Chairman Hal Rogers (R-KY) publicly acknowledged that the sequester was not viable. So appropriations need to be higher than the sequester level to attain a majority in the Congress, and to fund levels of government services that the Congress perceives to be adequate.
And then on the entitlement side of that transaction, those small cuts, by definition, would not make even a dent in our large long-run budget problem. What we really need instead – as is recognized on both sides of the aisle – is fundamental reform of at least the three major budget components: taxation, Medicare, and Social Security. And if one purpose of eliminating the sequester cuts is to provide some stimulus for the economy, then offsetting that sequester relief with cuts elsewhere in the budget would precisely offset the stimulus, accomplishing a net nothing. A sequester-for-entitlement trade might be a political “confidence builder,” but as small-ball it would build little confidence. We have a big long-term problem which is not amenable to a quick small-ball solution.
But what more meaningful solution might possibly be achieved, given the hostility and mistrust that arose from the just-paused shutdown and debt-limit crisis?
Clearly, satisfaction cannot be guaranteed. If there were some sure-fire political and substantive winner, it would have been adopted long ago. Reducing the budget deficit means cutting spending or raising taxes (or both), and neither is fun. And the conference committee has far too little time to achieve a “grand bargain.”
But let’s take a different approach toward this problem: What are the elements of a solution on which the two sides agree? Can the conference committee set down those elements, and thereby establish the minimum standards for the two sides to meet in the hard, time-consuming work that must follow over succeeding months and years?
Here is how such a process might work:
The budget conference committee should start (more steps follow) with a realistic level of the discretionary spending caps – approximately equal to turning off the fiscal 2014 and subsequent rounds of the sequester, and thereby writing new appropriations caps for the next 10 years at those levels. A majority of the Congress clearly agrees that raising the caps is inevitable. It certainly would remove a major roadblock to a final resolution of the 2014 budget dispute. Responsible adults who want to achieve a successful agreement would acknowledge that broad consensus, just do it, and move on to resolve their other differences.
An immediate counter-reaction from some would be to start a fight over the division of that appropriations relief between the defense and non-defense parts of the budget. The conference committee should resist that impulse. A fight over the split between defense and nondefense now would threaten all progress. What the economy needs immediately is a step forward toward stability and predictability. Continued wrangling over a decision that cannot be finalized in the short time between now and the end of the year would send a signal that would be 180 degrees wrong, and counterproductive. The two parties should begin a process of reconciliation by formalizing their agreement where they do agree. Beyond the legislation for the current fiscal year (2014), the fight over the defense share of total appropriations can be fought later. For 2014, where a decision must be made to close out the appropriations process, the conference should simply accept the current-law defense vs. nondefense split, and move on to writing the most comprehensive appropriations bills possible at this late hour.
That first part of the budget conference agreement would settle the dispute for the short term. The second part of the agreement (I will sneak in the third part below) should look to the truly crucial question, which is our long-term budget crisis.
Even the vast majority of those economists who are the most bearish on the immediate economic outlook acknowledge that the nation cannot go on indefinitely with a public debt that is growing faster than our collective public income – or in the accepted jargon, with a rising ratio of the federal debt to the gross domestic product (GDP). One response to that debt threat is to bury your head in the sand. You can take that approach to a leaky roof on your house, or to a leaky engine or transmission in your car – but I would not recommend it, and most Americans would not accept it from their “leaders.” The obvious reason is that the damage continues to worsen as you procrastinate, and so the ultimate cost of the repair keeps going up. The result for the federal budget is the same as for your home or your car.
It is certainly true that the members of the budget conference will not solve and resolve the massive and complex long-term budget problem between now and December 15. But can’t they at least agree on the maximum acceptable path for the debt?
So step two of the agreement is simply to set down how much debt we are willing to tolerate. Right now, the projections of the non-partisan Congressional Budget Office say that by 10 years from now, after a brief respite over the next few years, the debt will be in excess of 71 percent of the GDP, and it will be rising without limit. The nation’s finances will be a heart attack waiting to happen. The chart below shows one idea of an alternative path, a nomination for the maximum amount of debt that the nation should be willing to accept. By 10 years from now under that alternative path, the debt will be only 65 percent of the GDP – much higher than in our best economic years, but lower than where we are heading now – and it will be falling, not rising, which is the key. The falling trend will give us some margin for error in case there is some economic bad news in those next 10 years.
The trick here is that by setting down that maximum acceptable debt path, and having already chosen the spending caps for the annual appropriations, the budget conference will have determined the amount of budget savings necessary from the rest of the budget – everything not included in the annual appropriations bills. This is part three of a potential agreement by the budget conference, based on simple issues where the two political parties should be able to come together.
The result, incidentally, will be much like the budget system that was agreed to by Republican President George H.W. Bush and a Democratic Congress in 1990 – and which was subsequently credited by many authorities, including former Federal Reserve Board Chairman Alan Greenspan, for leading to the balanced budgets of the late 1990s. The only difference is that the 1990 budget process asked only for future budget action to be “deficit-neutral” – to “pay as you go,” which led to the shorthand name of “paygo.” This new system would require future action actually to reduce the budget deficit, which might be called “save as you go,” or “savego.”
Again, facing this approach, there will be Washington players who reflexively will want to start a fight. Should those budget savings come from tax increases, or entitlement benefit cuts? So the budget conference will face a choice: Do we want to go up in flames over a conflict that we cannot possibly resolve in less than two months; or do we want to agree where we can, and leave the toughest questions until they need to be resolved?
Every American can make his or her choice of the better answer. I will vote for option two. There are those for whom “consensus” and “compromise” have come to be synonymous with “capitulation” or even “treason.” But down that road lies only defeat and decline. The debt problem truly is make-or-break for this nation. If our debt continues to grow faster than our economy, then at some point, the world will begin to question our ability and our willingness to make good on our debts. The shock at that moment will crack the American economy and harm every citizen. We can avoid that moment merely by acknowledging the threat and laying down a plan, and sticking to it.
There are numerous technical questions behind such a budget plan. Perhaps the most prominent would be: How soon should the called-for budget savings begin? The answer can be debated, but the numbers embodied in the chart above assume that the first gradually phased-in budget savings do not begin to arrive until fiscal year 2016 – by which time the Federal Reserve is widely expected to be withdrawing its highly accommodative monetary policy. The Fed therefore could offset the macroeconomic impact of the budget tightening suggested here by tightening monetary conditions more slowly.
Sticking to this path will not be easy. Achieving those long-term budget savings will require fundamental reforms. But that is not news. That is merely facing up to the stains on the upstairs ceiling or the puddle of oil on the garage floor, and taking on the problem before it gets even worse.
Each one of a million Americans would be willing to step forward with his or her own personal budget plan, and each of those Americans would he happiest if the debt were addressed his or her own way. The problem is that we do not need one million different plans each supported by one American; we need one plan supported by a majority of Americans (or really, a majority of the Congress, and the President). That one plan certainly will not make everyone happy. But in all likelihood, the majority of American households and business leaders would be much more confident than they are today in making long-term economic commitments – like hiring, or investing, or buying new homes or automobiles –if they saw that a majority of the Members of Congress had set down their minimum standards for a budget solution, and thereby made a public commitment to meet those standards in the coming years. It is the least on which a group of responsible adult leaders should be able to agree.
In this interview on CNBC on 10/21/13 Steve Odland argues that consumer confidence is poor and that is negatively impacting consumer spending (70% of GDP) and small business investment. Government policy needs long term change to improve confidence: long-term tax, social security, and Medicare reform all are needed. A framework needs to be put in place to begin to take at least small steps in the coming months for confidence to pick up.
Committee for Economic Development CEO Steve Odland on the government shutdown and debt ceiling on Fox Business After The Bell, 10/9/13.
Steve Odland, Committee for Economic Development CEO, explains the fears felt by corporate executives over the budget battle and the debt ceiling, and the possibility of an agreement that could delay a resolution by up to six weeks in this interview from October 11, 2013 on WSJ Live.
In this appearance on Bloomberg’s Taking Stock on September 4, 2013, I discuss the double digit growth rate of auto sales in the U.S. in August, 2013. While the sales are up and tracking to a 15.5M unit sales year, this is down considerably from pre-recession 17M unit levels. Further, the deficit of sales during and post the recession likely is 15-20M units. Further, average vehicle age is up to about 11.8 years, a record. So with almost free money to finance sales, and a huge need, this level of sales is poor and indicates an ongoing weak economy. Of course behind every large company auto maker is a whole network of small businesses who are suppliers and dealers who continue to be hurt from this lack of recovery.
