Big Business vs. Small Business

[Free Rider]

Okay, Panini, I hope you have a bottle of aspirin handy because you'll probably end up with a migraine.

These days, it has become popular for governments to provide incentives for big business, ignoring the small guy. I can provide specific examples, but most often, the deals are secret. This is happening across the USA, but very few municipalities will reveal the deals they've made.

The deals include:
- low rent on properties owned by the cities.
- the ability of the big company to collect sales tax, but a waiver of the requirement to turn said tax over to the city (handy profit, eh?)
- tax waivers allowing large corporations to avoid many taxes, including property taxes, corporate taxes, whatever.
- in the case of hotels, the cities are financing (owning) the buildings and paying a management fee to the hotel company such as Hilton. The only city in the USA not doing this one right now is Las Vegas.
- low-interest financing. A specific example is the below 2 percent interest rate loan being offered to US Airways (one of the only airlines making a profit).

Edited to add: I personally know of a few small businesses that came under pressure from govt to meet certain conditions. After being forced from their properties, the locations were turned over to big business.

[cheflayne]

Bottom line: numbers rule. Always have, always will. City governments are businesses trying to improve their financial positions. In a small restaurant, if a customer said "I'll come in to eat, if you pay my sales tax", the owner's answer would be no. If a tour bus company said "I'll bring in 100 customers, if you pay the sales tax", the answer might be different.
Bottom line:talk is cheap. Anybody can do it. In the small rural area that I used to live, everybody fussed when corporate America started to move into the county. Changing the face of the county, blah, blah, blah. Where does everybody in the county now do business. Corporate America. Naturally fussing the whole time.

[Free Rider]

Cheflayne, I would agree with you except for one thing. The goverments are helping big business knowing that it will cost the taxpayers more than it generates. They fund big business because big business won't be making a profit in X area without said funding. In the case of one hotel, for instance, the documents say that govt knows they will lose money on the venture and that taxpayers will have to fork out the money for the losses. The benefit to the taxpayer, govt says, is a bustling downtown area.

Because of the govt advantage given to big business, big business can undercut prices of small business. With the tax incentive, for instance, big business is guaranteed a 5% (or whatever the sales tax happens to be for the area) profit on everything sold. Big business can then cut prices down to cost.

Remember, this is not the customers getting the advantage of not paying sales tax, but big business being allowed to collect the sales tax without ever turning it over to govt. It's right into the pocket of big business.

Also, govt is not business. Govt does not have to worry about the bottom line because they can always raise taxes. Govt does not produce anything nor does it make a profit.

[cheflayne]

"The goverments are helping big business knowing that it will cost the taxpayers more than it generates"

Directly true, indirectly more cash flowing through economy overall, more businesses opening dependent on big guys, less unemployment, etc.
I don't necessarily like it, but realistically there is some truth to that train of thought. Part of the reason I am a former small business owner is

"big business can undercut prices of small business. With the tax incentive, for instance, big business is guaranteed a 5% (or whatever the sales tax happens to be for the area) profit on everything sold. Big business can then cut prices down to cost."

Not wishing to be a dinosaur, was part of my decision.

[Free Rider]

Unfortunately, Cheflayne, very often there isn't more money flowing through the economy. Usually, big business just offsets the loss of the small business.

Even more unfortunately, the moves are made by local governments because big business can wine and dine the mayor. The mayor feels like he has big boots and starts acting like it. We have a little project where I live that put lots and lots of small business owners out of business (eminent domain). Govt built buildings and said business would be booming. Big business came in, took incentives and left when the incentives were over. Now the buildings stand empty. They've been empty for years.

What a shame that you were put out of business too. I'm not against big business at all, but I wish it were a level playing field and not one so skewed to the chain restaurants, etc.

[phatch]

Fareed Zakaria wrote an interesting book on the minimal required economics (among other things) for democracy to work, The Future of Freedom. I recommend it.

One of his points in simplified terms is that governments need to produce money to do what governments do. In a resource rich environment, governments can make money off the resources. This often ends up in the opposite of what birthed america: No Taxation and No Representation. You don't pay taxes but you don't have a voice either. And the government does what it wants as it has its own revenue stream.

In a resource poor environment, governments create a desirable economic structure for business to operate in and make money through taxes and or services. In return to being responsible to the citizens and businesses.

