Does Obama Favor Big Corporations?

Many counted Barack Obama’s support from the leaders of major corporations as a thread of confidence that his policies would help spur economic growth; that business leaders had confidence in Obama’s “spend for prosperity” approach.  The Obama campaign officially barred corporate donors (though Federal law prohibits corporations from contributing to campaigns), but many corporate leaders donated directly and bundled contributions from others in an effort to pump millions of dollars into the Obama coffers.

Donors included individuals and bundlers from Goldman Sachs, Google, Microsoft, Citigroup, IBM and JP Morgan Chase.  It seems that many at these corporations believed on election day that Obama’s policies were best for them.

Indeed, I am certain that Obama’s policies are preferable to major corporations.  Let’s take a look at his policies, found on his election website, the AFL-CIO and from Factcheck.org:

  • Favors government funding (cough! spending! cough! cough!) on alternative energy.
  • Wants to eliminate capital gains on start-ups.
  • Proposed a phased increase to the minimum wage.
  • Supports keeping the maximum rate of the estate tax at 45%.
  • Supports the “card-check” unionization bill.
  • Wants to expand FMLA minimum from 50 employees to 25.
  • Favors tax-breaks for the poor and middle class and tax increases for the wealthy.
  • Would implement additional Social Security payments for those earning above the current cap.

And these are just a few of the policies that Obama touted during his campaign to become Presideint of the United States of America.  While each of these items will require Congressional support, the “Bully Pulpit” and Obama’s engaging style are likely to engender support in the general public.  That can often translate into support from the Congressional leaders, most of whom are looking for their own turn in the Oval Office.

Let’s take a look at these policies and analyze their economic effects:

Government Funding for Alternative Energy

Clearly, someone is going to have to choose where and how to spend this money.  Some will undoubtedly be spent in university laboratories, like those at MIT, Rose-Hulman and Berkeley.  However, much of this money is almost certainly destined for businesses whose primary business is high technology and energy.  The most likely decider of which companies will get the money is a government bueareaucrat or one of the individual members of Congress.

This means that money will be spent on two groups:  Those “most likely” to develop new technologies (which, in a beaureaucrat’s mind, is a large corporation) and those companies that are politically acceptable to members of Congress (which will mean businesses that are located in that member’s district or state and/or who donated to his or her campaign).

Brilliantly efficient.

Eliminating Capital Gains for Start-Ups

This begs the question:  What is a “Start-Up” business?  Businesses less than a year old?  Two?  Five?  At what point do we end the incentive?

Further, one must point out that most small businesses are not corporations, they are sole proprietorships or at best, a Limited-Liability Corporation (LLC).  This means that, by and large, small business does not pay dividends.  In fact, most small business owners report their business earnings as personal income!  So what does this mean?

It will encourage new investment in new corporate businesses.  This incentive will create more corporate businesses and discourage investment or lending to sole proprietors and partnerships.

Phased Increase in the Minimum Wage

Many small businesses employ five employees or less.  While some are professional organizations, such as small consulting firms or doctor’s offices, many of them are fast food franchises, retail stores or other types that pay minimum wage or just a little more.

Raising the minimum wage will make it much more difficult to employ these workers, requiring businesses to lay-off employees or, if they cannot operate without them, find resources to pay them.  This will often mean looking for funding in the public market (that is, IPO) or selling out to a larger business, often a corporation.

Keep the Estate Tax Maximum at 45%

Both McCain and Obama favored keeping the estate tax, though McCain favored a minimum estate of $5 million ($10 million for couples) while Obama’s minimum was only $3.5 million ($7 million for couples).  McCain would have capped the tax at 15% while Obama retained the 45% maximum.

I need not detail here how small business is hurt by the estate tax.  Often, businesses and property are valued far above the estate tax minimum, but the inheritor does not have the cash to pay the tax.  This seems to be a particular problem for families with assets below $10 million, but estates valued over $10 million are often the ones with the resources to be protected against massive taxation.

This has a two-fold effect:  First, it breaks-up the small fortunes, often requiring the family to simply sell the business to pay the tax, but those with very large fortunes protect their assets more successfully.  This means that larger businesses and corporate assets are protected, but many small businesses such as farms, small town newspapers, small retail chains and others have to be sold to pay the taxes.  The buyer is often a corporation.

Supports the “Card-Check” Unionization Bill

Obama co-sponsored and voted for the Employee Free-Choice Act, also called the Card-Check Unionization Bill, which would allow unions to organize labor union representation by simply gaining a majority of signatures from elligible employees.  Obama’s website also states that he wants to add millions of Americans to the list of elligible employees.