— Steve Odland
I appeared on the Andrew Wilkow show on August 20, 2013 to discuss the efforts by some groups to raise the minimum wage. The objective of having people make more money and move up the ladder is part of the American Dream. But, unfortunately, raising the federal minimum wage will have the opposite effect: it will cause businesses to cut back hiring and result in fewer jobs, more automation, and jobs moved to lower cost locales.
— Steve Odland
On August 21, 2013 I appeared on CNBC Squawk on the Street to argue that the U.S. economy is in a no growth period and desperately needs job growth as demonstrated by the struggles of the office products industry. The economy crashed in 2008 and has not recovered since. Job growth barely is keeping up with population growth and 77% of new jobs this year are low paying part-time positions. Businesses are not investing to create jobs due to increased government regulation, escalating costs from the “Affordable” Care Act, and uncertainty about tax and regulatory policy.
The government and some workers are advocating to raise the Federal Minimum Wage from $7.25 per hour to $9.00 per hour. In this video from Fox Business, I argue that a raise at the national level will disproportionately hurt certain geographic areas, some industries that cannot move jobs to lower cost locales, and people who are seeking entry level jobs. So while the objective of having people make more money is good on the surface, the unintended consequences will hurt the very people they are trying to help. Further, 77% of the jobs created so far this year have been part-time jobs at close to minimum wage. So if the minimum is increased, companies will be forces to cut hours, automate, or create fewer jobs and this in turn will kill what little job recovery we have.
Business leaders have an enormous stake in the actions taken by our political leaders. Over 70% of the GDP is driven directly by the private sector and the remainder is government spending fueled by taxes provided by businesses and their employees. So our economy is entirely funded by businesses. CEOs need to engage in the development of public policy as business “statespeople” and advocate for actions in the nation’s interest.
By Joe Minarik, The Committee For Economic Development
The Federal Reserve faces a real challenge making monetary policy. The unprecedented combination of a hesitant recovery from a near-Great-Depression downturn, plus the eventual need to reverse the pedal-to-the-metal interest rates and quantitative easing, leaves the Governors and the Bank Presidents with a truly sleep-depriving responsibility.
Last week’s view was from 30,000 feet. This time, let’s focus more closely on one particular part of the Fed’s challenge – specifically, the enormous jolt that has been taken by the labor market, and most importantly the workers in it.
In the simplest terms, an appalling number of workers lost their jobs and had little or no prospect of finding new work. This situation was aggravated by the concentration of the impact on housing, in two respects. First, the housing industry itself was devastated – more so in specific localities, but by modern economic standards from sea to shining sea – meaning that if you were a construction worker, you had little hope of finding a job anywhere. As a recent post pointed out in a different context, employment in residential construction dropped by about 50 percent from its mid-decade peak, and still hasn’t recovered much. But second and more generally, the plunge in house values and housing demand has meant that any unemployed worker who found no local prospects and was willing to move to find work likely could not sell a home to do so.
The result was an enormous population of job losers with no hope and no options. Many gave up searching for work. The immediate human cost is obvious: lost incomes, lost homes, lost self-respect, lost marriages, lost skills, and children losing their optimism and vision. It seems almost heartless to turn to the economic policy challenge that flows from this catastrophe, but after all, we need sound economic policy to limit the pain.
Properly, in my view, one-half of the Federal Reserve’s policy mandate is to solve this unemployment problem. That is why it has the pedal to the metal, with its policy interest rate (the Federal Funds rate) at virtual zero, and its balance sheet augmented by purchases of longer-term assets. But to take such an extreme policy stance is to scream the question of how to get policy back to something vaguely resembling normal. Any answer to that question must rhyme chiefly with conditions in the labor market. The Fed’s fear is holding the pedal on the floor too long, and thereby igniting inflationary momentum that will require even more pain to dispel. Two-thirds of business costs come from labor. It is hard to imagine accelerating inflation without accelerating wage growth. (Zooming oil prices six years ago had nada pass-through to prices broadly.) So if the Fed can read the labor market, they are more than halfway home to reading the economy and making good monetary policy.
But reading the labor market today is extraordinarily difficult. The CliffsNotes labor market indicator, the unemployment rate, has improved at a reasonable pace – from 9.8 percent as recently as November of 2010 to 7.5 percent in April of this year. But the CliffsNotes unemployment rate won’t get you through Monetary Policy 201, even if it squeaked you past Macroeconomics 001. The reason is the exodus of workers from the labor force that we mentioned just a moment ago. Even in several recent economic recoveries, but especially in this one, improvement in the unemployment rate overstates the “improvement” – in terms of the inflation risk, the “tightening” – of the labor market. As economic conditions improve, some of the unemployed workers who have become discouraged and dropped out of the labor force will come back in and search for work – and therefore technically add to the ranks of the “unemployed.” Improvement in the unemployment rate will slow for a time, even as employment increases.
So here is the high-stakes exam question that the Fed must answer: As the economy improves, how many of those who exited the labor force will come back in, and how fast? The answer is of far more than academic importance. If this “shadow labor force” – persons not now looking for work, but who may do so if the job market brightens – is large, then there is more room for the economy to grow without triggering inflation. But if the Fed plays its cards wrong, there is a big downside. Underestimating the shadow labor force and tightening monetary policy when the labor market is deceptively loose would condemn potential workers to extended months of joblessness. But an error in the other direction is also costly; leaving monetary policy too loose as the labor market tightens would set off inflation, and force more-restrictive monetary (and perhaps fiscal) policy thereafter, causing still more hardship.
So what are the true dimensions of this shadow labor force today? Only time will tell, of course; this situation is unprecedented, and you can step into the same stream only once. But there are some signs that suggest that it could be sizeable, and that therefore the economy has considerable room to grow without inflation.
One potentially useful perspective comes from looking separately at men and women, and at different age brackets. The picture for men is probably the more telling. These data suggest that the biggest percentage jump in men not in the labor force following the onset of the economic crash came from young (age 20-29) adults (see the chart below). Anecdotally, a significant share of these young men looked at the discouraging labor market and decided to get more schooling, rather than fruitlessly pounding the pavement now to look for work that isn’t there. In any event, these young men probably are among the most likely to re-enter the work force when the job market improves. Their comparatively large numbers suggest – but certainly do not prove – a more significant upside for the labor force and for economic growth, and therefore more room for the Fed safely to maintain a stimulative monetary policy.
However, a second large source of labor market departures is older men, ages 50 and over. Because older job losers can have more difficulty finding new jobs, this isn’t surprising. For the men at the top of that age range, those departures from the labor force might turn into involuntary early retirements. To the extent that the economic crisis in effect “pre-retired” these workers, then they likely would have left the labor force soon in any event (which is why prospective employers find them less attractive, and therefore why they now have such difficulty finding new jobs), and would have more-limited impact on potential economic output, and on Fed policy. Still, these job losses are among the most painful in this sad story, and the labor-force exits among those in their 50s could be the most costly to future economic output.
The changes in labor force participation among women are more muted than those for men, but the general pattern is similar (see the following chart). There is a suggestion of younger women also postponing their entries into the labor force, possibly to complete more education; but there also are older women who may have lost their jobs and had no luck finding new ones, therefore exiting the labor force into what may become involuntary early retirement.
Again, this economic-downturn stream is very different from any into which we have stepped in living memory, and only time will tell how the labor market will evolve over the next few years. But there is some reason to hope that enough former workers will reenter the labor force to allow significant additional economic growth with only a limited risk of inflation. There are other important questions beyond the raw numbers, of course. Will some of those prospective re-entrants have lost their skills, or their attractiveness to employers? Or will some younger entrants come back from extended periods of schooling and bring augmented skills?
We cannot know the future, but we do know that Fed Governors and Bank Presidents are aware of this shadow labor force and its importance to their coming monetary policy decisions. The policymaking challenges the Fed faces truly are unprecedented – as are the challenges that face our economy itself.
In this clip from the May 23, 2013 Cavuto show, Steve Odland articulates how U.S. markets are not taking our economic situation seriously. China manufacturing numbers have moved negative, meaning the world engine for economic growth is slowing. This inkles a poor Christmas buying season since most retailers and manufactures should be in full swing for the holidays. Further, Federal Reserve Chairman Ben Bernanke suggested that the Fed will dial back bond buying in the future so the era of easy money will be ending. The only other solution is to print money to satisfy the increasing debt and cover our deficit spending. Asian and European markets sold off on all this news but inexplicably, U.S. markets did not. We cannot keep going like this economically and keep hitting record highs. At some point the U.S. will need to pay the piper.
