Guest Post: You Want Small Business to Start Hiring? Here's What To Do

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

You Want Small Business to Start Hiring? Here's What To Do 

To incentivize small business, we have to fix the structural imbalances in the U.S. economy.

Everyone wants to know how the Central State can "help" small businesses so they will start hiring again. The answer is simple: fix the structural imbalances in the U.S. economy and start favoring real production over financial speculation.

Please note the question at hand is "what should be done," not "what can be done politically." Politically, everything I propose here is impossible. The Status Quo's stupendous power and share of the national wealth is based on preserving those structural imbalances. The last thing the toadies and parasites in Washington want is to upend the structural imbalances which feed their Masters, the Financial Power Elites and crony-Capitalist cartels.

The great value in asking what should be done is that it lays out for all to see the vast gulf between the present doomed system and where the nation should be heading.

To fix anything as systemic as small business, you need to begin with an integrated understanding of the system. This "to do" list is based on my Survival+ critique.

The Status Quo wants everyone to believe that all that ails small business can be fixed with tiny tweaks, such as increasing the depreciation rate on equipment. Those kinds of solutions are about as effective as band-aids over cancer.

If we start by asking cui bono, to whose benefit, then we discern the system is currently ordered to incentivize speculation by those Financial Elites who effectively control the institutions nominally under the control of the Central State: the Federal Reserve, the regulatory agencies, Congress, etc. Given their influence over the machinery of governance, then their private losses are simply transferred to the taxpaying public, which then borrows trillions of dollars on the bond market--and pays ever more interest on that rising debt--to cover the losses of the Financial Elites.

The conventional scheme of things is to distinguish between corporations, small business and employees. I would make a different distinction: between speculative financial churning and skimming and production of tangible goods and real-world services.

I would further make a distinction between domestic and global corporations. Global corporations are akin to empires, while domestic corporations are akin to nation-states. Global corporations now concentrate so much capital that they sit astride nation-states, moving capital and assets around to suit their own goals, and buying political power where doing so is a "wise investment."

With that general backdrop, here's my list of what needs to be done to incentivize small business formation and hiring:

1. Restore sound money. How can any business flourish when its money is being depreciated? Global companies can hedge against this "hidden tax" but small business (and wage earners) cannot.

2. Raise the cost of borrowing money and incentivize capital formation. If the Million-Price Project pegs inflation at 3%, then savings and checking accounts should pay 7%--a 4% real return--and it should cost 10% to borrow money.

Zero interest rate money available to Wall Street and the Too Big to Fail banks only encourages speculation and misallocation of capital on a grand scale. If an investment can't justify a 10% cost of borrowing, it's a poor investment and it shouldn't be made.

3. Offer corporations a choice: since they're legally considered "persons" now
, then they have a simple choice:

A. Pay the individual "persons" tax rate on all income, and have all corporate-specific tax breaks stripped away, or

B. Renounce their Supreme Court-granted rights to "personhood" and pay 0% income tax on all non-financial-related income.

Right now most global U.S.-based corporations pay around 3% effective tax rates because they game the system (which they own/influence). So eliminating the corporate tax rate for all non-financial-related income would wipe out the hidden "tax" of paying lawyers and lobbyists to game the system. It would also make the U.S. attractive globally.

Many people want the clock to be turned back to when corporations paid significant Federal taxes. Since capital and assets can be shifted anywhere now, this is wishful thinking. Better to eliminate the wasted energy gaming the system and lower the tax rate on productive capital to zero, and tax individuals who receive income from the corporations--dividends, bond yields, salaries and bonuses, stock options, etc.

There is a caveat, of course:

4. Set the income tax on all finance-derived income for individuals, small business and corporations at 50% above the first $100,000, and 75% above $1 million. All income gained from churning, skimming, selling of "financial innovations," trading, derivatives, loaning money, any and all sources of income derived from financial sources, is taxed at 50% above the first $100,000 and 75% above $1 million.

