Inspiring Tomorrow's Job Creators - US Chamber of Commerce

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Inspiring Tomorrow's Job Creators - US Chamber of Commerce

News and Views From the U.S. Chamber of Commerce June 2010InspiringTomorrow’sJob CreatorsLauren Cronk and other Bakersfield,California, college students dreambig and celebrate free enterprise.


June 2010CAPITAL ROUNDUPBILL NAME SUMMARY OF BILL AND WHAT IT MEANS TO YOU U.S. CHAMBER’S POSITION STATUSFINANCIALREGULATORYREFORMS. 3217Restoring AmericanFinancial Stability Act of2010The bill would create an unaccountable, ill-defined newregulator with unprecedented powers and authority overthousands of nonfinancial companies. The bill wouldresult in a significant drain on working capital fromcorporate end users of derivatives—capital that wouldotherwise be used to create jobs and grow businesses.Also, it would not provide clarity for creditors of failingcompanies, which could lead to more risk to the system.The Chamber believes that the Senatebill represents a missed opportunity toachieve meaningful financial regulatoryreform. The Chamber will work duringthe conference committee process to bringthe right reforms to the system and restorecertainty in the market.Last ActionPassed the Senate May 20, 2010.Next StepC O N F E R E N C EC O M M I T T E EPAPERWORKRELIEFH.R. 5141Small Business PaperworkMandate Elimination ActThis bill would repeal the expanded informationreporting mandate contained in the health care reformlaw. Unless this section (Section 9006) is repealed,businesses will be subject to the folly of data collectionand information filing for virtually all payments tobusinesses—not just health care-related payments—totaling $600 or more per year.The Chamber supports this bill that wouldundo the enormous and costly paperworkburdens imposed on businesses by theill-conceived health care law.Last ActionReferred to House CommitteeApril 26, 2010.Next StepC O M MI T T E EV O TEINVESTMENT INEDUCATIONH.R. 5116America COMPETESReauthorization Act of 2010This bill would provide additional support for recruitingand training K–12 math and science teachers. It wouldalso increase support for STEM (science, technology,engineering, and math) students at the postsecondarylevel, attract underrepresented groups to STEM coursesand careers, support basic research, and establishprograms to help create new forms of energy andcommercialize new innovations.The Chamber supports legislation tostrengthen U.S. competitiveness byimproving America’s scientific andeconomic leadership and makingstronger investments in science,innovation, research, and education.Last ActionPassed House CommitteeMay 5, 2010.Next StepH O U S EV O TESILENCINGFREE SPEECHH.R. 5175DISCLOSE ActUnder the guise of transparency, this bill would, amongother things, prohibit TARP recipients and federalgovernment contractors from engaging in electioneeringor independent expenditures under most circumstances. Itwould further restrict foreign-controlled corporations fromengaging in political activity. The bill would also requireorganizations engaging in electioneering or independentexpenditures to disclose their contributors/members, andthe names of the biggest contributors would potentiallyhave to appear on the organization’s radio and television ads.The Chamber opposes this bill becauseit is a blatant attempt to impact thisfall’s elections, silence constitutionallyprotected speech, and abridge FirstAmendment rights.Last ActionPassed House CommitteeMay 20, 2010.Next StepH O U S EV O TE“CASH FORCAULKERS”REBATESH.R. 5019Home Star Energy Retrofi tAct of 2010This bill would provide two tiers of rebates for homeownerswho purchase and install residential energy efficiencyproducts including insulation, water heaters and heatingsystems, windows, doors, and other products. Homeownerscould receive rebates equal to up to half of project costs,for a maximum of $3,000 per home. Or they could receiverebates of $3,000 to cover half the cost of projects thatreduce total home energy use by 20%, with the opportunityfor $1,000 more in rebates for each 5% of additional energyefficiency gains, up to $8,000. The programs would last fortwo years at a cost of $6 billion.The Chamber supports this bill becauseit provides a solid framework for aworthwhile, incentive-based program tocreate American jobs while saving energy.Last ActionPassed the House, May 6, 2010.Next StepSENATE COMMITTEEV O TEInformation is current as of press time. For the very latest, go to www.uschambermagazine.com.Free EnterpriseChamber of Commerceof the United States1615 H Street, NW, Washington, DC 20062Publisher Thomas J. CollamoreExecutive Editor Kevin GansterEditor In Chief Gregory S. GaldabiniEditor Laurie S. FrankelStaff Writer Sheryll PoeSr. Graphic Designer/Art Director Miyoung YoonSr. Production Director Heidi Sakai GioseffiPhotographer/Photo Editor Ian WagreichProduction Artist Brian G. MillerFree Enterprise is published monthly by the United States Chamber of Commerceat 1615 H Street, NW, Washington, DC 20062-2000. Copyright © 2010 by the UnitedStates Chamber of Commerce. All rights reserved. No part of this publication may bereproduced or transmitted in any form—print, electronic, or otherwise—without theexpressed written permission of the publisher.If you have any comments on this publication, please write us at the address aboveor send an e-mail to editor@uschamber.com.To change your address or for othercustomer services, call 800-638-6582or e-mail custsvc@uschamber.com.2 www.uschambermagazine.com


