Monthly Archives: August 2015

Are Government Regulations Strangling Free Enterprise?

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Everywhere you turn these days, it seems like business environments are becoming increasingly choked with regulatory morass. Tragically, these barriers to free enterprise and economic freedom are having a chilling effect on the ability of business owners and individuals to achieve financial success.

In my opinion, government’s proper role when it comes to business and commerce should be restricted to the following:

(1) Protect property rights.

(2) Adjudicate disputes between two or more parties.

(3) Provide a legal framework whereby voluntary trade is protected.

Efforts by statists to redistribute wealth or control or manage the voluntary exchange of goods or services are inappropriate in a free society.

I recently had the opportunity to talk with Anthony Sanders, Senior Attorney with the Institute for Justice, about how IJ is responding to the full-on assault taking place against economic liberty, private property, freedom of speech and other individual liberties at federal, state and local levels across the country. Here is an excerpt from our discussion:

Anthony, what sorts of barriers are being erected that are hindering free market competition in America?

Clearly, there are lots of emerging and long-standing barriers in all facets of economic life. The ones that are especially pernicious and that we focus on here at IJ are occupational licensing restrictions. Back in the 1950s, 1 in 20 people needed a license to work; today it’s 1 in 3 people. This trend is being driven in large part by people whose motive it is to use licensure to fence out the competition. We regularly see instances where government places undue restrictions on businesses and people who are just trying to earn an honest living. This is an ever-growing threat to entrepreneurial freedom.

Are there particular types of businesses that are being most affected by these barriers?

Those most affected by these laws are often small practitioners who don’t have the credentialing required by cartels. Unfortunately, the majority of these folks have neither the savvy nor the money to battle against these barriers. This is where we at IJ step in from a First Amendment context to protect the rights of those seeking to earn an honest living in their businesses and professions.

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7 Reasons You May Want To Skip College

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I have long believed in the importance of a formal education. My father was a university administrator, and my mother a K-12 school teacher. Both placed high value on the pivotal role that education plays in determining one’s fate in life. So there is no doubt that the value of education is deeply ingrained in my genetic code.

As I was crafting this article, a buddy of mine who runs a computer repair service in Denver was intrigued when I revealed the topic. He mentioned his own experience of having dropped out of college three times, unsure of what he wanted to focus on. “While I appreciate to this day what I did learn in terms of accounting, critical thinking, economics and liberal arts,” he said, “my life became directed toward more practical interests in the work world. So I never went back to complete a degree.”

I often find myself reflecting on those who may feel pressured by family, friends and society to go to college even if they may not, like my computer friend, be deriving practical value from it. Regrettably from a very early age, we are all pushed down this narrow trajectory which suggests that higher education is the ‘be all and end all’ route to achievement.

My life and that of my brother certainly swung into this jet stream, compliments of parental influence and other mitigating factors. In 1986, I received my Bachelor’s Degree in Sociology–an achievement that elicited that oft heard refrain from others of “So what are you going to do with that?” Comments from the peanut gallery aside, I did go on to a successful career as a health care human resources executive before graduating from a west coast university twenty years later with a Masters of Public Administration in Health Services Administration.

My brother, with a couple of Masters Degrees under his belt, has been pursuing credits towards an interdisciplinary PhD…. even though he is in the enviable position of already having a secure future as a result of his ongoing stint in the military.

Bucking The Traditional Education Paradigm

Despite having received a job offer three days after getting my Bachelor’s Degree, my father made a startling comment and quasi ultimatum. “Son, you should always have a backup plan. So even though you have an offer on the table, I strongly suggest that you go and apply at Sears Roebuck.”

Anthem Blanchard on ‘Mornings with Maria’

Anthem Blanchard, CEO, appeared on Mornings with Maria on FOX Business to discuss gold. Anthem’s long term approach on gold is incrementally storing it as a wealth preservation tool. Saving your wealth in gold is the safest place during inflationary economic environments we live in today. See more on what Anthem discussed about one of his favorite topics yesterday:

To sign up for an Anthem Vault account to begin saving in gold and silver, follow this link.