If an individual is able to generate $2 million in short-term churning, then they can afford to pay $1 million in tax. If a hedge fund skims $100 million, then they can afford to pay $75 million in tax.

There is an alternative: quit skimming and start investing in productive assets.

the $100,000 set-aside enables small-business money managers and the like to make a living by paying the same tax rates as everyone else. But once they start making more than $100,000 annually, then they pay 50% tax on all finance-derived income.

The point here is to provide a disincentive to speculation and financialization and an incentive to production of tangible goods and real-world services. Once an economy has been incentivized in favor of financial speculation and gaming at the expense of producing real wealth, it is effectively doomed.

5. Set the long-term capital gains holding period at three years
. All finance-derived income would be taxed at 50%, but truly long-term gains--three years or more--would be taxed at 25%. That incentivizes actual investments in productive assets as opposed to short-term (in high-frequency trading, mere seconds) churn and skimming.

6. Lower the Federal tax rate for sole proprietor/partnership enterprises to 7.65% up to $50,000 annually.
Right now, the sole proprietor pays 15.3% self-employment tax and 15% regular income tax (on the first $34,000), an effective rate of 30%. The wage earner pays 7.65% plus the 15%. This disparity doesn't exactly encourage enterprise. Lowering the effective tax rate on the first $50,000 (the average income in the U.S. is $49,777 annually) to that of employees would level the playing field for those trying to earn their living as sole proprietors.

7. Fix the broken healthcare (a.k.a. sickcare) system in the U.S. How can any small business thrive when sickcare siphons off 17% of the U.S. GDP, compared to 8% in other developed nations such as France, Japan and Australia?

I have proposed two ways to fix the system--both are acceptable in my view, which I have outlined here many times:

A. Eliminate the entire system of private insurance, Medicaid and Medicare. Everyone pays cash for all healthcare. This is effectively a reset to 1965. Please note the U.S. was a developed nation in 1965 and that by some metrics, was actually healthier then than we are now. Longevity has barely budged. In other words, a non-spin analysis would find we're getting precious little for 17% of our GDP.

Such a reset would eliminate all the corruption, fraud, skimming and Central State- cartel controls that have created a monster which delivers decreasing health and costs that are double that of our global competitors.

B. Institute a national system based on the Veterans Administration: the entire system is opt-in (you don't have to go to the VA, you are free to pay cash and go wherever you want) and owned lock, stock and barrel by the Central State (Federal government).

The VA is not perfect--what large bureaucracy is?--but it has provided innovative solutions to large-scale care. Yes, there are lines, and yes there are limitations, but the system costs a fraction of the cartel-crony Capitalist quasi-private system that costs 17% of GDP. Since doctors are employees of the VA, there is no crushing burden of "defensive medicine" and malpractice, nor are there opportunities for gaming the system for millions of dollars, for example, owning the MRI machines and giving every patient an MRI test at your own lab.

8. Streamline Federal regulations down to one page (two sides) for all enterprises except nuclear materials or equivalent. Central State fiefdoms and their Cartel-crony Capitalist partners love 1,000-page regulatory schemes because they are extremely effective "moats" to small business competition.

The vast majority of businesses could be regulated by two pages of common-sense, straightforward regulations--two sides of one sheet of paper.

This would mean paring the armies of bureaucrats who are currently incentivized to increase the regulatory load on small business because more regulation is highly effective job security.

lagniappe/bonus reform: Impose a Federal regulation that caps any form of local government/state annual business license or business tax at 10 times the hourly minimum wage (e.g. 10 X $8.65 = $86.50).

Local government has taken the implicit point of view that small business is a treasure trove of ill-gotten wealth and a cash cow with endless reserves of "fat" to be taxed. If you want to encourage small business to expand and hire people, then you can't saddle them with thousands of dollars a year in junk fees, the most pernicious of which is the local "business license fee" that is based on a percentage of gross revenues: even if your business is losing money and has no net income, you still have to pay a tax based on gross revenues.