— Steve Odland
“Small businesses remain cautious about the recovery and fiscal uncertainty, and are not investing their capital. However, companies’ balance sheets are much stronger than they were before the financial crisis and small businesses remain well positioned to invest in growth once they decide to.”
Further, small businesses do not have access to capital. Loan originations to small businesses dropped 20% from the prior year. This dampens business investment and expansion and further diminishes job creation. While some pundits believe the economy is doing fine, most small businesses would disagree. Policy makers in Washington would do well to get out now and then and talk to the job creators who are trying to deal with the world being crafted by new regulations, taxing schemes, health care rules, etc. Perhaps if they did, they would stop implementing the job-destroying policies.
— Steve Odland
Businesses are beseiged by new regulations, rising taxes, costly mandates from the new healthcare regulations, etc. And so, they are not adding jobs. The percentage of Americans working is at its lowest point since 1979 despite the unemployment figures. See Steve Odland’s appearance from April 4, 2013 on the Cavuto Show.
— Steve Odland
The situation in Cyprus is worrisome. It’s not just threatening to Cypriots, or Europeans. When governments start seizing assets to pay down the debt it is a threat to everyone. Europeans are saying this is a new template for dealing with too much government debt or banking issues. Are U.S. small businesses at risk too? Click on the link above to watch Steve Odland’s appearance on Cavuto from 3/26/13.
— Steve Odland
Odland and Minarik: It’s Time to Act to Save Our Economy
Fundamental changes and sound long-term policies are needed soon
- By Steve Odland and Joe Minarik
- Printed in Roll Call, Feb. 27, 2013, 7:17 p.m.
Our elected leaders are failing our nation. Partisanship and short-sightedness halt progress toward fiscal austerity. Businesses are suffering from economic uncertainty and instability. So, too, are American workers, as unemployment numbers continue to be high. Business investment remains tepid. Without fundamental changes and sound, long-term policies, our economy will continue to falter.
We need to set a course soon. The state of our nation and economy require purposeful engagement by Congress and the president, along with energy, thought and planning to produce short- and long-term strategies to restore and sustain a healthy American economy. To achieve progress, all sides must compromise or every American will suffer the consequences.
Congress must act in the next two weeks to avoid a repeat of economic and financial shocks. First, the debt limit must be taken off the table as a negotiating tactic. Efforts in the near-term must focus on replacing the across-the-board spending sequester with balanced revenue increases and better-crafted spending cuts.
Congress can consider any one or more of a wide range of alternative revenue increase provisions, such as repealing unnecessary “tax extenders” outlined within the recently enacted American Taxpayer Relief Act, increasing the federal gasoline tax, raising the excise tax on alcohol and taxing “carried interest” as ordinary income. Spending cuts should focus on Medicare, a major cause of our nation’s projected long-term budget problem.
Many alternative policies, both entitlement changes and minor revenue increases, can achieve the sequester’s first year of deficit reduction spread over 10 years, and will not derail economic recovery.
Second, the Congress and the president should commit to overhaul Social Security. Both sides agreed last year that changes are necessary, and we believe that the prospects for success this year are high. A comprehensive approach to an overhaul could incorporate changes such as a strengthened minimum benefit and help for very long-lived beneficiaries, which would protect or even improve the status of the neediest elderly. Success on this front would give a cynical and disappointed public a new measure of confidence that Washington actually can address their problems.
Finally, following tangible progress this year, the Congress and the president should proceed to the broader task of Medicare, Medicaid and a tax overhaul, the roots of our long- term debt problem. Consider changing Medicare Advantage with better choices and incentives for higher-quality health care at lower cost. Make health exchanges from the 2010 health care bill stronger, more efficient and less costly by expanding their base of enrollees. Set the lowest tax rates possible and broaden the tax base.
Our budget problem is overwhelmingly long term in nature. We have large deficits now, caused in part by the weakness of the economy. Extraordinary action to reduce deficits now could reduce demand and weaken the economy further, possibly leading back to a recession. Still, deficits today pile up debt that must be serviced in the future — a dilemma created by a failure to keep the budget on the straight and narrow.
A two-year approach to solving our lingering budget and deficit challenges, with a limited target for the remainder of this year, would both increase the odds of success and decrease the risk to the still-shaky economic recovery. A sincere, serious plan will give businesses the confidence they need to once again invest in the U.S. and grow jobs. It is time for action and it is past time for compromise. We call on the Congress and the president to do what it takes to set our nation on a path to economic stability.
Steve Odland is CEO of the Committee for Economic Development. Joe Minarik is senior vice president and director of research at CED and former chief economist at the Office of Management and Budget.
In this appearance on Cavuto 2/12/13, Steve Odland argues that government policies hurt small businesses. Currently, high debt levels, deficit spending, and regulatory policy are causing businesses to hold back on investment in the U.S. and delay or cancel hiring plans. Further, businesses are canceling health care policies for their employees. Long term fiscal and tax reform are required to right the ship.
— Steve Odland
See Steve Odland’s appearance on Cavuto 1/3/13 arguing for fundamental tax and spending reform.
— Steve Odland
Here Comes the Regulatory Flood
Costly rules held up for the election are about to roll over the economy.
President Obama’s hyperactive regulators went on hiatus in 2011 to get through Election Day. Now with his second term secure, they’re about to make up for lost time and then some.
The government defines “economically significant” rules as those that impose annual costs of $100 million or more, and the Bush, Clinton and Bush Administrations each ended up finalizing about 45 major rules per year. The average over Mr. Obama’s first two years was 63 but then plunged to 44 for 2011 and 2012 so far. The bureaucracies didn’t slow down. They merely postponed and built up a backlog that is about to hit the Federal Register.
We’d report the costs of the major-rule pipeline if we had current data. But the White House budget office document known as the unified agenda that reveals the regulations under development hasn’t been published since fall 2011. The delay violates multiple federal laws and executive orders that require an agenda every six months, so we thought readers might like a rough guide to the regulatory flood that is about to roll through the economy.
• Health care. It begins with the Affordable Care Act, which has been in hibernation because it was the largest campaign liability. Since Election Day, the Health and Human Services Department has submitted a raft of key health rules for White House review that it has been sitting on for months.
Hiding the details paid off politically but also undermined ObamaCare’s already slim prospects for success. Ahead of the law’s go-live date of October 2013, states and industries will have less than a year to prepare to meet the new mandates.
Three of the rules were released right before Thanksgiving, so insurers are only now about to learn how they’ll design and price coverage, since one new rule defines “essential benefits” they must include. Another deals with limits on how premiums can vary from person to person based on risk.
The most important void is ObamaCare’s “exchanges,” the clearinghouses where millions of individuals and small business will receive subsidized coverage. HHS hasn’t said how they must be set up and function in practice, with the exception of “guidance” documents that make vague suggestions but don’t have the force of law and are likely to be revoked. HHS is all but begging states to run the exchanges but hasn’t clarified what they’d be signing up for.
Amid opposition from most of the 30 Republican Governors, many of whom are telling the feds to run an exchange on their behalf, HHS also hasn’t laid out how this federal fallback will work. Other complex rule-makings will decide who is eligible for the exchanges, how Medicaid rules will change after the Supreme Court’s ObamaCare ruling, and the future of Medicare Advantage’s private coverage options.
• Financial services. According to a Davis-Polk analysis, only 133 or 33.4% of the 398 rule-makings the law firm estimates Dodd-Frank requires have been finalized. The law is ambiguous and other reviews suggest the figure could be closer to 500. As of November 1, some 132 rules haven’t even been proposed, while the government has failed to meet 61% (or 144) of Dodd-Frank’s legal deadlines.
Regulators are now finalizing rules on bank stress testing and capital and margin rules for the swaps markets, but there are still many costly items on the to-do list. Major uncertainty comes from the rolling exercise to determine which businesses are “systemically important,” aside from the largest banks that have already been designated as too big to fail. This review never ends.
Also on the docket is an effort to define “qualified mortgages,” which will change lending and capital standards. Elizabeth Warren’s Consumer Financial Protection Bureau, having been invested with unaccountable powers, will now decide what financial products and services are “abusive,” a political term of art with no legal meaning. Then there is the pending Volcker Rule to limit proprietary trading at big banks, whose draft ran to 298 pages and asked 1,347 questions.