COVER STORY | Governors Summit June 2010Rallies Students, GovernorsSix governors gathered at theU.S. Chamber on May 3 todiscuss state policies that spurjob creation.GovernorsA new study released by the U.S. Chamber ofCommerce shows which policies at the state level—and which states themselves—are the most successfulin creating new jobs and economic growth.The Enterprising States study prepared by ThePraxis Group for the Chamber’s public policy thinktank, the National Chamber Foundation (NCF), foundthat states and localities are better suited than thefederal government at spurring job growth. Those thatpursue policies based on free enterprise principles farebetter economically than those that don’t.“By embracing many of the strategies at the coreof our free enterprise system—entrepreneurship, opentrade, competitive tax rates—states can help jump-startour economic recovery and create more jobs,” saidChamber President and CEO Tom Donohue.The study looks at five specific policy strategies thatstates have used and are using to accelerate growth andcreate jobs: entrepreneurship and innovation, exportsand international trade, infrastructure investment,education and training, and taxes and regulation.The top overall performers, based on job growthrates, gross state product measures, and personalincome growth are, in order, North Dakota, Virginia,South Dakota, Maryland, Wyoming, New York, Texas,Iowa, Nebraska, and Montana. The study also ranksthe top 10 states in each of the five strategies.The Enterprising States study was released ata bipartisan summit of governors, state chamberexecutives, and business leaders at Chamberheadquarters on May 3. Participating governors wereTim Pawlenty (R-MN), Jack Markell (D-DE), BillRichardson (D-NM), Donald Carcieri (R-RI), RickPerry (R-TX), and Joe Manchin(D-WV).“By bringing this bipartisan group of governorstogether, the Chamber is helping lead the charge infinding a solution to our nation’s challenge of creatingjobs and revitalizing the economy,” said Pawlenty,co-chair of the event.The study is available at www.FreeEnterprise.com.Free Enterprise: What are the biggestchallenges facing small businesses in yourstate, and what is your solution?Bredesen: One issue is the complexity of dealingwith regulations. What is easy for a big companyto do becomes very difficult for small business.If you take a small, innovative business and layrequirements on it that are more suitable for abusiness with 3,000 employees, you’re going to get itin trouble. And we try to avoid that. So we’ve triedto clean up the regulatory environment, simplify it,and get quick answers to things that people need.We have what we call the Jobs Cabinet. It bringsa bunch of our commissioners and secretaries intothe process of supporting job creation. There hasbeen a genuine attitude shift that says, ‘We have ajob to do from a regulatory standpoint, but we’rehere to help people meet those requirements, notpunish them when they don’t.’Pawlenty: What I hear now is access to capital.[Small businesses] continue to tell me that theyneed access to capital at the angel investment andseed capital stage. So last session we adopted anangel investment tax credit. It gives individualsand investment funds a tax credit up to a certainamount for early-stage investing for startups.Another challenge is the high cost of doing businessin Minnesota. The state continues—although we’vemade good efforts to change it—to have cost structuresthat need to be more competitive. And costs are notjust measured by taxes, but also by health care costs,workers comp, unemployment insurance, energycosts, and regulatory costs. To control costs, we haveproposed reducing the corporate income tax, creatingTalking JobsGovs. Tim Pawlenty (R-MN), left, and Phil Bredesen (D-TN),co-chairs of the U.S. Chamber’s May 3 Governors Summit, spoke toFree Enterprise about small business needs and job growth.an additional exemption for active business incomeon individual returns, and creating preferentialtreatment for capital gains.FE: What is your plan for creating morejobs in your state?Bredesen: It’s about creating the rightconditions … have a