Stock Sell-Off Shows Consequences of Central Bank Actions

New_York_Stock_Exhcange_panic_of_1893The global stock market sell-off continued on Monday with a vengeance as Asian markets plunged, followed by one of the worst one-day sell-offs in U.S. market history. The Dow ended down nearly 600 points or just over 3.5%, but at the opening of trading, it was down nearly 1,100 points! While investors and market participants can never know all of the reasons for the sell-off, there is an underlying theme to the global market rout that will continue to play an outsized role in the coming months: central banks.

Monday’s turmoil was certainly severe, and although it doesn’t make the cut for some of the worst days in stock market history, that didn’t stop some from taking to Twitter with #BlackMonday trending (for comparison, on the Black Monday of 1987, the Dow lost nearly 23% in one day.) Monday’s drop put many indices in or near ‘a correction’ which is usually regarded as being 10% off their highs.

The first question on everyone’s lips is “Why?” or “What started it?” but that is like asking “Which straw was it that broke the camel’s back?” However, it is true that the U.S. was taking cues from China’s markets with the Shanghai composite index down 8.5% the previous night, the biggest drop since the beginning of the last crisis in 2007. China’s stock market bubble continues to deflate because the government has either decided not to, or is unable to, prop up the markets, this being something we have covered here in the past. Feeding the China decline was their government’s surprise announcement to devalue the yuan a couple of weeks ago, prompting fears their economy’s growth is slowing.  

More important than trying to discern the snowflake that caused the avalanche is to assess why and how markets came into such a fragile state that they could be caught off guard. After all, the decline was incredibly sharp and fast, and yet it wasn’t due to a comparable world event shock such as 9-11. I personally believe investors had previously been lulled to sleep by low interest rates, easy money, and a warm feeling that the Fed and other central bankers around the world have things under control.

Independent Workers AND Businesses: Be Damned!

 

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Over the past couple of months, I’ve been engaged in a spirited debate with a friend regarding how employers are increasingly classifying workers as independent contractors, instead of W-2 wage employees.

So what’s fueling our dialogue? In short, the practice she works for is currently facing a decision as to whether the independent contractors they’ve long relied upon to perform operational and administrative duties should now be reclassified as W-2 staff. This issue has surfaced largely due to recent evidence of a crackdown on the part of the IRS and other government agencies against employers who have utilized independent contractors in defiance of prevailing regulations. While disagreeing with the intent of the law requiring employers to serve as a de facto middle man for ensuring that tax revenues are consistently collected and accounted for, she is correct in asserting that violating the law opens her employer up to some serious consequences, including some pretty hefty fines.

As a former human resources executive, now a business owner, who is well acquainted with the adverse bottom line ramifications of W-2 staffing, I believe that independent contractors are the way to go in terms of operational cost effectiveness. In reality, it can make all the difference in the world in terms of whether a company, such as the one at which my friend works, will ultimately survive financially. So for the vast majority of small and emerging businesses (which represent the fastest growing segment of the U.S. economy), the decision can come down to either breaking the law or keeping their doors open. It’s can be as simple as that.

Non-Compliant Businesses Face a Government Smackdown

Media buzz on this topic has been plentiful of late, as federal and state governments appear hell-bent in their efforts to stymie this independent contractor classification movement. On the other hand, the general consensus among business leaders is that this sort of crackdown will stifle innovation while making the cost of doing business onerously expensive. Many of these leaders say that this may force them to eliminate jobs in order for their businesses to remain buoyant and profitable.

Adding gasoline to this debate were the recent campaign speech comments made by presidential candidate Hillary Clinton, when she strongly endorsed redefining current independent contractors as employees. To me, this reflects the One Size Fits All Herd Mentality that statists constantly perpetuate. In a sense, what’s she’s saying to independent workers is ‘because we think businesses are out to screw you, let US define what a proper employment relationship looks like.’ Like a cow chewing over the same old cud, this view is another tired version of Industrial Age thinking that employees and the businesses for whom they choose to work are controlled by government as well as powerful side interests.

 

The Plight of Today’s W-2 Worker

And what about those who are currently W-2 wage employees? How do they really feel? Many with whom I cross paths tell me they appreciate having a steady paycheck and benefits. But in the same breath, I hear them howl like jackals at the onerous restrictions they are often placed under as a result of ‘working for The Man’. Many of them are quietly miserable yet hanging on for dear life because the work they are doing offers a sense of security. If you were to corner them for the truth, they would likely reveal their longing for a gig which allows them the freedom to do what they want to do, when they want to do it, and get well paid along the way. This mindset is particularly common among free-spirited millennials who see little value in the 9-5 Protestant Ethic, or retiring with the gold watch lifestyle that appealed to their parents’ generation.