• Energy. In the lead-up to November, the Environmental Protection Agency stood down under White House pressure, delaying rules for ozone air quality and industrial boilers, and deferring carbon standards. Now EPA chief Lisa Jackson has the run of the place.
She will resume the Administration’s anti-carbon agenda through “new source performance standards,” which will set greenhouse gas emissions for new power plants so low as to prevent their construction. Look for this early in 2013.
She’ll follow with standards for “existing” sources that make coal-fired plants uneconomic to run. Inside of a decade, Ms. Jackson may wipe out what used to make up more than half of U.S. power generation. Environmentalists will write books about it, even if her agenda has received almost no public scrutiny or debate.
The oil and gas industry is also targeted, hydraulic fracturing (fracking) in particular. The EPA has already issued a rule on shale production emissions and has one coming on diesel fuel in fracking. The Interior Department is promulgating rules on fracking on federal lands, and other rules can’t be far behind, probably using the pretext of drinking water under the Clean Water Act.
The EPA’s sleeper issue is the National Enforcement Initiatives agenda, which is designed to use the agency’s existing legal powers for inspections, requests for information, penalties and so forth to make new de facto rules. The EPA now blackmails businesses into “super compliance,” or settlements far more stringent than the law requires, or else risk years of expensive litigation.
• Economic potpourri. The National Labor Relations Board, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration and the Office of Federal Contract Compliance Programs are teaming up to rewrite employment, labor and workplace law. The FCC and the FTC are doing the same for the tech industry and Silicon Valley via investigations, audits and “oversight.” The Agriculture Department is going after “illegally harvested plants.” The Consumer Product Safety Commission has its eyes on . . . table saws.
Having come close to losing re-election because of a weak economy, Mr. Obama now keeps saying “our top priority has to be jobs and growth.” This new regulatory flood will increase costs and uncertainty and make that priority that much harder to achieve.
Small businesses need certainty. They also need lower taxes, not higher taxes. So the Fiscal Cliff is coming and it needs immediate attention. But if we allow the rates to rise and if we raise them further thinking we are just taxing the rich, we will be raising rates on small businesses. This in turn will kill jobs. Because 75% of the top 1% of tax payers actually are small businesses, it is wrong to think that raising taxes on the rich will not impact the economy. We need to lower corporate taxes and small business taxes to drive growth. This will actually create more revenue that, along with spending cuts, will lower the deficits. Raising rates will hurt businesses, destroy jobs, and increase the deficit.
— Steve Odland
A July 2012 Ernst & Young study shows that income taxes scheduled to rise as part of the “fiscal cliff” at the start of next year will have a negative impact on small business. You can view the entire report here:
Here are some highlights from the report:
“The confluence of fiscal policy changes scheduled to occur at the end of 2012 – sometimes referred to as the “fiscal cliff” – poses serious challenges for policy makers. One area of disagreement is the increase in tax rates for high-income taxpayers resulting in part due to the sunset of elements of the 2001 and 2003 tax cuts. The increase in the Medicare tax and its expansion to unearned income for high-income earners under the Patient Protection and Affordable Care Act of 2010 (PPACA) further contributes to the increase in top tax rates.”
“The concern over the top individual tax rates has been a focus, in part, because of the prominent role played by flow-through businesses – S corporations, partnerships, limited liability companies, and sole proprietorships – in the US economy and the large fraction of flow-through income that is subject to the top two individual income tax rates. These businesses employ 54% of the private sector work force and pay 44% of federal business income taxes. The number of workers employed by large flow-through businesses is also significant: more than 20 million workers are employed by flow-through businesses with more than 100 employees.”
“[There are] four sets of provisions that will increase the top tax rates:
• The increase in the top two tax rates from 33% to 36% and 35% to 39.6%.
• The reinstatement of the limitation on itemized deductions for high-income taxpayers (the “Pease” provision).
• The taxation of dividends as ordinary income and at a top income tax rate of 39.6% and increase in the top tax rate applied to capital gains to 20%.
• The increase in the 2.9% Medicare tax to 3.8% for high-income taxpayers and the application of the new 3.8 percent tax on investment income including flow-through business income, interest, dividends and capital gains.”
“With the combination of these tax changes at the beginning of 2013 the top tax rate on ordinary income will rise from 35% in 2012 to 40.9%, the top tax rate on dividends will rise from 15% to 44.7% and the top tax rate on capital gains will rise from 15% to 24.7%. These higher tax rates result in a significant increase in the average marginal tax rates (AMTR) on business, wage, and investment income, as well as the marginal effective tax rate (METR) on new business investment. This report finds that the AMTR increases significantly for wages (5.0%), flow-through business income (6.4%), interest (16.5%), dividends (157.1%) and capital gains (39.3%). The METR on new business investment increases by 15.8% for the corporate sector and 15.6% for flow-through businesses. This report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages. Specifically, this report finds that the higher tax rates will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock, and real after-tax wages when the resulting revenue is used to finance additional government spending.”
“Through lower after-tax rewards to work, the higher tax rates on wages reduce work effort and labor force participation. The higher tax rates on capital gains and dividend increase the cost of equity capital, which discourages savings and reduces investment. Capital investment falls, which reduces labor productivity and means lower output and living standards in the long-run.
• Output in the long-run would fall by 1.3%, or $200 billion, in today’s economy.
• Employment in the long-run would fall by 0.5% or, roughly 710,000 fewer jobs, in today’s economy.
• Capital stock and investment in the long-run would fall by 1.4% and 2.4%, respectively.
• Real after-tax wages would fall by 1.8%, reflecting a decline in workers living standards relative to what would have occurred otherwise.
These results suggest real long-run economic consequences for allowing the top two ordinary tax rates and investment tax rates to rise in 2013. This policy path can be expected to reduce long-run output, investment and net worth.”
— Steve Odland
How Much of a Role Should Government Have in Business?
Steve Odland on government’s impact on businesses and Americans. 10/3/12
I appeared August 28, 2012 on Neil Cavuto’s show on Fox Business to discuss Mitt Romney’s business experience. Click on the link above to watch.
— Steve Odland
It’s that time of year again–Back to School time. Hundreds of small businesses hold their breaths each year as this make-or-break season kicks in. Prior years have been tough. Consumer confidence has been low and wallets have stayed relatively closed. What about this year?
Well, the economy hasn’t improved. Unemployment remains high, and confidence remains low. While basic school needs remain, discretionary expenditures are bound to stay low. Look for consumers to buy the basic consumables but shun the extras. Basic clothing should sell but quantities will remain in check. Also, new electronics that historically have generated excitement are non-existent this year.
So, look for a flat year-to-year performance. Not what everyone was hoping for but better than being down!
— Steve Odland
Small Business owners are fuming over comments that the government is responsible for their business success rather than them. Of course the government contributes to the overall good of the nation including defense, infrastructure, basic research, etc. But it is incorrect to say that small businesses are not responsible for their own success. Of course small businesses are formed when people have ideas, when they risk their own capital, when they innovate, when they demonstrate passion. People who never have worked in the private sector don’t always understand what it takes to create jobs and to create new businesses. We need to do a better job throughout our education system of teach economics and business so people have a better understanding. Businesses are built by people, not government.
— Steve Odland
Off the Tax Cliff He Goes
President Obama wants lower rates for GE and J.P. Morgan than for small business.
That’s the essence of Mr. Obama’s announcement Monday that he wants Congress to extend current tax rates for a year, but only for those making less than $200,000 a year. This is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. The ploy could help Democrats if Republicans fall for it, but it won’t reduce the economic damage to the country.
By Mr. Obama’s economic logic, tax increases matter on middle-income earners but are irrelevant to everyone else. “By the way, these tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth,” as he put it Monday.
But Mr. Obama is demanding taxincreases, not tax cuts, and large increases at that. If the Bush tax rates expire as scheduled on December 31, rates on the top two income brackets will jump to 39.6% from 35%, and 36% from 33%. Add the scheduled return of income phaseouts for exemptions and deductions, and the rates go up another two-percentage points—to at least 41% and 35%.
Mr. Obama claims this will merely return rates to what “we were paying under Bill Clinton,” but that’s not true either. It ignores his ObamaCare tax increase of 0.9% on top of the current 2.9% Medicare tax, plus a new 2.9% surcharge on investment income, including interest income.
That’s an additional 3.8% surcharge on investment income, and added to the Bush expirations would take the capital gains rate to 23.8% from 15% today, and the dividend tax rate to about 45% from 15%. In Mr. Obama’s economic world, tax cuts for middle-class “consumption” are good, but low rates to spur saving and investment are bad. This makes no sense because consumption is ultimately the product of saving and investment.