Until you close down, of course, which is what the system currently incentivizes.

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jal's picture

FIRST find support from a majority of lawmakers.


Herd Redirection Committee's picture

Great work by CHS again.  He has done really well to point out some really effective fixes, while simultaneously telling us why these fixes aren't in place already.  Because the system is rigged against small businesses, thats why! 

Of course sound money is a fantastic starting point, but I would also like to bring the wealth disparity to Mr. Smith's attention.  While 1% own 90 of the assets its not going to matter how sound our money is, we will still have many of the same problems we currently have. 

If we are really worried about the NUMBER of people who are unemployed all we have to adjust is how much each person in the workforce works.  If everyone was working 4 days a week, well, then there is 25% more demand for employees, isn't there?  I know no one can get by on their current hours, let alone reduced hours, but this is strictly a solution to getting more bodies in the workforce.  If we are worried about how much WORK there is for people in the economy, we need to bring our manufacturing back from China.

As an added bonus to using sound silver and gold-backed money, Mexico will be a lot more prosperous than it currently is (currently an oil and drugs-based economy), which will reduce the migrant population.  Also, stopping the war on Drugs will remove 80% of the profit for the cartels, as they would then have to compete against everyone, and would no longer be able to charge a premium for goods they have smuggled.

I don't claim to have the solutions, but I do believe in trial and error. And the first step in trial and error is knowing when your trial has 'erred', and its time to TRY something new!  Its safe to say, this trial of fiat money/financial oligarchy has erred, and it is high time we dump it in favor of something different.

Check out the Capital Research Institute:

NotApplicable's picture

Funny, what you call a great work, I call a waste of effort.

Anyone who understand that a system is rigged, yet spouts off on how the rigger should act to fix the system, or better yet, expect the rigger to step aside fails at comprehending the "why" behind it all.

Rigger, please.

Herd Redirection Committee's picture

A great work*, is what I would call it, to be honest.

I agree with you that the system is rigged, and those who benefit are not interested in changing the system whatsoever.

But it is also important to be cognizant of our own complicity in the system.  It does us no good to simply blame it all on 'them'.  Yes, the Elite deserve a large share of the blame, because they have assembled the system into its current form, and kept people uneducated or atleast mis-educated, but there are still benefits from being introspective and self-critical, ie. accepting that we played a part (however small) in keeping the system going.

rocker's picture

Demand !!!  The Elite have drained the sheeple to where they want them.  Even the Scum Bag from BAC said that there is no demand for loans from people who want to start a business. Because there is No Demand for products beyond what is already supplied by the present deleveraging of America. The elite actually prefer it this way. They do not want to stand in line at their favorite restaurant or vocation spot. In a way, you can call it crowd control for the elite.  They like it just the way it is right now. Business will hire when they have DEMAND for Product.  Until then, it is still a controlled recession.  Starving extra money and savings from the middle class with higher food and gas prices also accomplishes the same effect.  The power of the elite Central Bankers and Richie's to control their environment amazes me to this day.    

Panafrican Funktron Robot's picture

All those steps could be reduced to one.

bullandbearwise's picture

Manufacturing is surging, but no employment. Why? Because business processes everywhere have been automated by computers and we don't need people anymore.

Solution: Embrace Utopia and allow for a permanently-funded unemployed class. Are you ready for it?

AN0NYM0US's picture

Because business processes everywhere have been automated by computers and we don't need people anymore.



Because business processes everywhere have been outsourced to Mumbai and we don't need American workers anymore.

e.g. Guidelines for planning on offshore outsourcing


even the hedgies outsource



bullandbearwise's picture

Outsourcing is just a symptom of the bigger problem. We simply don't need that many workers anymore, everywhere.

GoinFawr's picture

Hunh, so what is it you suggest 'owly'? 'Killing the poor' suit your elitist agenda?

Please correct me if you are just being ironic.


bullandbearwise's picture

Not killing the poor and not being ironic.