For a community to land a big business, the community often offers tax breaks of some sort. The hope being that once the business is in operation, the increased business activity will increase total tax revenue even though that specific company isn't contributing. The community gets employed construction and materials employees. The community locks in some thousands of employees paying income and property tax for decades to come. That offsets the offered tax breaks in most cases and should help keep the community viable.

Sometimes it doesn't work out. Micron built a huge fab in my area a decade ago. By the time the fab was built, it was outdated and never used. The computer chip market moved faster than the business could build.

Fareed's book covers a lot more territory, but that example has some application here I think.

He doesn't claim that this behavior is fair. But he makes some insightful points on how government operates and the underlying economics to support government that provides freedom to the people. I think there's a pretty big disconnect in how our government manages business. For example, companies have speech rights, property rights (how does property own property or speak), can contribute to campaigns and so on. Business has equal rights as citizens and pay taxes. But they can't vote. Is that really equitable? I'm rather against the personhood of businesses, but it's not a simple change at all.

On a separate note, the middle east is pretty much doomed to not have democracy according to Fareed's book. One of his conclusions is that no democracy has succeeded whose citizens didn't earn more than a certain amount. In the inflation adjusted dollars for the time the book was written, that was about $3200 per year as I recall. On that principle, enduring freedom isn't likely for most of the world. http://www.finfacts.ie/biz10/globalw...epercapita.htm

Phil

[cheflayne]

"What a shame that you were put out of business too."

I wasn't really put out of business. I was paying the bills and making a living, but after twelve years of ownership the monetary rewards were not directly proportional enough to the emotional investment. No regrets on owning nor on closing. Both were the best things I have done so far. This chapter, working and playing in the Caribbean, will probably make the list too!

[panini]

I'm just reading here for a bit so I can get a feel of what people think.
I'm having a small problem with this not being taken as a negetive. Eventually there will be no choice. I find it hard to believe from a food perspective that we will cave to eating at franchises and large feeders.
I'm in a fairly upscale part of town, although in a more service orientated part that is not all glitz. There has been new construction all around us. Banks, franchises, sonics, etc. With all the local Gov't perks. We'll in an effort to run all of us small guys out, they did a blanket appraisial of our area an appraised my building this year from 750. to 2 mil.
So I now own an extra 11,000. tax bill by the end of this month. This is on top of $25 sq ft rent w/ a 2001 tax base. I have 14 yrs left on my lease but I don't think I will be there 1-3 yrs. This will give the locals the choices of Franchises and grocery store.
My problem is that I have always built my business for acquisition and hopefully the one and only payday you have with small business. That's gone.
The customers also have to resort to a mediocre product from the big feeders.
sorry, don't want to rant.

[Free Rider]

Panini, you (and others) may be interested in reading the case of Bailey's Brake Shop. Here is a link to a rather long and detailed discussion of the case. Has to do with eminent domain and the fact that govt has been using it to turn land over from one private party to another when the "selling" party has refused to sell to the "buying" party. Ace Hardware wanted Bailey's Brake Shop's location. Bailey didn't want to sell to Ace, so the city govt stepped in with eminent domain. Bailey fought it all the way to the top.

http://www.ij.org/private_property/a...ackground.html

I know of a small restaurant that is going through something similar right now. His location is to be replaced with a non-restaurant franchise business.

[phatch]

I wasn't saying I thought govenment was doing the right thing. I was saying that government costs money. One way or another, you're going to pay for it. I want to pay the least I can so I want the smallest government possible. That's not a very popular view right now as it does away with lots of entitlements and support programs.

Phil

[Free Rider]

Originally Posted by phatch

I wasn't saying I thought govenment was doing the right thing. I was saying that government costs money. One way or another, you're going to pay for it. I want to pay the least I can so I want the smallest government possible. That's not a very popular view right now as it does away with lots of entitlements and support programs.

Phil

Not a popular view, but I'm pretty tired of the entitlements too. Have you seen the movie America: Freedom to Fascism? Although the title seems inflammatory, it's about our tax system. A well-known (even though I can't remember his name) movie producer did a Michael Moore thing on the IRS. He went to the IRS and asked them to show him the law that gives them the right to tax our income from labor (not profits on business, but income from labor). They were unable to comply. Movie was both amusing and scary at the same time.