The President dismissed all of this as merely affecting 3% of small business owners. But that includes tens of thousands of the most productive, fastest-growing small businesses—those most likely to hire workers amid a national jobless rate of 8.2%.
Congress’s Joint Tax Committee—not a conservative outfit—estimates that in 2013 about 940,000 taxpayers will have enough business income to meet Mr. Obama’s tax increase threshold. And of the roughly $1.3 trillion in net business income, about 53% will get hit with the higher tax rates.
This is because millions of businesses report their income as sole proprietors and subchapter S corporations that file under the individual tax code. So Mr. Obama wants these businesses to pay higher tax rates than the giant likes of General Electric or J.P. Morgan. Does that qualify as “tax fairness”?
As for the impact on growth, even Keynesian theory holds that raising taxes should be avoided in a weak economy. That’s the argument that Mr. Obama used in late 2010 when he agreed with Republicans to extend the Bush rates through the end of 2012.
His assumption then was that the economy would be stronger now, but today we are in the third slow-growth patch in three years. Businesses are sitting on their wallets as they wait out the tax, regulatory and election uncertainty. Mr. Obama’s tax gambit will only increase that uncertainty and further retard investment and job creation.
We also know from experience that high earners are most able to move their money to avoid high tax rates. If they don’t have tax shelters at home, they can find opportunities abroad. Mr. Obama is running ads accusing Mitt Romney of sending jobs offshore, but the best way to send capital and jobs overseas is to raise U.S. tax rates to levels that aren’t competitive with the rest of the world.
Mr. Obama tacitly admits this when he talks about corporate tax reform, but raising tax rates merely increases the incentive for Congress to create more tax shelters. Mr. Obama promised Monday that if Republicans accept his proposal now, they can all come together on tax reform next year. But he knows that if tax rates rise, the Beltway’s revenue “scoring” conventions will make it that much harder to cut rates again as part of tax reform. In any event, he showed the value of his promises during his 2011 backroom budget charade with Speaker John Boehner.
The good news Monday is that Republicans in Congress and Mr. Romney seemed disinclined to take this class-war bait. Perhaps they realize that if they agree to raise some taxes but not others, they’ll dispirit their own base and hurt the economy. They can also put Senate Democrats on the spot by forcing them to choose between extending rates for everyone and accepting Mr. Obama’s tax increase. Republicans can win this debate by stressing growth over fairness and jobs over income redistribution.
This clip from June 2009 discusses the importance of small businesses in job creation and driving economic recovery. To do so, these small businesses need confidence in tax policy, in healthcare policy, and in less regulation. They also need access to liquidity. Unfortunately, none of this has happened yet and so jobs are not being created by small businesses and recovery is still fleeting.
— Steve Odland
Many people are forming new businesses at the bottom of this economic downturn. This is common at this point in an economic cycle. But it’s critical to think about the structure of your new business from a legal perspective and a tax perspective.
Businesses can be formed as C-corporations, S-Corporations, LPs, LLCs, etc. Currently, LLCs or Limited Liability Companies are the most popular. This is due to what the name implies: an LLC provides shelter to individuals for legal liability. LLCs are owned by “members,” not partners or shareholders. Net income from an LLC is passed through directly to Member’s personal income taxes and are not taxed at the entity level. But if there is only a single Member to the LLC, the company can elect to be taxed as a different form of company, like an S-corp. So the company can be registered as an LLC and elect to be taxed in some other form.
Another issue is that single Member LLCs may require social security and Medicare withholding on the entire amount of income depending on structure and the amount of time the Member dedicates to the business. This is tricky and requires some study.
Net, consult your attorney and tax accountant before establishing the structure of your new company with all these issues in mind.
— Steve Odland
This video clip from the summer of 2009 highlighted the role of small businesses in driving economic recovery. All the principles outlined in this appearance are applicable to the economic situation today. The economy is not recovering quickly. This is driven by little job creation in the small business sector. The issue still is confidence and liquidity. The financial crisis was caused by the burst of the housing bubble. Home loans and lines of credit were the primary sources of liquidity for small businesses. This crash removed an important source of capital and therefore job creation. There has been no replacement either by the private sector or public sector for this source of cash. Net, housing needs to recover for small businesses to have access to this source of liquidity again and start to create jobs.
— Steve Odland
Small businesses are very vulnerable to the weather. Storms like tornadoes, hurricanes, straight-line wind, etc. can knock out the workplace for a home-based businesses. In turn, this could have serious financial ramifications. Here are some practical steps to prepare:
- Locate a safe room. Plan to find the lowest place in the house, without windows. Usually this is the basement or an interior closet or storeroom. Meet as a family and agree to the plan to meet there in case of emergency. Be sure that each family member has a plan for shelter away from home in case of a storm that doesn’t allow everyone to get home. Be sure it is operational for your small business.
- Supplies. Be sure to keep supplies on hand in or near the safe room. These should include: water, a water purification kit, non-perishable snacks/food, blankets and pillows, clothing, first aid, medical equipment for special-needs family members, pre-moistened towelettes, hand sanitizer, zip-lock plastic bags, disposable eating ware, duct tape, necessary toiletries, flashlights with fresh batteries, radio, cell phone with charged batteries, entertainment items such as books, or games, pet care items. If you have a baby or toddler you will need appropriate supplies: diapers, baby food, formula, toys, etc. You may want a battery-operated laptop with a cellular modem to be able to connect with email and Internet.
- Evacuation plan. Have a plan if you will be required to evacuate due to incoming weather. Hurricanes and floods approach more slowly giving people time to escape. Don’t risk it–get out if an evacuation order comes. Know the escape routes, plan for pets, know where you will go, have the car full of gas, etc. Much of the loss of life suffered in past storms could have been prevented had people heeded evacuation warnings. Be sure you have identification, medication, medical paperwork, insurance information, food, eyeglasses, money, credit cards, etc. with you if you evacuate.
- Plan for pets. Make sure you know where the family pets are at all times and who is responsible for their care before and during the storm. Develop a plan for their care in case of evacuation.
- Generator. A stand-by generator rapidly is becoming a necessary home appliance. Maintenance of electricity supply is becoming a necessity vs. a luxury and can qualify for insurance discounts. Heating/cooling, cooking, communication, medical gear, etc. all are dependent on electric supply. A permanent stand-by generator fueled by natural or propane gas with automatic transfer switch is best. Make sure the propane company tops off the tank before the storm. Portable gas or diesel-powered generators are ok for short-term uses but less reliable and more dangerous. Be sure to follow proper venting procedures to avoid carbon monoxide poisoning.
- Check insurance. Make sure your home, auto, and small business insurance is up to date and that you’re covered in case of storm damage. Especially important is wind and water damage for homes (flood insurance in some areas), and water damage to vehicles.
- Trim the trees. Broken tree limbs hitting power lines or houses can cause a lot of damage. Many times trees themselves are toppled onto cars and houses. The best defense is pruning. Taking the weight off the top of trees allows the roots to withstand higher winds, survive the storms, and prevent the damage.
- Install the shutters. New building codes in hurricane-prone areas require shutters or ballistic glass to be installed in homes. But increasingly homeowners around the country are installing shutters that can be deployed electronically or manually in case of storms. You also can use pre-cut plywood to cover windows.
- Collect all potential projectiles. Clear the yard and patio of everything not attached: lawn furniture, bird feeders, wind chimes, patio equipment, toys, etc. so they don’t become airborne projectiles that can do damage in a storm.
- Secure valuables. Move valuables to a safe deposit box to prevent loss. Videotape the contents of your home, garage, and landscaping, and store the video in the box. A good practice is to store irreplaceable photos and negatives off site in a safe deposit box. Back up your computer systems to an off-site location for business continuity.
Preparedness and planning are the keys to minimizing damage and preventing injuries or loss of life in storms. But it’s also key to small business planning. Just because your area hasn’t been hit recently doesn’t mean it won’t be hit. You can’t change or prevent the weather, only the potential outcome. Often the worst disasters occur in areas where people have let down their guard. So get ahead of the season, and be prepared.
— Steve Odland
A lot of small businesses work from home. Insuring your home, and place of work, is important to reduce risk. You want to cut costs in your business, but how can you do it for your home insurance? Of course, you could competitively shop the policy every year but that is onerous as it takes a lot of study to understand the difference between policies. Often it’s easier to stay with the policy that has the appropriate coverage. And longer-term policyholders can earn discounts for longevity. Here are 10 ways that you can control your home insurance costs:
- Increase deductibles. Insurance isn’t meant to cover the small stuff. Set deductibles as high as you can afford. For example, a $150,000 house could have a $1500 or 1% deductible.