supportive environment forbusiness in terms of taxation and the like. Second,there is a salesmanship job to do, and having a goodfocused department of economic developmentis important. Third, we’ve employed a strategyof looking for what I call anchor businesses—a1,000-person business that can be the center of a haloof other businesses. One of the reasons we worked sohard to get Volkswagen in Tennessee was not just forthe employees at the assembly plant. Volkswagen hasa huge halo of suppliers that are now locating to thestate. We made considerably more land available tothem than what they needed so that they could puttier one suppliers on their premises.Pawlenty: When I talk to job providers andentrepreneurs, it really keeps coming back to twobasic things: costs and talent. Cost competitivenessmatters, and talent matters. There are some thingsin Minnesota we need to do to improve our talentorganically, from within. But we also want to be aplace where we draw talent from outside. So thereare certain amenities, quality of life things that havea magnetic effect for talent. One is research andhigher education institutions like the University ofMinnesota. We want to keep them competitive andattractive both globally and nationally so that theycontinue to be a magnet for talent.Cover story photos: Ian Wagreich www.uschambermagazine.com 5


June 2010HEALTH CAREHealth Care Confusion ReignsSmall Businesses Anticipate Costs, FinesIf you think the health care debate in Congress was complex, just wait until the law takes effect.Small business owners are trying to understand how—and when—the sweeping measure willaffect them, and they are not pleased with what they already know about the law.“This is a complicated 2,800-page law that was shoved through the political processwithout anyone having enough time to really understand its consequences,” says ChamberDirector of Health Policy James Gelfand. “It is a widespread misconception that theoverhaul will translate into instant, affordable coverage.”According to a recent survey by the Kaiser Family Foundation, 55% of Americans say theyare confused by the health care law. Some of the confusion stems from the fact that the law isgradually implemented over an eight-year period and contains vague provisions that will haveto be explained by government agencies through the regulatory process.Businesses Brace for Heavy FinesBusiness owners such as Scott Womack of Womack Restaurants are looking closely at thelaw’s coverage mandates and trying to calculate the hit to their bottom lines.Womack owns 11 IHOP restaurants in Indiana and Ohio and has development agreementsto open 14 more. Currently, Womack provides insurance only for salaried staff, 45 of his800 employees, paying 70% of their $10,000 annual premium. He estimates that anywherefrom 320 to 360 of his employees are considered full time under the law (working morethan 30 hours per week), and, therefore, he must offer them affordable health insuranceby 2014 or pay a $2,000 fine per employee.Complicating matters is the fact that many of Womack’s part-time employeespick up extra shifts, pushing them into full-time status. Womack estimates thathe’ll face fines of anywhere between $350,000 and $570,000 if he doesn’t offerall of his full-time employees coverage.Womack says the law creates an incentive to drop existing coverage becausethe $2,000 penalty per employee is a fraction of what his insurance costs wouldbe. To reduce the fine, “we’ll obviously want to minimize the number of actualfull-time employees. A significant number of employees are going to be pushedto part-time status. It’s going to make it harder for us to hire,” Womack says.That will hurt some of the most vulnerable segments of the employeepopulation—teenagers and college students, families looking for a second income,and people who have been laid off or incarcerated. “What makes our industryunique is the opportunity we provide for many. We are the source of firstopportunities for people and an industry of second chances for careers,” he says.Womack will likely have to impose a strict limit of 30 hours per week onpart-time employees and cut other costs, which he says will hurt small,downstream businesses that provide services and supplies to his restaurants.He also anticipates that the cost of health care premiums will go up.