Saturday, February 5, 2011

Want innovation? Then get out of the way!

Do you know what I find so irritating about today's economy? The White House, and Big Boys like Intel are playing with hundreds of millions of dollars to spur market based innovation.

'They' just don't seem to get that the current lack of innovation in the country is due to small business and entrepreneurs being crushed under burdensome paper work, unfunded government mandates, environmental regulations that lack scientific foundation or common sense, the unknown costs of confusing heath care regulations, and obscure IRS regulations.

Did you know that the very people being asked to be innovative are actually singled out in the Tax Code:

  • Engineer
  • Designer
  • Drafter
  • Computer programmer
  • Systems analyst
  • or other similarly skilled worker
for special punishment by the IRS? Whatever happened to "Fairness for all"? The actual suicide note of consultant and programmer of Joe Stack, introduces us to the issue created by Tax Reform Act of 1986; see also the Small Business Job Protection Act of 1996, and the Pension Protection Act of 2006.

The tax code issue of who is an "Employee", in the purview of the IRS, is so confusing that the IRS has tried to clarify the issue multiple times such as PRESENT LAW AND BACKGROUND RELATING TO WORKER CLASSIFICATION FOR FEDERAL TAX PURPOSES;2007 and SECTION 530: ITS HISTORY AND APPLICATION IN LIGHT OF THE FEDERAL DEFINITION OF THE EMPLOYER-EMPLOYEE RELATIONSHIP FOR FEDERAL TAX PURPOSES; National Association of Tax Reporting and Professional Management;2009.

In my personal view, until the IRS is replaced with one of the many proposals for a Flat Tax (The harder you work, the more 'They' take is not much of a motivation to be innovative in the current system), and Congress and other politicians are forced to follow the laws that they create for the rest of us (We get their health care plan or they get ours), things are not going to get any better. No one wins in the Race to the Bottom...

To see what kind of road blocks to being innovate are, I would like to see one of the presidents young daughters (I do know they are to young to do this, but it makes the point) go to a random city in each state (to see the difference of regulations between states) and open a business that does something simple like sell Ice Cream Cones. Along the way they document each permit, each fee, and each regulation that they must comply with, be it local, state and Federal, before they sell even their first Cone. Then for the next year document each interaction with the Government for taxes, permits, and fees while documenting those costs. After that then they try to open a more complex business like a circuit board manufacture where lots of environmental rules come into play. Then maybe 'They' would understand the real world of a normal, that is outside of political circles, business people that want to change the world but are to busy shuffling Government forms.

Strategy for American Innovation: Promote Market-Based Innovation, Startup America, Ice Cream, Joe Stack, Computer Consultant, Suicide Note, IRS Section 530 1706, Intel

1 comment:

  1. I agree that government is often a huge barrier to innovation, but state and local issues are often bigger headaches than the feds (outside of the SEC). Granted, each location is different.

    I think back to when I was 18, and started a maintenance firm basically out of my dorm room... Today, such would be near impossible to do so legally.

    A point of disagreement as concerns 1706 though. My guess is a lot of folks who really were employees, ie they worked on site, they worked at their employers designated hours, using their employers tools, etc whined about having to pay full social security taxes. In effect they were acting as employees... and whether they are classed as 1099 or W2 really has no impact on innovation. The only exception might be that the 1099 route offers some tax advantages if they are in the early stages of a startup, and are bootstrapping via "consulting".