- Make improvements. Install a backup generator, a whole house surge protector, and smoke/CO2 detectors. Refit roof trusses with strapping.
- Opt for hip roofs. Hip roofs offer the most slippery shape in high wind settings or storms. You don’t want areas that can catch the wind and are prone to damage.
- Locate intelligently. Stay away from flood prone areas. Look for brick or stone houses in high wind areas and wooden frame houses in earthquake-prone areas. Locate in communities with professional fire departments. Have your home inspected before purchase. Also check the Comprehensive Loss Underwriting Exchange report of your home before purchase to see insurance claim history.
- Don’t make small claims. Frequent claims can drive up rates. Don’t sweat the small stuff. Insurance is meant to protect from catastrophic loss.
- Reinforce your home. Install storm shutters, reinforce the roof, retrofit older homes for earthquake resistance, and modernize heating, plumbing, electrical to reduce risk of fire and water damage.
- Improve home security. Add smoke detectors, burglar alarms, and deadbolts.
- Exclude land value. It’s unlikely the land beneath your home will be stolen or burnt in a fire. Insure the value of the home only.
- Combine policies with one insurer. Most insurance companies offer discounts for multiple policy households. Combine home and auto insurance. Then buy an umbrella liability policy over both to optimize cost.
- Eliminate unnecessary coverage. Don’t buy coverage you don’t need: earthquake coverage is unnecessary in most zones; don’t schedule jewelry if it’s inexpensive, etc.
Talk to your agent about other discounts. Sometimes there is a discount for good drivers, or retirees, or people with good credit ratings.
Be sure also to discuss your home business needs with your agent. Often simple riders can be added to cover increased liability. Be sure you have enough insurance. Don’t be penny-wise and pound-foolish. Saving a few dollars a year will seem silly if you find out you’ve skimped on coverage that later costs you thousands. Be sure to read the policy and ask your agent a lot of questions so you understand what coverage you do and don’t have.
— Steve Odland
Our government spending is out of control. Debt has increased from about $9 trillion a few years ago to nearly $16 trillion today. Our debt per taxpayer is $138,000. And yet, Washington seems to be oblivious to what is happening. They call for more spending, er, “investment.” They want to raise taxes on the 52% of us who are currently contributing to give more to the 48% who are not. They say it’s only fair.
It’s out of control. The House budget attempts to reign in the spending a little and is criticized as “radical” by the administration. In fact, the House budget only dials back spending increases so that the deficit still increases by $4 trillion over the next decade but allows the economy to grow faster so that debt to GDP returns to a more normal level.
The current path is unsustainable and the only course to prevent the U.S. from following down the well-worn path of the PIIGS debacles is to cut spending, dial back the social guarantee escalations, reduce the tax burden on businesses, flatten the burden on individuals, and live within our means.
— Steve Odland
It’s official as of April 1, 2012: the U.S. now has the highest corporate tax rates in the world. It seems appropriate that this happened on April Fools Day. On that day Japan lowered its corporate rates so that the U.S. stands alone with the most uncompetitive rates. We also double tax multinationals—they are taxed in the country where they generate revenue, and then again when that cash is brought back to the U.S. This causes most foreign earnings to be reinvested outside the U.S. rather than being brought back for domestic investment. IPOs are going overseas rather than face the strangling regulations applied here.
Additionally, tax rates on individuals are quite high comparatively and there is a drumbeat to raise them even higher. What is not acknowledged in this is that most of the so-called 1% are small businesses filing as S-corps, LLCs, LPs, etc. Small businesses make up 75% of individual filers and higher individual tax rates diminish their ability to create jobs.
These rates and the spending binge in Washington are damaging our economy. The dollar is weakening versus other currencies, and inflation is a looming concern. Small businesses need to wake up and demand change before it’s too late.
— Steve Odland
Small businesses face rising borrowing costs. From credit cards to bank loans, the businesses that usually provide the job growth following recessions are under undue pressure with the lack of affordable capital. This is unfortunate. Small businesses need capital to fund expansion, to underwrite innovation, and to hire people.
One traditional source of capital has been the housing market. Home equity lines of credit, re-fis, etc. traditionally have provided capital to these businesses, many of which are home-based. But this source has dried up after the housing crisis.
Small businesses likely will need to turn to private equity and venture capital sources for future capital. These private sources likely will grow in coming years as even larger PE firms begin funds to invest in smaller businesses with potentially higher growth rates and returns.
— Steve Odland
Here is an appearance by Steve Odland on Neil Cavuto 3/23/12 discussing the Illinois State Lottery’s decision to sell lottery tickets online. While this may help raise some revenue, the larger issue is that spending is too high and business taxes are pushing companies out of state. Like many states, they need to cut spending and lower taxes to be more competitive.
— Steve Odland
CNBC Fast Money from 6/24/10. The subject of this video is the state of consumer and small business spending. Small businesses had yet to come back and start spending. They had not begun to create jobs. Things were not getting better. Unfortunately, a year and a half later, there still hasn’t been improvement. Small businesses continue to be under duress.
— Steve Odland
Here is commentary from an appearance I made on The Kudlow Report in September 2010. Unfortunately, very little has changed from the situation a year and a half ago. Small businesses face economic uncertainty, tax increases, lack of liquidity, rising costs, uncertainty, or maybe certainty of higher costs.
— Steve Odland
Honda introduced the new 2012 Civic last year just as Japan was reeling from the dual impacts of the earthquake/tsunami natural disasters. As a result of the events, supply was severely limited and sales suffered. In 2012 sales have roared back and the Civic now is the third most popular car in America, and the most popular if you include sister SUV CR-V sales.
— Steve Odland
The International Geneva Motor Show is running now through March 18. Here are some important new designs and models.
— Steve Odland
It’s the silly season again. No, not the political races—the interviewing season. For thousands of people this is a time of year when they are subjected to the stress and strain of interviews. College seniors are interviewing for permanent positions. College juniors are interviewing for increasingly important summer internships. High school students are interviewing for college placement. And then there are the rest of the millions of Americans out of work who are interviewing for whatever job they can find. Each of these groups finds themselves in a room with a recruiter asking mind-numbingly silly interview questions.
— Steve Odland
The Jumpstart Our Business Startups, or JOBS Act, is six bills offered by different GOP lawmakers that have earned bipartisan support.
Among the measures in the JOBS Act are items to ease regulations on raising capital and organizing before the money is in hand; to enable business start-ups to pool investments from smaller contributors; to change rules on registering small bank holding companies and to allow small firms breaks on certain Securities and Exchange regulations that prevent them from going public. The bills would take such steps as removing a Securities and Exchange Commission ban preventing small businesses from using advertisements to solicit investors; eliminating SEC restrictions that prevent “crowd-funding” so entrepreneurs can raise equity capital from a large pool of small investors; making it easier for small businesses to go public by increasing the threshold under which companies are exempt from SEC registration; and raising the shareholder registration requirement threshold from 500 shareholders to 1,000 shareholders.
The House is set to vote on the legislation as early as next week.
— Steve Odland
NASCAR may be big business but small businesses all over work to supply the sport. So here’s to every small business that make NASCAR what it is. “Gentlemen, start your engines.”
— Steve Odland
Here are five ways for small businesses to control costs:
1) Renegotiate all contracts annually.
2) Discuss with customers how to take steps out of the mutual supply chain.
3) Match payment terms with inventory turns.
4) Ask vendors to own their inventory up to the point of your sale.
5) Hold headcount constant.
Click on the link above to see the full article.
— Steve Odland
— Steve Odland
Most of my articles deal with small business on this blog. But I wrote this artice for TorqueNews regarding the newly announced Porsche Macan. Hope you enjoy.
— Steve Odland
Here’s a simple To Do List for Small Businesses in 2012.
— Steve Odland
This clip from a 2009 Fox News Sunday with Chris Wallace show outlines the issues facing small businesses still today. Small businesses were hurt disproportionately in this economic crisis. Housing has hurt not only homeowners but small business people too as those businesses relied on their homes for cash from home equity lines of credit and re-fi’s. Due to the credit crunch, small businesses have few sources of liquidity. Almost every recession has ended when small businesses begin hiring. Net job creation happens in the small business sector. For this to happen, these businesses need the liquidity to grow and the confidence to implement.