Look, the avowed purpose of computers and automation is to make our lives easier. The natural extension of that is if everything is computerized and automated, work, as we know it, ends.

If we are to enjoy the fruits of technology we have to be big enough to understand a small cadre of highly specialized workers can oversee process infrastructure to the benefit of everyone else.

NotApplicable's picture

There are an infinite amount of unmet human needs, and therefore, an infinite demand for human labor.

The "useless worker" problem occurs when the needs do not match up with the labor skills required to meet them.

bullandbearwise's picture

Huh? Unmet humans needs met by machines doesn't create any demand for human labor except overseeing the machines. This is easily met by a small subset of humans leaving the rest to enjoy the fruits of the technological progress. Is there anyone who would rather not work if all their needs are met?

Meme Iamfurst's picture

Over the last 6 years, every day, every hour, every second, there has been nothing but misleading and disinformation for everyone to chow down on.

Now you would think after all this time. we would have learned to take 'official news' and MSM pundit chatter with less than one grain of salt   Seems not, we don't learn, and "they" know it.

What intelligent businessman/woman is going to start any business in THIS environment?  I am not speaking of the garage tinkerer start up with the next I-whatever.  I am speaking of bread and butter businesses that will hire do... God knows what.  Nope, ain't gona happen.  The small businessman is in the target site of every politician as the way out and starting tomorrow, the bill is in the mail.

Give it up folks!  If this bunch in DC, on Wall Street, etc wanted the coffers to refill with tax receipts, it WOULD HAVE HAPPENED already.

  Our fearless leader trots to California to met with billionaires who could start any business that so desired, and what happened...they sat on their hands, why? 

Look at the pathetic lot our great leader has herded together to form a think-tank on jobs...please... the one thing these fine men are thinking about is a half dozen bottles of 1982 Chateau Lafitte at $1,200 a bottle at lunch at the Jockey Club which you will be paying for. But to be thinking about  'jobs' for joe six pack, get real, avarage people are a pimple on their backsides.

There is Something else that is going on, and we haven't been able to see what it is, YET.  The big shots know how "we" feel.  Nothing we are witnessing is by accident.  This dog and pony show is buying time for something else.  Can you feel it too?

But to believe that DC or Wall Street is going to do anything to get businesses jump started is a pipe dream.

A Nanny Moose's picture

People must build/maintain the computers, network gear, and networks over which those computers communicate. Power plants must be built, maintained and fueled to support all this infrastructure. I would argue that most of the computing power now ends up being used to comply with the regulatory Gordian Knot, and predicting the unpredictable, rather than actually producing things.

Is it really possible to create an AI supported world in which humans become irrelevant? What happens when they BSOD?

Cognitive Dissonance's picture

Please note the question at hand is "what should be done," not "what can be done politically." Politically, everything I propose here is impossible.

Thank you Charles for pointing that out up front. The powers that be have no desire to "fix" these problems. None. Or at least fix them with regard to the plebs. It's all working out pretty good for the top 5% and that's all that counts at this point in the unwinding.

alien-IQ's picture

The sooner we accept the fact that the US, contrary to popular propaganda, is not a free market democracy but rather a Fascist Kleptocratic Kakistocracy the sooner we'll cease to waste time on brainstorming solutions that will never come to pass.

This is not a "business cycle" problem nor is it a "monetary policy" problem. The real problem is that most Americans either fail to or refuse to see what by now should be obvious: This is not the country we thought it was nor is it run by whom we thought was running it.

The solution? : Accept their ways or fight to regain control of the country. Until this is handled...all else is mere conversation.

Sudden Debt's picture

Today I've heard something so funny :)


"The reason why businesses don't hire is because the can't find good people and stopped trying"!


I kid you not, that was all over the radio today after a survey done by the government.


haskelslocal's picture

Today I've heard something so funny :)

 "The reason why businesses don't hire is because the can't find good people and stopped trying"!

