Another brilliant idea that makes you cry with the impossibility of anyone ever doing it.
Two observations that came immediately to mind while reading this post:
1) Accountants and lawyers are people with jobs. Fire them and replace them with non-accountant, non-lawyer jobs, and all you've done is shuffle the jobs around.
Yes, you can argue that every dollar spent on non-administrative expenses can be invested into productivity, but that leads me to my second observation:
2) Small businesses just don't spend that much on administrative overhead.
I've worked at far more small businesses (<20 employees) than large ones, and all of them -- every single one -- has out-sourced the accounting expenses to such a degree that I doubt there's a single full-time equivalent lost in the shuffle. Legal expenses can be more variable, but typically not because of government overhead.
When I hear this argument coming from extremely rich people, my natural instinct is to assume that they're using the populist vision of the "struggling small business owner" to promote policies that would benefit their personal bottom line. Quite honestly, this looks like more of the same. Mark Cuban has a lot more to gain from cuts in the corporate tax rate than does your average small business owner -- yet he'll never employ enough people to make up the difference.
The complexity of the tax code in the US has been increasing with ever larger loopholes to satisfy lobbyists and curry favor with various special interests. This isn't even about taxes - it's about simplifying something that shouldn't even be complex. Further, the irony is the people who lobby for the complexity are often the "extremely rich people".
I don't know whether to laugh or cry at your argument that moving jobs from tax accounting/legal which attempt to manage friction in transactions to professions that create goods and services people actually want to pay for is just "shuffling the jobs around". As an extension of your argument, shouldn't the government employ everyone by fiat and simply abolish unemployment? This is especially made particularly absurd that the US Treasury Secretary couldn't even figure out how to pay his own taxes but now runs the IRS. There is something very very wrong with this picture.
Yeah, which is why I said you could make that argument, and why I mentioned my second point -- small businesses just don't spend that much on this kind of thing. It's a red herring.
"I don't know whether to laugh or cry at your argument that moving jobs from tax accounting/legal which attempt to manage friction in transactions to professions that create goods and services people actually want to pay for is just 'shuffling the jobs around'."
You shouldn't laugh or cry, because it's just a statement of fact. I said that people who have jobs as accountants and lawyers are, by definition, people with jobs. So if you eliminate one accountant's job, and replace it with some other kind of job, you haven't increased the number of jobs. At best, you've made some small move toward "increasing productivity", which will then perhaps have a non-linear increase in other jobs, but that's an extremely tenuous argument for most small businesses.
"As an extension of your argument, shouldn't the government employ everyone by fiat and simply abolish unemployment?"
No. That would be stupid. It has nothing to do with my argument.
" This is especially made particularly absurd that the US Treasury Secretary couldn't even figure out how to pay his own taxes but now runs the IRS. There is something very very wrong with this picture."
Straw Man. I'm not arguing that the complexity of the tax code is a good thing; I'm arguing that reducing the complexity of the tax code is very different than "lowering the corporate tax rate". I'm also arguing that rich people like Mark Cuban have a disproportionate interest in doing the latter, in the guise of doing the former.
"No. That would be stupid. It has nothing to do with my argument." You're right it would be a stupid argument except according to you, a job is a job. Not sure how it's even a tenuous argument to point out that reducing friction increases jobs as it not only frees up people who have to navigate the complexity - ie the tax accountants and lawyers to doing something more productive but it also reduces the costs of compliance for companies themselves. The US tax code is now over 16500 pages with non-compliance a criminal offense.
I find it remarkable that you don't think there's an increasing cost to this compliance. Ask just about any internal accountant or anyone in a position of leadership and they'd tell you differently especially over the last 15 years.
Har. Yes...because if we reduce the complexity of the tax code, somehow, droves lawyers and accountants (who chose to do what they do, and spent years training to do it) are going to switch to "productive" jobs.
I get it. You don't like lawyers and accountants. But I think you need to separate your judgments of these jobs from the reality that these people do productive work that is clearly valuable -- even outside of the need for tax code compliance. Lawyers and accountants are not going away.