“The legislation has boxed in the insurance company and the employer to driveup costs. For example, the elimination of denial of coverage for preexistingconditions and the elimination of the lifetime limit—those things drive up costs.Premiums are going to go up in the short run,” says Womack.FAQsIs my existing employee plan subject to thenew law? Plans in existence on the date of the law’senactment, March 23, 2010, are considered grandfatheredhealth plans. Grandfathered plans are subject to some,but not all, of the law’s provisions. Provisions that do notapply to grandfathered plans include rating based onhealth status, annual reporting requirements regardingquality of care, mandatory cost-sharing limits, andmandated coverage for clinical trials, according to theSociety for Human Resource Management. It’s unclearwhat benefi t design changes, if any, will cause a plan tolose its grandfathered status. Additional clarifi cation willbe needed from the agencies, experts say.Do I have to cover part-time or seasonalemployees? There is some confusion here because thelaw refers only to “holiday seasonal workers.” It’s not clearwhether, for example, an employee of a summer camp isconsidered “seasonal.” In any event, the law states thatemployers are not required to offer health care to seasonalworkers or part-time employees, the latter of which isdefi ned as working fewer than 30 hours per week. However,part-time and seasonal employees who work for morethan 120 days per year are taken into account as full-timeequivalents in determining whether an employer meets the50-employee threshold for being required to offer coverageto full-time workers or pay a fi ne beginning in 2014.“Very few have done the math and understand how devastating theemployer penalty will be,” says business owner Scott Womack.Photo: Ian WagreichIs my business eligible to receive a tax creditfor the purchase of health care? For tax years 2010to 2013, small businesses with 25 or fewer employees whohave annual average incomes of less than $50,000 areeligible to receive a tax credit to offset up to 35% of theirhealth insurance costs, provided that the business pays atleast half of the premium. However, the full credit is availableonly to businesses with the equivalent of 10 or fewer full-timeworkers who are paid, on average, less than $25,000. In 2014,the maximum available credit increases to 50% of insurancecosts for small businesses purchasing insurance through thenewly created state exchanges, but the credit is only good forup to two years once the exchange is operational.6 www.uschambermagazine.com


AMERICA’S SMALL BUSINESS SUMMIT June 2010Small Businesses Make TheirPresence Felt in WashingtonSurrounded by family and employees, Fintech CEO Scott Riley(center, arm raised) celebrates winning the U.S. Chamber’s DreamBig: Small Business of the Year Award, sponsored by Sam’s Club ® .Joe Scarborough, former congressman and host of MSNBC’sMorning Joe, provides insight into the political climate.Small business owners and localchamber leaders met with theircongressional representatives,networked, learned tips for runningtheir businesses, and became moreinformed on policy and politicsduring America’s Small BusinessSummit, May 17–19, in Washington,D.C. For complete coverage, go towww.uschambersummit.com.Sen. Scott Brown (R-MA), right, listens tosmall business owners during their visit to Capitol Hill.Wall Street Journal Small Business Editor Colleen DeBaise (right)moderates a panel of nationally recognized entrepreneurs whodiscuss issues they faced while building their successful businesses.Summit attendees meet with representatives from governmentagencies and organizations in the Small Business Resource Center.Black Entertainment Television co-founder Sheila C. Johnson, left,engages in conversation with a Summit attendee after herspeech about women in business.Small business owners storm the Capitol for the annual Rally on the Hill.Photos: Ian Wagreich www.uschambermagazine.com 7


June 2010MEMBER PROFILEDreamers and DoersBreaking Roofing’sGlass CeilingBeth Gloss considered careers in teaching and forestry before choosing roofi ng and buyingUnited Materials LLC 21 years ago.Photo: Ian Wagreich“It is true of the nation, as of the individual, thatthe greatest doer must also be a great dreamer.”—Theodore RooseveltAt five feet tall, Beth Gloss may be small in stature, but she’s large in influence.As the managing member of United Materials LLC, she is a pioneer in the heavilymale-dominated roofing industry.Gloss was originally hired as a bookkeeper at a small roofing company in FortCollins, Colorado, but when she showed up on her first day, the owner, instead,offered her a job as an estimator—someone who reads blueprints and figures outthe quantity of materials and labor needed for a project. “The owner thought thatmaybe a woman would be more detailed oriented,” says Gloss, referring to her jobas an estimator. “I knew nothing about roofs. He handed me a specification bookand said, ‘Here are a couple of suppliers. Let’s see what you can learn in about amonth, and then we’ll talk.’” It was, Gloss says, a sink-or-swim type of training.