 I kid you not, that was all over the radio today after a survey done by the government.


... so that means that unemployed are not unemployed if they've given up and stopped trying!

Sudden Debt's picture


It means that small companies don't hire that much because they stopped trying to look for people because they can't find people.

Capitalist10's picture

 "The reason why businesses don't hire is because the can't find good people and stopped trying"!

I own a business employing about 50 people and I agree 100% with that statement.  Obviously the survey respondants agree.  The vast majority of prospective employees we see

1) do not have reading, writing and math skills that used to be expected to graduate high school, though the prospective employee may have a college degree

2) consider showing up for work each day to be optional, depending on whether or not the employee feels like it

3) do not have anything resembling a work ethic

4) consider their main challenge at work to be how much time they can spend on facebook, twitter, texting, surfing the web, really anything but productive work.

We are also very cautious about hiring because, should you ever decide to fire one of these slackers, you have to be concerned that the only non-protected class left is Caucasian, US born, straight, Protestant men under 50 who never served in the military and do not have anything that could be considered a disability.


Hacksaw's picture

Has it ever occured to you that you just might be hiring the wrong people.

Capitalist10's picture

My comment applies to about 90% of the pool of prospective employees we see whenever we need to hire someone.  We try to hire from the remaining 10%, but that percentage seems to shrink each year.

UGrev's picture

I agree, but there is also a flip side. I've seen job descriptions that require so many damn skills that just don't fit the salary offered. I'm sorry, but as an out of work web-developer (NOT DESIGNER), I keep finding "web developer" jobs that want you to know C# and be a fucking front end/photoshop guru at the same time... for 60-80k. That there is a 150-200k job DOE. Photoshop guru's could pull 70-80+ EASILY just for doing web designs. Then top it off with actually knowing CSS, HTML and the frameworks required for crossbrowser compatibility with your design and you're talking two completely different sets of skills which they want wrapped into one person.. THEN you tack on server side development. For 60-80k..  FUCK THAT SHIT. Tripple that number and we'll talk. 

I took a knock down to contractor from my last job because they wanted to pay me a base salary for 40 hours a week and require me to work 50-60 for 3-4 months out of the year. Personal restrictions didn't allow that so I politely told them that in no uncertain terms would I dilute my salary by ~25%. 

So employers need to stop with the "And other Misc tasks assigned" bullshit as well trying to find someone who is superhuman. 

AnAnonymous's picture

Welcome to a world of jobs scarcity.

Firms do not really require additional workforce but would gladly welcome an exceptional addition that could multitask all the small gaps that exist in a team, plus the main contribution, of course.

UGrev's picture

I actually like contracting/freelance. I get in , I get the job done, I get paid, I go home and I get the benefit of experience a lot of different systems and designs. 

linrom's picture

What do you pay-$7hr! I hear this argument all the time and find out that most want their $7/hr employee to take an ownership interest, work overtime for free and be on call 24/7.

Clampit's picture

You're not alone, my parents operate a similar size small business and I hear the exact same complaints. I've started to theorize as to why; not blame, just understand.

One concept I've concentrated on, along the lines of Matthew Crawford's writings, is the lack of job satisfaction feedback. People are more removed than ever from the tangible benefits of their work, such that it's difficult to find motivation beyond mere financial gain. As has been pointed out here:

This is a terrible motivator. Another corollary to insufficient motivation, especially on the financial side, is the current favoring of capital over labor. It's damn near worthless to actually do something as compared to owning the rights to do the same. I'm really starting to believe state protection of IP rights, where productive men must ask permission from unproductive men before producing, is closer to the root of our problems than most realize. I wish I had more time to elaborate here, but what I do want to caution on is the tendency to read the current labor pool work ethic as "the lazy next generation" without reflecting on the fact that people are a product of their environment. When all the rich and adored people in our society are borderline criminals, and almost never lay a hand on anything they "produce", it's tough to find motivation to get out of bed and be a part of it all.