— Steve Odland
— Steve Odland
The housing market still is a drag on economic recovery. As inventory continues to exceed demand, prices are still under pressure, and asset values must continually be revalued lower. As these assets are reduced in value, banks and other lending institutions must reign in lending to maintain capital ratios. Natural recovery still is projected to be a couple years away unless government and lending policies can be changed to aid the situation. Here are five policies that could be implemented or changed to aid housing:
- Fast track the foreclosure process. There is a huge backlog of homes in various stages of foreclosure. As these homes stay out there in limbo, prices on normal sales cannot recover. Policies vary by state but Florida’s process is especially onerous. These processes need to be streamlined to process the backlog.
- Aid financing for investor purchases. We can let the housing market heal one unit at a time, or we can encourage bulk purchases by investors to clear the backlog. Local private and public incentives can be deployed to encourage local investors to buy up excess inventory for redeployment in the rental market.
- Add tax incentives. Federal tax breaks could be offered to encourage investment by professionals in homes. The short term and capital gains rate could be adjusted to 5% or 0% for gains on bulk purchases of homes.
- Borrowing rates could be restructured. Underwater mortgages are holding back consumer spending and threaten even more defaults. Lenders should get more aggressive with restructuring these loans and rewarding borrowers who stay current. One idea is to alter loan terms so that payments go to pay down principal with interest deferred until later in the loan term.
- Temporarily suspend payments. Homeowners with underwater mortgages could be given a two-year hiatus on paying down their mortgages. Of course this would mean some restructuring essentially to extend the term of the mortgage. But with a two-year easing, owners could stay in the homes and maintain them. Meanwhile they could benefit from some housing recovery so that perhaps they would be no longer under water after the end of the period.
For sure, homeowners who borrowed more than they could afford and lenders who loaned too aggressively are all accountable for the current situation. But we need some intelligent policy changes to get the housing market out of decline and therefore move the economic recovery out of neutral.
— Steve Odland
Businesses of all sizes have customers. If we didn’t, we wouldn’t be in business! But having customers and knowing our customers are two different things. Regardless of our business, we must know our customers.
When small towns emerged in this country and the usual main street of shops were created, merchants really knew their customers. After all, towns were small and customers were neighbors and residents of the town. It was easy to understand the needs and concerns of customers since all were part of the same community. As growth exploded after WW II and national chain stores emerged, literally “knowing” customers became more challenging as a company’s headquarters were located away from the ultimate point of sale. But still, people who worked in the shops were neighbors of the customers who lived in the community. Not perfect but it still worked if they fed information back to decision makers. With the advent of online shopping, the global market place, and merging of different kinds of businesses into one, knowing the customer has become ever more challenging.
Most small businesses today believe they understand their customers. But do they? To be successful, we need to act more like those main street merchants a hundred years ago and really walk a mile in their shoes. We must talk to our customers. This can take the form of formal research like focus groups or surveys, or just plainly interacting with them during the regular course of business. Ask them what they like about our products and services, what they would like we to do differently, and what we do that drives them nuts. By the way, I’ll bet they’ll say something about the ordering and billing process but this is all part of the product, isn’t it?
Sometimes our customers don’t know what they want us to do differently. Apple is famous for not doing customer research but instead inventing what they think their customers want and presenting it to the world. Behold the iPod, iPhone, and iPad. Customers in a focus group or quantitative survey never described these devices. But Apple uniquely knows their customers well enough to create something new and fit a need. Likewise, we need to understand our customers’ business or personal needs well enough that even if they can’t articulate what they want new from us or what they want us to do differently, we can figure it out and create something.
We need to “live in the skin” of our customers to really understand their needs. The best business people are those that uniquely can translate this understanding into goods and services that meet these stated or unstated needs. Despite the evolution of business over time, one constant remains: to be successful, we must know our customers.
— Steve Odland
Regulation by government bodies imposes a huge cost on U.S. businesses, but it is especially onerous for small businesses. The costs include changes needed in the business to comply, legal advice to understand rules, penalties and fines, etc. Prices from your suppliers have built in costs for their compliance. And seemingly daily another regulatory agency or body pops up to add more rules to your lives.
Well, Congress finally is taking steps to try to manage regulation. Their effort has been named the Regulations from the Executive in Need of Scrutiny or REINS Act. The REINS Act would require an up-or-down vote on all new proposed rules with an economic impact of over $100 million by both the House and the Senate and the signature of the President before they can be enforced on the American public. This act has been written to try to rein in the regulatory authority of all the agencies in the executive branch. For some time, Congress has delegated its constitutional authority to these agencies allowing rules to be written by unelected, unsupervised, unaccountable bodies. The REINS Act would require any “major rule,” or rule imposing an annual economic impact of $100 million or more on the economy, to be approved by Congress and the President before becoming law. It would require a simple up or down vote by Congress before going to the President for approval or veto. If the resolution is not passed by both the House and Senate and signed by the President within 70 legislative days, the rule would not take effect.
Small businesses should contact your senators and congressmen via their websites and urge approval of this Act. Congress needs to rein in authority for law making and take control of the regulatory burden that is being placed on our economy.
— Steve Odland
This was written in 2010 for Huffington Post. It was written to urge business and government to work together to encourage productive economic growth. As I said then and is true now: “It will be the private sector that leads our nation back to a path of long-term prosperity. Businesses across America will continue to hire and invest each and every day — it’s our bread and butter. Working together in partnership with the government, we know we can boost these investments at greater speed and provide more better-paying jobs for American workers. Businesses and policymakers ultimately have the same goals: to build a robust economy and to ensure long-term job creation for the American people.”
— Steve Odland
Small businesses generally had a tough year in 2011. Once again, the economy was difficult, customers were not in buying moods, and growth was tough. But still, small businesses faired well if they managed their businesses conservatively. ‘Tis the season to reflect on the year and prepare for a (hopefully) much brighter 2012. Here are ten things to do at year end:
1) Call or visit your top customers personally and say thanks. The personal touch is missing in much business communication these days. We rely overly on email and texting and true communication suffers. A personal visit demonstrates how much you care about their business. And a call, while not as good as a visit, still can be very effective.
2) Call your top suppliers and say thanks. Yes, they should visit or call you if you’re a top customer. But if they haven’t done so, a call from you with thanks (and no complaints!) probably will make you a favorite customer. The best customers get the most favorable treatment.
3) Gather your associates together and say thanks. Maybe holiday gifts, parties, and bonuses have become largely extinct but it doesn’t cost anything to host a holiday or new year gathering with a simple thanks.
4) Reflect on what went well and what didn’t in 2011. How will you know what to do differently in the future if you haven’t done an honest assessment of the past? Remember the definition of insanity: “Doing the same thing over and over and expecting different results.”
5) Do inventory. Of course, you didn’t need to read this to know that. But let me say this about that: inventory isn’t just about the counting. It’s about assessing strategy. What is moving, what isn’t? What sold last year but maybe won’t next year? Who is paying for all the inventory now and who should be in the future?
6) Ask yourself why your customers buy your product/service? Better yet, ask them when you visit them. They may have a different reason than you think. If you don’t know exactly what drives the need for your business, you may not be able to drive future growth.
7) Look at your competition. What differentiated your business in the past from what they do? Not what is different, but what drove true competitive advantage. Has it eroded? Have they moved? Is the gap between you and them increasing or decreasing? Again, what do you need to do differently to stand apart?
8) Check your costs. Are you truly running the lowest cost operation? If not, you leave a gap for others to fill. Look at how you’re buying, how much inventory you have vs. need, how much cash is tied up in the business that could be redeployed. How many people do you have? If you cut the bottom 10% of performers how much would you save and would the business do better? Every new dollar of sales is five or ten cents in profit. Every dollar of cost saved is a dollar in profit.
9) What percent of your sales are over the internet? If they’re low, your company may be a dinosaur. If they haven’t grown double digit in 2011, chances are you’ve left a lot of room out there for others to enter and compete with you.
10) Thank your family. Without them, you wouldn’t be able to do what you do.
The list is a starting point of course. The point is that calendar transitions should trigger time to step back and reflect and give thanks. Hopefully, you’ll get a chance to do so to really proactively ensure a Happy New Year.
— Steve Odland
There has been a huge debate recently about the job situation in the private sector. The solution embraced over the last couple years has been temporary tax incentives and temporary Federal Reserve actions. The extension of the “Bush Tax Cuts,” the temporary lowering of Fed Funds Rate to virtually zero, the payroll tax holiday, etc. all have been deployed to stimulate the economy to produce jobs. There is great surprise and hand wringing that these tactics have not been more stimulative. And the logical question is “why?”