“Needless to say, I’ve never trained anyone that way.”The experience gave Gloss a taste of all aspects of roofing. “All along, I just keptlearning by reading and spending time with the crews, customers, and suppliers,”she says. After brief stints at other roofing companies and a six-month sabbatical torace mud trucks—“it was a rugged way of life”—Gloss applied for a job at UnitedMaterials, Colorado’s oldest roofing company.She says that United Materials’ second-generation owner, Bill Kugler, thought thata woman “would stay on task and not have as large an ego.” Gloss says that her goalall along was to change the reputation of the industry. “I felt that the industry couldbe more professional and provide a better workplace for employees.”When the time came for Kugler to sell the business, Gloss threw her hat inthe ring. Kugler was initially resistant. “He didn’t like me being out there with thecrews, which can be a little rough and dangerous.” After several years of coaxing,Kugler finally agreed to sell 90% of the company to Gloss in 2004. “I put everyspare penny I had into it, all my bonuses, all my money, everything,” she says.Today, Gloss works to overcome stereotypes that the construction and roofingindustry are “full of illegal immigrants or people who aren’t smart and educated.” Thejob, she says, is difficult and requires roofers to be communicative, think on their feet,and make important decisions, all with the hot sun beating down on them. “One smallmistake could wipe out millions of dollars of technology for our clients,” Gloss says.Gloss provides ample training for her employees and pays the entire cost ofhealth care coverage for them and their families. “Our health care costs are threetimes our net profits. But it’s important to offer that,” she says.To share your story, e-mail Greg Galdabini at ggaldabi@uschamber.com.Company ...................................... United Materials LLCManaging Member ......................................... Beth GlossE-Mail Address ............................. beth@unitedmtls.comMEMBER FACTSAddress ........................ 5135 York St. Denver, CO 80216Phone ....................................................... 303-623-4166Website ............................... www.united-materials.comChamber Member Since ......................................... 2005Founded .................................................................. 1923Number of Employees ................................................. 52OUTRAGEOf The MonthJudge Sues NewspaperOver Online CommentsA judge’s e-mail address was linked to80 comments on the Cleveland Plain Dealerwebsite about ongoing cases—including oneinvolving a high-profi le serial killer—that the judgeis hearing. Judge Shirley Strickland Saffold is suingthe newspaper for $50 million for revealing thather e-mail address was linked to the comments,claiming that her privacy was violated.Source: NPR, April 10, 2010MEMBER BENEFITSDiscounts With FedExAs a U.S. Chamber member, you are eligible fordiscounts of up to 26% on select FedEx® servicesand up to 20% on select FedEx Office SM businessand document services. Plus, you can save up to70% on FedEx Freight® and FedEx National LTL SMservices. For more details, call 800-345-6227 orvisit www.uschamber.com/fedex.Unlock Your BenefitsYour Chamber member ID, locatedon the mailing label, enables you to do the following:• Comment on articles.• Receive discounts on products and services.• Receive free advice from business mentors.• Gain unlimited access to U.S. ChamberSmall Business Nation.8 www.uschambermagazine.com


ACTION CENTERTake Our Survey!This year’s Free Enterprise reader survey is exclusively online.No more filling in ovals with a black marker and having to mailback a completed survey.Simply go to www.uschambermagazine.com/reader-surveyand respond to our questions with just a few clicks of the mouse.Complete our survey:• Be one of five randomly selected respondents to win a$100 American Express gift card.• Express your opinion on the publication’s new design.• Help shape content.Small Business NationAdvocacy atYour FingertipsJUNE 2010JuneTo-Do ListBECOME a fan of the U.S. Chamber onFacebook. www.Facebook.com/uschamberWATCH or read about America’s SmallBusiness Summit.www.uschambersummit.comLEARN more about energy and climatechange issues from the Chamber’s Institute for21st Century Energy. www.energyxxi.orgSIGN UP to receive the Chamber’s 2010election updates.www.uschamber.com/electionDOWNLOAD the Chamber’s report on theimpact of the new health care law on employers.www.uschamber.com/healthcareThe U.S. Chamber is making it easy for smallbusiness owners to weigh in on policy debates inWashington. Through the award-winning U.S. Chamberof Commerce Small Business Nation web portal,small business owners can, with just a few strokes ofthe keyboard, express their opinions to members ofCongress on a range of topics—taxes, regulations,labor policy, and health care.