Labor Unions want the Card-Check bill because they know that while unions almost always gain more than 50% of employee signatures needed to have a union vote, they often lose the actual vote, which is held in secret.  In other words, employees who support unionization around their peers do not support them in private.  To get more union members, the unions want to make it easier to force union representation under the National Labor Relations Act.

It costs a great deal of money to hire a labor relations firm or labor lawyer.  Businesses that do fair better when dealing with unions.  Small businesses often do not have the resources to hire such professionals, and because they don’t have those resources, they also don’t have the resources to deal with a strike.  This means taking one of two options:  Knuckle-under and pay the unions, or sell out to someone who has the resources to pay them.  Once again, the buyer is probably going to be a corporation.

Expand the Family and Medical Leave Act

Obama’s website states one of their goals is to expand the FMLA to firms with only 25 employees and expand its scope to cover more absences.  Currently, FMLA applies only to companies with 50 employees or more.

FMLA offers up to 12 weeks of unpaid leave to an employee that has added a new family member, either birthed or adopted, or when an employee has a major medical condition that needs treatment.  When the employee returns, their position must be available to them or a position of equal pay and benefits must be granted to them.

This costs the company resources.  Either the company loses a valuable employee for an extended period, or it must find a temporary replacement.  Finding that replacement can be expensive, especially if the employee has a great deal of responsibility.  Small businesses have fewer resources, and that can mean more difficulty in finding and paying a temporary replacement.  Expanding the benefit to new areas, such as giving 24 hours of leave per year for children’s events (which could include anything from field trips to baseball games to graduation ceremonies) puts more ever more pressure on businesses, but small businesses would certainly be hit the hardest.

In this author’s personal experience, the smaller the business, the less necessary something like the 24 hour leave expansion becomes.  Indeed, most small businesses and small corporations (in terms of employees) work hard to keep good workers, frequently offering better scheduling benefits than even the most labor-friendly corporation.

Increase Taxes on the Wealthiest 2% of Americans

Obama has stated numerous times that he favors allowing expiration of the “Bush tax-cuts,” raising the top-marginal tax rate to the same level as under the Clinton Administration for the top 2% of earners, while giving tax-cuts to “hard working” middle- and lower-class Americans.

While ignoring the implied snub of high-income Americans as not being hard workers, it is important to note that over 900,000 small business owners are in that top-marginal 2%.  Of those, more than 660,000 file their business income as personal income.  While this link is mostly McCain-bashing, it details the numbers.

Most small businesses would not be hurt by the $250,000 minimum, the 660,000-plus that do are the ones that employ the vast majority of workers employed by small businesses.  Once again, the new taxes are going to require businesses to generate new resources or sell to those who have them.  Once again, the majority of buyers will be big corporations.

Implement a Higher Cap on FICA Contributions

While the Obama campaign officially declared that it would not support fully raising the cap on Social Security contributions, the campaign website details a plan to “ask those making over $250,000 to pay in the range of 2 to 4 percent more in total (combined employer and employee).”

Of course, many small business owners are paying the full amount of their FICA contribution, so they would end up footing the entire bill on such a contribution.  For a business owner reporting $250,000 of income, that amounts to $5,000 at 2%.  At 4%, the total comes to $10,000.  That’s quivalent to a minimum-wage employee working almost 1400 hours, not including FICA and medicare contributions, or one lost part-time worker.

Once again, this is a dis-incentive to sole proprietorship and an incentive to corporatization.

Interpretation and Conclusion

We can see from this series of examples that the Obama Administration would rather have large corporations than small businesses.  Small businesses generate new wealth, develop niche resources and markets, and stimulate innovation.  They provide products and services that larger businesses do not find profitable or are too new or too small to entice large corporations.

In other words, the Obama Administration’s policies would limit innovation and reduce the creation of new wealth.  It will concentrate resources in big corporations.

Resources mean money.  Money means influence.  Influence means power.

It is the inferred conclusion of this author that Obama’s economic policies are an attempt to consolidate wealth and power among the existing elites of this nation by making it more difficult to start new and innovative businesses.  In many ways, he is attempting to create a permanent aristocracy by appealing to socialism without fully implementing it.  In this endeavor, he has found allies in labor, big business and the super-rich, who will make up this permanent aristocracy.

Perhaps I am reading too much into this, but the recent attempt to appoint Caroline Kennedy as the junior Senator from New York, efforts to have Jesse Jackson, Jr appointed in Illinois and Hillary Clinton’s confirmation as Secretary of State seems to indicate a resurgent political aristocracy already exists.  The possibility is something that cannot be ignored.