Why? Because businesses need certainty. Despite popular notions that all companies are short-term focused, businesses of all sizes plan for the long run. Company leaders do not have an end date for operations and hence plan and run their businesses as if they will operate in perpetuity. Therefore, no short-term actions to stimulate behavior will produce long-term actions on the part of business leaders. A temporary payroll tax cut is nice, but no business will add jobs when the incentive is scheduled to disappear in a matter of months. Business leaders instead pocket the savings and add the cash to their balance sheets as an insurance policy against the possible negative impact of the expiration of the cuts. So the short-term nature of the tactic creates exactly the opposite impact on business thinking.
This thinking also applies to the “Bush Tax Cuts.” The cuts went into place in 2003, and included a provision to expire at the end of 2010. From the beginning, businesses knew that this was a seven-year incentive and so all decisions related to the 4.5% marginal tax rate benefit were modeled for that period. The economy did well after the tax cuts and up until the mortgage/banking crisis of 2008. But even without the crisis businesses would have begun around 2008 to take actions as if the tax rate was going to increase. The “Bush Tax Cut” was extended for two years in December of 2010. So, just as businesses had taken every action, short-term and long-term, to model the higher tax rates into their decisions, the rates were extended for two years. The result? Businesses ignored them and took all actions assuming the rate was going to be higher. Net, no stimulative result was achieved for 2011.
Why would businesses make decisions as if they are impacted by personal income tax rates? Because many large businesses depend on consumer spending for their revenue and consumer spending is directly related to the cash that is left over after taxes. Small businesses that are organized as S corporations, LLC’s, or LLP’s actually have flow through income to their personal tax return and so their tax rates are the personal tax rates. Hence, the “raise taxes on rich people” argument is risky since a huge percentage of “rich people” actually are small businesses.
Net, businesses logically plan and act consistent with long-term macro environment assumptions. Tax rates are an essential part of that environment and directly impact that planning and therefore investment and job creation. Temporary incentives or any incentive with an expiration date will have limited to no impact on long-term business planning. Therefore, the only way to stimulate job creation is with permanent tax structures.
— Steve Odland
American corporations have a record $2.1 trillion in cash on their balance sheets this fall. One point of view is that this is terrible: these companies deliberately must be extending the economic issues by not spending cash on creating jobs. But this point of view makes no sense when you compare it to corporate behavior over time.
Companies normally have deployed cash in the manner they see as the most logical way to create value. Cash can be used to invest in capital equipment to expand output, new stores to drive sales and market share, acquisitions to expand market share or diversify, share buybacks, etc. But companies only will take these actions if they can generate an acceptable return. If companies are not investing their cash, they must not believe they can generate the return. So then why not just pay the cash to owners as dividends? Evidently, they believe they may need the cash for something in the future and hence are not distributing it to shareholders. Two possibilities come to mind. First, perhaps they believe that the economy is going to get worse and they may need to cash to operate and hence they’re holding onto it. The second possibility is that they believe other sources of funding including bank loans may not be available whether or not the economy improves.
Either of these alternatives or both together explain the accumulation of cash on the balance sheet of U.S. companies. Weighing on their views are the debt and currency crises in Europe, inflation in emerging markets, increased investment in gold and other hard currencies, banks reserves, underlying asset valuations, current and future potential government policy, and economic malaise here at home. It’s hard to justify investing cash in jobs when you’re worried about that many things impacting your business and the economy, and you need to ensure you’ll have enough cash to survive.
What does this mean for small businesses? Conserve cash. Cut costs, be conservative about investment payout assumptions, and wait for signs of economic rebound before deploying scarce resources.
— Steve Odland
Yesterday the Labor Department reported that the unemployment rate dropped from 9.0% in October to 8.6% in November. So, does this means nirvana is just around the corner? Are our problems are over? With .4% drop per month, will we be below 5% unemployment in under a year? Wow. If only this were true.
The unemployment rate is determined by the Labor Department’s household survey. The government takes a survey and asks how many are unemployed and that becomes the reported rate. Unfortunately the hard numbers tell a different story. About 102,000 jobs were created last month according to the Department. But just to keep up with the population increases, over 200,000 jobs need to be created every month. So, basic math says that the unemployment rate hasn’t decreased.
According to Neil Dutta, US Economist at Bank of America Merrill Lynch, “When the unemployment rate declines, we want to see both employment and participation increase as discouraged workers return to the labor force. Today, we got the former, but not the latter, making the 0.4 percent drop look a bit suspect. We would not be surprised to see the unemployment rate give back some of its decline in the coming month(s).” (http://www.cnbc.com/id/45521793) According to CNBC, “Claims for unemployment insurance unexpectedly rose last week, climbing past the psychologically important 400,000 mark as the jobs market showed signs of more weakness.” (http://www.cnbc.com/id/45506837/) This obviously doesn’t support a falling unemployment rate.
Over 310,000 people left the labor force last month thereby dropping out of the number counted as unemployed. (http://finance.yahoo.com/news/jobless-rate-drops-8-6-133402269.html?l=1/) These include women who previously worked as well as early seniors who have simply given up hope of working and slipped into unintended early retirement. Further, a large percentage of the 102,000 jobs gained last month were seasonal retail jobs that likely are temporary
Let’s look at it another way. The unemployment rate in 2006 and 2007 was 4.6%. (http://www.bls.gov/cps/prev_yrs.htm/) According to Edward Glaeser (Glimp Professor of Economics, Harvard University), “Since 2007, the number of employed Americans has fallen by 7 million.” (http://www.hks.harvard.edu/centers/rappaport/events-and-news/op-eds/more-americans-need-to-work-and-to-marry/) Clearly this is not good. Regardless of year-over-year or month-over-month changes, 7 million fewer people are working than just a few years ago. Reports suggest that people have grown discouraged and taken themselves out of the workforce and so are no longer reporting themselves unemployed. At 102,000 new jobs per month, it will take until 2017 to get back to the employment level of 2007!
As an aside, there are about 140M people employed in this country (http://www.bls.gov/news.release/pdf/empsit.pdf). That’s only about 45% of our 312M population. 63% of the population or 197M people are between the ages of 18 and 65. So only 71% of the working aged population is employed. That’s a lot of unproductive people and a huge waste of human resources.
So what conclusion should small businesses derive from these new data? The economy remains sluggish, unemployment remains very high, 7 million fewer people are employed versus a few years ago, and there is no short-term catalyst for economic growth. Small companies should be cautious, pay attention to cash flow, and continue to wait for sunnier days to take investment risk.
— Steve Odland
America’s small businesses usually create most of the jobs in an economic recovery. But they don’t do this in a vacuum. Much is made about “big business” versus “small business.” But it’s not one or the other. Small businesses exist and thrive in an ecosystem with large businesses. Of course, small businesses are mom and pop retailers who service the consumer market. But they also are the suppliers to large businesses. Hence, large business success feeds small business success and allows them to create jobs.
That brings me to a “big business” issue that is inhibiting small business job growth. Currently, about $1.5T of corporate cash is “trapped” overseas in subsidiaries of U.S. multinationals. This is because these companies have earned this money and paid taxes on it in other countries. Repatriation to the U.S. would incur another taxable event and hence it is more profitable for these companies to use this cash to invest in job creation outside the U.S. than to bring it back and lose a third of it. U.S. corporate tax law needs to be reformed to lower the second highest rates in the world and make us more competitive. But meanwhile, a tax holiday on repatriation would create an opportunity to bring this cash back now. If the average cost of a created job is $50k and if all of the cash came back and was invested to support U.S. job creation, a repatriation tax holiday could theoretically create upwards to 30M jobs. According to the Bureau of Labor Statistics (http://www.bls.gov/web/empsit/cpseea03.htm) there are about 14M unemployed people in the U.S. If only part of the repatriated cash went to investment, job creation by companies large and small easily could significantly diminish the level of unemployment in this country.
Opponents argue that rather than hiring people companies may use the cash for other things like improving liquidity, payouts to shareholders, or reducing debt. Even if some cash is used for these very sound strategies it should put the economy on a stronger footing and allow more confidence for job creation. I would rather see guidelines created around use of the repatriated cash rather than continuing to incentivize companies to create jobs elsewhere.
Small businesses need to support their large business customers and argue for a cash repatriation holiday.
— Steve Odland