“U.S. Chamber Small Business Nation makes itextremely easy for busy small business owners to stayinformed and to act on their own behalf at criticaltimes in the legislative process,” says ChamberSenior Vice President of Political Affairs andFederation Relations Bill Miller.The website also delivers the latest small businessnews, blog posts, and action alerts. You can sign up toreceive timely legislative updates and 2010 electionupdates. In addition, the website provides an onlinecommunity. “As a small business owner, I have limitedtime to search online for resources, but this one-stopshop enables me to communicate with other smallbusinesses, share tips, and find helpful resources,”says Jon F. Snyder, owner of il laboratorio del gelatoin New York.U.S. Chamber Small Business Nation can helpyou grow your business too. Users can browse theSmall Business Tool Kits, which include morethan 4,000 pages of helpful documents and forms,and find information on topics such as taxes,business plans, finances, promissory notes, andgovernment contracting. From writing a solidbusiness plan to hiring the right people, there isa tool kit for every need.Launched at the beginning of 2010, U.S. ChamberSmall Business Nation has been recognized by industryexperts and peers. In March, the site won the GoldMedal Award for Best Public Affairs website forNational Campaigns at the Pollie Awards, the mostprestigious awards in the political campaign andpublic affairs industry.Go to www.uschamberSBN.com to create your profile.FIND out how many jobs need to be createdin your state to reach 20 million new jobsnationwide in this decade.www.FreeEnterprise.comQuick PollSpeak Out!Your voice counts. Respond to the followingfour questions at www.uschamber.com/speakoutand receive instant results.1Do you use social media (e.g., Twitter,Facebook, blogs) in your business?234How well do you understand the newhealth care law?Have you adjusted your businesstravel because of the economy?Do you support a value added tax?www.uschambermagazine.com 9


June 2010S mall Business MattersRichard W. Bennet IIICo-CEO, CCAGlobal Partnerswww.ccaglobalpartners.comSmall Business Matters | HOW-TOThe Business of Doing BusinessIn Tough Times, Focus on the BasicsI work with more than 2,000 independentsmall business owners. They are fundamentallyflexible and adapt well to changing conditionson the ground, often much better than bigbusiness. History shows that many weathereconomic storms, only to fail during economicrecovery because of cash demands. Withtoday’s liquidity crisis, this historic patternis likely to be much worse than in the past.Small business owners by their nature lovewhat they do, produce, and serve. They are,however, much less likely to revel in the joysof best business practices.The core of the small businessperson’sethos is helping oneself and not dependingon handouts. To that end, the cure for his orher dilemma starts at home, and the stepsneeded to revive the health of a businessare surprisingly consistent. Below are someimportant tips for small business owners tohelp themselves.Get the reporting right. Many smallbusinesspeople love working on whatthey produce or how they serve, ratherthan on finances and bookkeeping. That is amistake in any case, but when cash gets tight,it can be fatal. Nothing can be more basic inpersonal financethan balancingyour checkbook.The same is true forsmall businesses.Prepare an incomestatement everymonth to track yourexpenses and profits. Keep a quarterly balancesheet to track your assets and liabilities andhave a cash flow statement. It is startling howmany businesses get in trouble by not keepingup with these basic fundamentals.Improve your financial statements.Increase your profits by reducing controllableexpenses (occupancy costs and overhead),improve the gross margin (reduce the costof goods and avoid steep discounting),and eliminate losing ventures. Improveyour balance sheets by reducing workingcapital (inventory and accounts receivable),long-term liabilities (rent obligations), andcapital expenses. Increase cash flow by takingadvantage of trade terms, avoiding penalties,and reducing taxes,The core of the smallbusinessperson’s ethos ishelping oneself and notdepending on handouts.among other coursesof action. Seek outa financial advisorto help develop aplan. Then, make thetough decisions andstick by them.Access credit markets. It’s amazingto me how many small businesspeople arereluctant to ask for and press for credit.I have found that more often than not aresilient effort backed by a legitimate planwill work, as long as you understand thelending requirements and stick to the plan.These basic points may seem painfullysimple to a business academic, but mostsmall business owners focus on their valuecreation rather than on business per se. Inthese tough times, they need to improve the“business of doing business” to survive.Tech Corner | HOW-TOTech Corne rKelly McGaryAssociate Manager,E-Mail