I’ve written often about how small businesses are getting smashed by the administrative state. Between the massive regulations and high taxes, small businesses are taking a huge beating. If Hillary is elected, there is more to come.
The problem is that a business doesn’t exist in a vacuum. Any business has customer and vendors. So when a business shuts down, the loss is bigger than just the business itself. Now for a retail store, that may not be a big deal. The thing is that many, if most small businesses are not retail stores, but small shops providing some specialized product or service. To perhaps a critical industry in defense or manufacturing. Larger companies rely on these small specialists to do the kind of fussy and esoteric detail work that they can’t or won’t develop in house. This may be sheet metal work for prototypes and short run production, special metal plating, custom machining, specialized connectors, laser welding, special printing, industrial design, custom injection molding, special finishes for machined parts or any of an infinite variety of one kind of service or product.
Unless you are actually in the middle of doing a product development project or manufacturing, I don’t think that it’s possible to visualize just how this whole process works and just how much goes on underneath the radar. There’s a lot going on in those business parks. Here’s some videos from the Design2Part tradeshow company.
The intricate dance that is innovation relies on the availability of these goods and services. Other than software, which is easy, innovation requires getting that out of the box thing, that odd item that nobody else has thought of and twisting it around to make something new and creative. Invention in a vacuum only occurs in movies and TV. The real thing is hard work and a voluminous rolodex and catalog file, usually paper catalogs. Because a paper catalog work better when you are scrounging for ideas. Innovators are constantly looking for the thing that fits in the widget that can be modified to make the thing that they want. A lot of the that stuff comes from those little companies in the business parks. Take the pencil story and multiply it by a million and make all the pieces custom and special and you might get close to how it really works.
What Hillary’s proposed tax hike is going to do is take a punt gun to that infrastructure. This is on top of the various blasts that the Obama Administration has shot.
Take enough shots with the punt gun of government’s ability to tax and regulate and fairly quickly the infrastructure that enable innovators to create and invent wont be there any more. Which will push innovation further down into things of lesser and lesser values. We’ve already had far too much of that, far too many apps and far too few things that require capital and resources.
The problem is that capital and resources are bound up in red tape and taxes that require the ROI be incredibly high. It’s almost impossible to do anything that may emit anything, use exotic materials and production methods or for that matter anything that may require permission from some government bureaucrat or another.
The big problem is that none of this is visible to the cloud people. They spend their lives, almost from birth, avoiding the skills that require getting their hands dirty. They read intellectual tomes that tell them that innovation happens all by itself without worrying about what needs to exist for innovation to happen. And they never, ever visit a business park unless it’s a photo op.
With no real contact or relationship with the people who actually make the country work the Democrat leadership has lost touch with what it requires to actually build real stuff. Or the necessary infrastructure that makes it all work. This is something that the Democrat and government leadership has had as part of their political DNA for a long time now. For far too long, Congress and the rest of the government has drawn far too deeply from the reservoir of Ivy Covered Snob Factory graduates who never have any contact with people living real lives unless they are doing some service or another for them.
So these people, making the decisions for us all have no sound basis to make the correct decisions. They bubble about, making decisions based on theories that they vaguely understand and world models that are based on sheer fantasies and expect things to work. That’s worked so well for us the last eight years The fact is that unless you can walk the talk there’s no way you can understand what needs to be done and who we are.
The big challenge for the Dems and the government is how the fixed commitments in various pension payments are going to be paid for. Frankly if growth stays the way it has been for the last eight years the likelihood is that shortfalls in payments will start within three to five years. The revenue expected from Hillary’s new taxes will not be able to cover the shortfalls. What will happen though is that the innovation infrastructure will get hit and destroyed like those balloons in the video. Which will make it far more difficult to design and invent the new products that are desperately needed to create the wealth to pay the bills. Even worse, innovation will look overseas to get the job done, taking even more jobs and businesses with it.
The fact is that no tax exists in a vacuum. Like innovation, a tax will change things as time goes forward, only not in a good way. Taxes force enterprises to become more liquid and short term in their thinking. Instead of risking and planning for years or decades, high taxes force planning to go from quarter to quarter. Trying to avoid taxes and be in compliance of all the piddling regulations that bureaucrats come up with spontaneously and capriciously become the primary activity of companies because there is no way to make long term plans if those plans can be changed by government changing the rules on a whim at any time. So companies stop innovating and start pushing the tokens around to make it look as if something is happening.
In this environment, the small company struggles to survive, let alone grow. Yet it is through the growth of small companies, especially those founded by innovators who took the risk so that they could produce their ideas and share them with the rest of us. when you raise barriers to innovation with taxes and regulation, along with predatory rent seeking and binding investment capital in esoteric regulations, the ability for innovators to create the new wealth before the old wealth is dissipated transfers of wealth from high value investment to low value consumption goes way. Eventually, so does the economy and the country. That’s the big consequences of even a small tax.