"I find it remarkable that you don't think there's an increasing cost to this compliance."
I didn't say that. I said that small businesses don't spend that much on compliance relative to all other factors, and that I'm therefore skeptical of the claim that reducing tax code complexity will increase jobs in any substantive way.
There are legal and accounting tasks to be performed in any company that are not related to tax and regulatory compliance. Lawyers will still be lawyers, and accountants will still be accountants, but instead of working (indirectly) for the government doing nothing that provides value to consumers or the business, they would be working on things that are of value to consumers or the business. Contracts need to be written and negotiated, books need to be kept, projections need to be made, copyrights and trademarks need to be defended, etc. These things make our world run smoother, and our economy grow, and helps small businesses defend themselves against larger incumbents, and helps them plan and finance growth.
We're talking about a baroque tax code and regulatory environment for business. This cost is relatively higher for small business than large business (because large business has full-time legal and accounting staff, while small businesses must outsource or do it themselves, poorly, and at the expense of productive expenditures of money or time).
I'm, frankly, stunned that you believe that small business "don't spend that much on compliance". I spend about two days a month on it for our three-man company; that's more than 13% of my productivity gone to keeping us out of trouble with the government. Given that the other two people are part-time employees, it's about 6% of our entire available work. You consider that small, when it does nothing for our business' growth or for our customers? When added to the actual taxes we pay out, it's a wonder any small business can get off the ground while staying legal.
Note that while I'd also enjoy seeing small business tax obligations reduced, I'd be extremely happy to see reduction in the complexity of paying those taxes at both the state and federal level. If I can put off employing lawyers and accountants (who make more money than I, as CEO, currently make, lawyers, in particular, who make more than I've ever made even when I was a well-paid contractor) for another year, that'd allow me to grow faster, and hire another employee this year.
And, of course, if it means lawyers don't work quite as much, and have to put off buying that new BMW for another three months, I think I can live with that.
I consider it far less than a single full-time job, or even a part-time job. Even if you could eliminate all of this overhead (which you can't), you wouldn't be able to hire a new employee with the savings.
Look, if you think my argument is that the tax code shouldn't be simple, you're not reading me correctly. Low compliance costs should always be the goal. But when Mark Cuban says "reduce small business taxes to fix the economy", I think he's wrong. It won't move the needle on hiring, because in 99% of the businesses that matter for employment, hiring is limited by consumer demand, not corporate taxes.
He did not say that. He called for a simplification of the tax code and easing the regulatory environment, not for lower taxes.
But even if you don't take my word on this, he actually does call for tax cuts in the post:
"Make capital gains on investments up to $1mm in small companies tax free"
This has nothing to do with "streamlining" the tax code. Cuban wants the ability to invest in hedge funds and other "small businesses" without paying capital gains tax on the profits, and he's framing it as a way of "encouraging investment" in the mom and pop store down the street (who will never, ever be assisted by this kind of a policy change). In reality, Cuban is proposing yet another loophole that would be used primarily by rich people and large corporations to escape taxation.
http://en.wikipedia.org/wiki/Parable_of_the_broken_window
It's not a dislike of lawyers/accounts it's a desire to make things more efficient. Every cost that is paid is a lost opportunity to grow the business in a more productive direction. Even small losses in investment over time can make large differences.
When you think "small business", don't think "startup". Instead, think "neighborhood shop" -- these kinds of small businesses represent the vast majority of hiring, and they hire help in response to customer demand. So even if they could save the equivalent of one full-time employee on accounting and legal (an exaggeration, but let's go with it), they'd only re-invest that savings into other employees if it made sense to do so in light of current demand.
The general problem I have with the assertion that lowering taxes will create jobs, is that it assumes that taxes are the limiting step. In my experience, that's not the case for small businesses. The much bigger problem is ensuring that customers are always walking in the door.