MarketingU.S. Chamber of CommerceE-mail questions tokmcgary@uschamber.com.New Media Is Here to StayStart Customer Relationships OnlineOver the last year, new media—socialnetworking sites, aggregate news services,blogs, e-mail, and other online messagingtools—has taken a foothold, earning apermanent seat in the marketing mix. In thewake of eroded marketing budgets, new mediais flourishing, consistently delivering greaterROI than any other medium. From Fortune500 corporations to your local hardware store,everyone is drinking the digital Kool-Aid.Once considered the domain of teens,the new media ecosystem is increasinglypopulated by adults and companies or, inother words, potential customers. As ofSeptember 2009, 47% of online adults useda social networking website, according toPew Research. As you throw new mediainto your marketing mix, here are somestrategies to consider:Build trust through your website.Customers have more access to informationand more options than ever. If you can’tsell trust, your customers will go elsewhere.Therefore, your company website, oftenthe first impression you give to potentialcustomers, should establish trust. You cando this by providing links to news, research,or product reviews.Get to know your customersthrough blogging. A blog puts a faceon your business and reinforces yourbrand personality. It allows you to fosterconversation and debate in a public forumwith like-minded people.To friend … Facebook is a primeplace to gain exposure when starting anew business or launching a new product.Everyone and everything have a place onFacebook. More than 700,000 businesses useFacebook, and one in three U.S. residentshas an account on the social networkwebsite, according to Nology Media. Onefan page dedicated to Flo—the character in10 www.uschambermagazine.comthe Progressive Insurance commercials—has more than 490,000 fans.… Or follow? Twitter is tops when itcomes to building brand equity with littleinvestment. Like Facebook, Twitter reinforcesrelationships but has the upper hand when youwant to retain top-of-mind awareness withcustomers and industry insiders. Increasingly,service providers such as cable companies areproviding 24/7 technical support via Twitter.Get personal with e-mail. Considerdedicating e-mail marketing solely toone-on-one communication. Messagesshould be personal, relevant, and reinforcewhat customers perceive to be the uniquevalue of your brand. Leave prospecting to yoursocial channels. It’s difficult to track potentialcustomers through e-mail marketing anyway,as most people forward e-mails directly fromtheir inboxes, instead of using the “forward toa friend” link provided in their e-mail.


ECONOMY June 2010Dr. Martin Regalia: ECON 101What You Should Know About a VATE CON 101Lately, you can’t open a newspaperwithout seeing a story on the value addedtax (VAT). Newspapers write, “Will the VATLady Sing?” and “Value Added Tax: Will ItSolve Our Budget Woes?”What Is a VAT?A VAT, used in approximately 150countries, is a tax imposed and collectedon the value added at each stage in theproduction and distribution of a good orservice. It is levied on the difference betweenthe sales and production inputs of a business.The VAT is a consumption tax, like aretail sales tax. One important differenceis that the VAT is collected in stages as thegoods and services are produced and sold,whereas the retail sales tax is collected onceupon final sale.How Is a VAT Calculated?The two most prevalent methods ofcalculating a VAT are the credit-invoicemethod and the subtraction method.Credit-Invoice MethodUnder the credit-invoice method, whichis most commonly used, a tax is imposedon the business for all of its sales. The VATapplies the tax rate to the sales price of thegood or service (output), and the tax isdisclosed on the sales invoice. A businesscredit is provided for all VAT on purchases oftaxable goods and services (inputs) used inthe business. Thus, the net tax paid at a stageof production or distribution is computedon the value added by that business at thatparticular stage.Here’s an example assuming a 10% VATrate. Assume Farmer sells wheat to Miller for$50, paying a $5 VAT (10% x $50 sales price).Miller processes wheat into flour and sells itto Baker for $150, paying a $10 VAT [(10% x$150 sales price=$15) minus credit of $5paid on previous business input by Farmer,as reflected on the invoice]. Baker bakeswheat into bread and sells it to Retailer for$300, paying a $15 VAT [(10% x $300 salesprice=$30) minus inputs credit of $15 paidon previous business inputs paid by Farmerand Miller]. Retailer sells bread to consumersfor $500, paying a $20 VAT [(10% x $500sales price=$50) minus inputs credit of $30paid on previous business inputs paid byFarmer, Miller, and Baker]. A total $50 VAThas been paid in four stages.Subtraction MethodUnder the subtraction