Sadly, growing numbers of us independent contractors may be forced into choices that we may or may not want to make, if this W-2 movement gains traction. It’s here that political know-it-alls pretend to pose as advocates for today’s workers, while having little in the way of on-the-ground context in the larger economic milieu. For if the power elite in government gets their way, it will only serve to drive businesses to scale back and send work overseas in an attempt to remain financially viable. In the meantime, consumers could be harmed by reduced services and higher prices. And our nation’s independent contractors, well, this will simply be another sign that life, liberty and the pursuit of happiness is just a hollow mantra with no real substance.

Listen to your Lyft Driver, not Political Leaders

I happen to love the ride-sharing service Lyft. As a free-spirited city dweller, I revel in the thought of not owning a car nor having the cost and inconvenience of gas, maintenance, parking, auto registration and car payments. And, honestly, I get more real world information from the drivers in terms of how our economy really works than I do from all those sorry political leaders at the executive and legislative branches of government, replete with their single-digit approval ratings.

By way of example, I just talked to a 76 year-old driver a few weeks ago who discovered that his retirement isn’t quite what he thought it would be. Then there is the computer programmer who left a job he hated, and is now making just as much driving cars while having time on the side to start his IT business. And how about the single mom who is earning a little extra money on the side, fueling her endeavor to go back to graduate school.

This is just one example of how the the sharing economy, via flexible contract work arrangements, is boosting personal incomes as well as the overall economy in general. Thanks to mobile technology, the results have been nothing short of spectacular. Creative work arrangements, innovation, flexible jobs, and a fresh set of consumer options – all have ensued from this new normal of work relationships. But I do worry that one day this wonderful set of freedoms will no longer be available, due to status quo thinkers who want to see the independent worker-driven sharing economy destroyed. Whether it’s Lyft, Robert Half, AirBNB, or eLance, the impact in its full manifestation would be widespread.

So What’s REALLY Behind the Government’s Stance?

The rationale is pure and simple. Workers classified as W-2 offer a more efficient way for the federal and state governments to ensure timely collection and accountability for tax revenues. Period!

In some ways, I can’t argue with this because it is in the same vein as a for-profit business; the government wants its money pronto. In other ways, I get ticked when I hear about how this tax collection method has become a priority amid shortfalls caused by other forms of IRS inefficiencies.

The bottom line is that payroll taxes are a cash cow. The more workers who are classified as employees, the more milk and honey flows into government coffers, and the harder it is for workers to underreport or hide their income from the tax authorities.

Government officials lament the fact that independent contractor misclassification schemes deprive state and federal treasuries of billions of dollars in tax revenues. Moreover, they note that laws have existed for quite some time to clarify who is and is not an independent contractor. The key principle, according to the Labor Department’s 15-page guidance memo, is “whether the worker is economically dependent on the employer or truly in business for him or herself.”

Clear enough? Well, not so fast, as there is certainly an argument to be made that many businesses that misclassify their workers do so unintentionally, because the guidelines – when you put a shovel to them – are as clear as mud. Then when it is revealed that a business is in violation, the employer is reluctant to make the change, largely because for every contractor who is reclassified as an employee, there is an additional 20-30% in payroll and benefit costs assumed by the business.

This reminds me of a past client of mine, a weight-loss practice that elected to follow the rulebook by the letter and classify all staff as W-2 wage earners. Sick of hearing all of the griping and complaining among her team regarding how little they were being paid, the owner took the extraordinary step of revealing all of the financials of the business at one of their staff meetings. One of the employees, after a meticulous review of the report, immediately chimed in with what she detected was the reason for their paltry pay scale. “What’s this expense?” she blurted out. “If you made a cut to this, you could give us all a $2-3 raise.” Bemused, the owner retorted, “Well, those are the taxes I have to pay to the IRS on behalf of each of you team members, every pay period.”

As a postscript, it should be noted that this highly acclaimed weight-loss practice went out of business.