Complexity, on the other hand, is paid for out of pre-tax money. If you go from me spending 10% of my pre tax money on accounting overhead to 20% of my pre-tax money on accounting overhead, that money comes out of my budget for employees and equipment. I mean, that money still goes to jobs, but those are /defensive/ jobs- I pay for an accountant, not because it gives me an advantage over the competition, because it does not. If anything, it slows me down. However, if I don't pay for the accountant, then I am at risk of being destroyed by the IRS. That is money I don't get to spend on beating my competition.
Just looking, it appears that my accounting overhead is a noticeable fraction of my personnel costs. my personnel costs are dwarfed by equipment and power costs. So yeah, it isn't that bad. But still, if you ask me how the government could help my company, the first thing I would ask for, before tax cuts or subsidies or anything is for a reduction of the complexity of tax, employment, and other laws I need to deal with.
I may not be a typical case, but this is false for my business.
I am the founder and sole employee, although I have used contractors for jobs before.
My first year, I spent at least 2-3 hours / week on average learning and dealing with the accounting and legal needs for having a corporation. There are a lot of agencies and each have their own rules. Just keeping up with all the tax law changes is a fair amount of work, nevermind the risk that you've misunderstood / forgot something.
Obviously, it wasn't my full-time job, but it took a big enough chunk of my time (and therefore potential income) to be a real hassle.
The next year, I outsourced much of it and ended up paying around $2,000 (not including the actual taxes and license fees). I realize that isn't much, but for a one-person entity that's a non-trivial amount of money. (yes, cost of doing business, blah, blah, blah ...)
You don't think life has gotten much better for poor people over the last 20 years in the United States? I mean in absolute terms.
Yeah, I have an accountant who handles all that stuff for me. (Now, I should have a lawyer, but right now I honestly dont even know enough to know /when/ I should ask the lawyer, so I mostly rely on the fact that it's not worth suing a company with my revenue.)
The problem is that when I have a new business idea, there are a myriad ways that intersects with tax law. I run all new business ideas past my accountant right now, because I'm wholly unqualified to understand that intersection.
To give you an example, for most larger customers, it would make a lot of sense (well, they would pay less) if they bought hardware and I hosted it for them; the thing is, I can obtain high-ram hardware much cheaper than my customers can, and obviously, if it's exactly the same as all the other hardware I have I will be better equipped to manage it, as I have spare parts and experience with any problems the gear may have. So, the obvious idea is for me to sell the hardware to my customers, then charge them for manging said hardware. But apparently there are some complexities with sales tax (right now, I buy all my server parts retail... apparently there is some accounting complexity in then making sure that I keep track of drive with serial number X and how much I paid for it, then it went in server Y I sold for Z dollars.) Right now, I don't need to screw with sales tax; I just keep track of all the server parts I buy.
Just doing that accounting easily doubles the work required to assemble a server. (server assembly isn't exactly /rocket science/ keep your ground strap on and you'll be fine.) So, I continue to rent servers rather than selling them, providing less value than I would have to the larger customers.
The time I have to spend on government forms (taxes, business registration, etc) takes away time from other activities (SEO, new blog posts, software development).
Yes, I can outsource this, but I still have to deal with it. And it adds no value for my customers. Accountants and Lawyers don't get software built, they don't get blog posts published. They handle my interaction with the government.
At my current company (day job) we're spend a lot of time working out some stimulus package details. It's a bunch of overhead, we have to track our time on it, and for a reimbursement of 80 cents on the dollar.
So, if you think that lawyers and accountants somehow get things to customers, yes, you have a valid argument. I haven't found that to be the case.
"IRS Commissioner Douglas Shulman does not file his own taxes in part because he believes the tax code is complex."
http://thehill.com/blogs/blog-briefing-room/news/75119-irs-c...
We are in a recession now, but it's pretty hard to link a causal chain including tax cuts to it. In fact, we know exactly what caused our current situation, and no one thinks it was "the tax rate was too low".
A useful reference point is to consider the positive relationship between economic growth and reduced regulation and you can see that through the World Bank's Doing Business guide comparing various states (http://www.doingbusiness.org)