method, the taxbase is computed as the difference betweenthe business’ taxable sales and its purchasesof taxable goods and services. At the end ofthe reporting period, the tax rate is applied tothe difference.For example, assuming a 10% VAT, Farmersells wheat to Miller for $50, paying a $5 VAT[10% x ($50 sales price-$0 purchases)]. Millermakes flour from wheat and sells it to Bakerfor $150, paying a $10 VAT [10% x ($150 salesprice-$50 purchases)]. Baker makes bread fromflour and sells it to Retailer for $300, payinga $15 VAT [10% x ($300 sales price-$150purchases)]. Retailer sells bread to consumersfor $500, paying a $20 VAT [10% x ($500 salesprice-$300 purchases)]. Here, a $50 VAT hasbeen paid to the government in four stages bythe businesses, but it has been calculated basedon total transactions for the period, rather thanindividually on single transactions as under thecredit-invoice method.Preferred MethodGenerally, the credit-invoice method isthe preferred method. It provides detailedrecords and documentation and is simpler tocalculate and verify because the tax is appliedto individual transactions.Further, this method is more easily “borderadjustable,”meaning that it is better calibratedto make our goods and services morecompetitive around the world. When a VATis “border adjusted,” the tax is removed fromexports and imposed on imports, thus taxingthem at the same rate as goods produced in thecountry of destination and making them morecompetitive with each other. A credit-invoicemethod VAT has been accepted as borderadjustableunder the General Agreement onTariffs and Trade (GATT) because it doesnot discriminate against imports or provideoverrebates on exports.General Pros and Cons of a VATSo is a VAT a knight in shining armor ora Trojan horse that will wreak even greaterhavoc on our economy?Proponents of a VAT point to howeffectively it can raise revenue. Further, theynote that the VAT is easily administeredfor services such as public utilities, legal,consulting, and engineering. Additionally,they contend that a VAT is simple andconvenient for consumers, computed at thetime of sale and paid as part of the purchaseprice, and is a simpler computation than anincome tax for businesses.VAT supporters also point to its abilityto function effectively on a global scale. Itcan be used to allocate tax to the country ofdestination, where the goods or services areconsumed, whether here or abroad. This is doneby “border adjustments,” as discussed above.VAT supporters often say that because aVAT taxes consumption rather than income,it tends not to distort an individual’s decisionto work, consume, or save, thereby enhancingeconomic efficiency. Moreover, they suggestthat a VAT is fair, taxing similarly situatedconsumers in a like manner.VAT opponents rebut a number ofthese arguments. Many contend that itis such an effective revenue raiser that itpromotes less spending discipline on thepart of government because revenues areeasily boosted with a simple rate increase.Also, they say that while the VAT is easilyadministered for some industries, it is hardto measure and assess for others, such asbanking and insurance.Opponents also point out that deviationsto the VAT are frequently introduced—including multiple rates of tax, exemptions,or preferences. Since many VATS excludevarious goods and services, or classes oftaxpayers for economic, social, or politicalreasons, neutrality and efficiency areadversely impacted.Further, whoever bears the incidence of aVAT invokes much ire among its opponents.They say that it is inherently regressive, aspoorer individuals tend to spend a higherpercentage of their income on purchasesthan wealthier individuals, resulting intaxation of a higher percentage of theirincome. Opponents also say that the elderlyare adversely impacted by a VAT, havingalready paid taxes on wages then placed insavings; as they retire, they will now be taxedwhen they spend their savings.ImplementationIf a VAT is adopted as a replacementfor the U.S. corporate income tax system,extensive transition rules would have tobe implemented. If adopted as an add-ontax, the VAT would entail significant costsand efforts in setting up an additionalgovernmental structure to accommodateand administer it in parallel to the incometax, including hiring more personnel toenforce it.ConclusionAs the United States faces ballooningbudget deficits, discussions of a VAT willlikely continue. We hope that this article hasprovided you with a basic understanding ofalmost everything you wanted to know abouta VAT but were afraid to ask.Caroline Harris, chief tax counsel at theU.S. Chamber of Commerce, contributedextensively to this article.Dr. Martin RegaliaSenior Vice President andChief Economist,Economic PolicyU.S. Chamber of Commercewww.uschambermagazine.com 11


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