My Proposed End Game

So let’s conclude with two opposing end game scenarios, along with a third option.

First, if the government powers that be force an end to the contractor designation, employers will have to take on massive new burdens like withholding tax, providing health insurance and offering unemployment insurance, in addition to being subjected to myriad other onerous rules and regulations. And startups and early-stage businesses, needing additional talent while facing low profit margins, will be dead on arrival.

The second and more reasonable scenario in my estimation is to continue to allow some fluidity in the prevailing contractor laws. That way the workers become the real capitalists. They have the freedom to work when they are most productive, maintain their own equipment, and they have the flexibility to take time for family and other leisure pursuits. This arrangement also allows a flexible staffing model that’s amenable to fluctuating workloads. Businesses can hire people for short-term tasks and projects without having to endure the trauma, expense and legal issues associated with firings and layoffs.

Finally, there is a hybrid option where the federal government could require contractors to set up a business entity and bank account where they are paid under the business name. Then either on a bi-weekly or monthly basis, that contractor would initiate a W-2 payroll check from their business (through the use of an inexpensive payroll service) with the requisite taxes taken out. The benefits of this option would be the following triple-win proposition:

(1) IRS gets their money on a timely basis.

(2) IRS would no longer have to track and match up 1099s to ensure that they are not being stiffed by underreporting subcontractors, a loophole they are policing rather poorly.

(3) Contractors receive often overlooked tax deduction advantages as a result of having all of their money funneled through their business entity.

(4) The business owner has the freedom to manage their own destiny by becoming their own form of venture capitalist.

In the end the goal here is to provide thoughtful middle ground that offer a measure of worker freedom along with IRS compliance without being onerous to the employer.

Michael Scott is a Denver based writer specializing in feature stories targeting the intersection between free markets and social and economic freedom. He can be reached on Twitter @biz_michael

Frustrated by Housing Costs? Hey, You’re Not Alone

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Recently while at my favorite Denver watering hole, I was again reminded of the prevailing unease around housing costs. It all started with a random comment and the subsequent conversation with the woman next to me at the bar which yielded a not-so-surprising revelation: that we’re both from the same hometown of Columbus, Ohio. After engaging in the ceremonial mantra of Ohio State alums which involves beginning and ending each sentence with ‘Go Bucks,’ I learned that she was a newly minted transplant to the Mile High City. She went on to note that her excitement around the rich opportunities available for mountain hiking expeditions, skiing and other outdoor activities here had been tempered by something that caught her completely off guard when she moved here. She said:

“I had no idea that housing was going to be this expensive when I relocated here. The substantial raise that I received from my employer with this promotion and transfer is now gone!”

Frankly I wasn’t all that shocked to hear this common refrain because Denver’s meteoric population growth has led to a corresponding rise in housing costs. Home prices aside, rental apartments rates are hotter than the blistering rays of the high altitude sun. And for those scrambling to locate a new abode, it’s been all-out war as anxious bidders compete with one another for available units in the tight rental market.

Like many cities, Denver is in the midst of an unprecedented construction boom as builders burn the midnight candle in an attempt to mitigate the swelling demand. In fact, the city has more than 86 projects under construction, and is currently poised to build more apartment properties than at any point over the past 40 years. Since the end of 2009, rents have soared by about 40%.

The unfortunate reality for many renters, not only in Denver but in other parts of the nation, is that rental prices have increased at roughly twice the pace of average hourly wage growth, which has hovered at a paltry 2.1% over the past year. Millennials are taking the full force of this hit, according to findings by Harvard University’s Joint Center of Housing Studies, which found that a shocking 46% of renters ages 25 to 34 (the epicenter of the millennial cohort) is coughing up more than 40% of their income on rent, up from 30% a decade ago. It should be noted that the housing industry generally regards a figure above 30% as being financially burdensome.

Back to the bar just for a moment. My conversation with the fellow Ohioan seated next to me sent my mind off to random thoughts about my own housing situation. Much of this has been informed by previous accounts shared by friends about their travails in locating suitably priced places. One common theme seems to be landlords who tour several rental suitors at once in a manner akin to a group date on the show The Bachelorette. Listening to reports back from friends who have experienced this, it quickly becomes clear that the spoils often go to those who have a wad of upfront cash.