A Nanny Moose's picture

Kids today can't even count out change without the cash register telling them.

chopper read's picture

that was well done, DB.  thanks for posting.

DB Cooper's picture

Thanks Chopper - pass it on!

Fred Hayek's picture

Amen, Mr. Smith.

I'm going to forward this to my boss at the small business where I work.  I strongly suspect he agrees with all of it.

AnAnonymous's picture

Problem with that story of fixing imbalances is that the US driven world system is living off imbalances and therefore people seek to increase imbalances rather than fixing them.

Oh regional Indian's picture

Funny, he said it would never work and yet laid them out in detail.

Small business (as we know them now) will never thrive again. Business as we know it is never going back to the Halcyon day of pre Sep. 08.

Best plan is how do you raise a Phoenix?



Cognitive Dissonance's picture

He said it would never work politically because it would never be implemented. It most certainly can work, but it would require accountability in the political class. And they march to a different set of drums.

Cognitive Dissonance's picture

All lies must be immediately refuted, all myths exposed.

ORI, your tone has changed over the last few months. Why so negative? Before you talked about spiritual growth, now you are much more negative. What's up?

Oh regional Indian's picture

Interesting you ask CD. Try to be a dispassionate observer and I see, on all accounts, human tendencies worsening, all around me. We are coming to a crescendo. 

And the more I get out, the more I see the terrible suffering in India, glazed over with "India Shining" slogans. Written in dust.

I suppose you are reading frustration.

But hey, they match the tone of Zh headlines nowadays, eh? ;-)


Pee Wee's picture

I know for an absolute fact that small businesses (that are growing) cannot hire the next FTE because of Federal taxes at a rate of 1/10 -- higher if your state has state taxes in addition.

Treat small businesses like corporations and the problem is greatly simplified, but as of now small business pays big business' taxes on income - that is the systemic inequality and it is pervasive (so GE pays zero and gets a refund off the backs of small business owners).

The political tide of the present is total elimination of small businesses, and every single story on the contrary is an outright lie.  Try being a small business owner and you will be disgusted.

There is a war raging against small businesses under 20 employees - let the facts do the talking instead of hip-shot speculators.  The problem is government collusion with big business and taxes, taxes, taxes.

Benefitted FTE's double that rate (2/10 additional FTE's) with the racketeering syndicate known as health care.

NOTW777's picture

doesnt sound like chris has actually run a small business

NOTW777's picture

"2. Raise the cost of borrowing money and incentivize capital formation. If the Million-Price Project pegs inflation at 3%, then savings and checking accounts should pay 7%--a 4% real return--and it should cost 10% to borrow money."

small business already pays through the nose for borrowing

TonyV's picture

+1. The author probably never had a business where he had to deal with the lenders.

flattrader's picture

No joke.  So much of this is rank amatuer speculation.

He misses a fundamental problem upfront...

Capitialization (first) and expansion (second) and refinancing/consolidation (third) loans are extremely difficult to get even if SBA guaranteed...let alone dealing with an interest rate at freakin' 10%.

I did SBA lending for a while for a non-bank lender pre-2008.  The majority of applicants had been turned down by large and small community banks.  I had clients that were fully collateralized, credit worthy etc...and STILL had to scream at underwriting to get them funded.  Even at 4.00+ over prime the "home office" was loath to lend.

It was by far the most frustrating experience of my life.

The work-out end if the loan went bad was always the main consideration...even with the guarantee.

NOTW777's picture

"Everyone pays cash for all healthcare."  right. this is an advantage for small businesses????

lynnybee's picture

30 years of malinvestments .......... that is a tall order & will require we get rid of our financial oligarchs ........ remember when our banks were mostly small locals ?   & we actually earned interest on our savings accounts ? ....... i'd love to go back to the way it was before NIXON .    life sure would be simpler.    our lives were small & local, community based.   enjoy your fiat money & credit while you can, it's over.