mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Saturday, March 09, 2013

Why would anyone want to start a business, anyway?

The first time I really understood why business owners grumble about the government so much was a couple years ago, in a field in Howard County. See, as a very small hobby, I sell stuff at hamfests - basically swap meets for ham radio and computer enthusiasts. It's typically a bunch of guys selling junk from their basements, and a few people like me who will occasionally also buy stuff at auctions and the like and sell it. Except that day, the tax folks showed up, and told everyone that if they did not get a Maryland sales and use tax license they would have to leave. Luckily, they moved at government employee speed, while hamfest sellers are up 4 hours before the crack of dawn, so by the time they had gotten very far most people were done selling.

The most annoying thing was that the government folks were wrong - Maryland's own sales tax laws exclude casual sales under $1000, a category that most of the old guys selling junk out of their basements fall into. But even for those who don't - like myself - there is a certain feeling of annoyance. For a typical hamfest, I've spent hours online tracking down auctions, bidding online or standing around bidding on stuff, carted it home, unloaded, sorted, tested, and priced it, loaded it back in my truck, gotten up at 4am to drive an hour or two to unload it, and stood outside for hours, praying that it doesn't rain - and then loading it all back up, driving home, and unloading it all. For a good fest, I might gross a few hundred bucks. For a bad one, I've grossed as little as $13. So after doing all that work and maybe making a couple dollars after cost of good sold and expenses, the government wants a piece of it just for showing up.

My second tangle with the fun of the tax authorities came a few months ago. I also sell on eBay, and last year - thanks to a few lucky auctions and selling a few unusually expensive items, my Paypal gross revenues where about $500 above the amount that Paypal sends a 1099-K to the IRS for. (Yes, I realize technically you are supposed to pay income taxes on any income, even if it's not reported to the government. I'm also know that very few people are going to voluntarily give the government money that they know the government doesn't know they "owe", and I'm pretty sure the IRS knows that too). So for several weeks I tried to figure out what I owed - going through 238 transactions, finding receipts for the stuff I bought at auctions in my file system (actually a box full of papers that originally held 2-buck chuck). The rest of my sales were of stuff bought at yard sales and the like, which I have no way of documenting the price paid. After deducting thousands of dollars in paypal and ebay fees, thousands more in shipping expenses, and taking home office and vehicle deductions, I ended up paying around $!500. As annoying as that was, spending hours making excel spreadsheets during time I'd normally be writing eBay descriptions or going to auctions was more annoying. And I'm still not entirely sure that my amounts were correct - I found, for example, that by changing a date by one day I made a big difference in my tax liabilities. I could make an argument either way, and you can guess which way I decided to go.

I'm unlikely to have this happen again - so far, there have not been many good auctions, I had stuff last year that I had bought the year before but didn't sell until that year, and I'm going to miss one of my favorite and most profitable auctions this year due to a work conference. But you can imagine that I'm going to make sure that I don't cross the limit this year. Because incentives matter.

For me, stuff like this is an annoyance. I have a day job that pays the bills - eBay and Hamfests give me a few extra bucks and let me kill some time (hey, I'm single) and get the rush of occasionally finding hidden gold. I don't depend on them for survival, and can cut back or give them up if the legal hassles get to be too much of a hassle. But occasionally, I'll wonder if I could do them full-time. Even despite the legal aspect, the answer has always been "no" - there are too many people chasing too few profitable items to make enough to lead the lifestyle I've grown accustomed to (1200 square foot townhouse, Pathfinder on 18"s, the latest threads from the Target clearance rack). But I could see myself, if I'm still single and childless in 20 or 30 years with a paid-off house, retiring early and doing that if the opportunities are still around. But once again, the thought of spending as much time doing paperwork as hunting down merchandise is not thrilling.

Which begs the question - why would anyone subject themselves to this - to the difficulties of owning a business, plus of dealing with the government? After all, if you are a business owner, you get none of the protections of being an employee - no minimum wage, no maximum workday, and you can't sue yourself for sexual harassement for admiring yourself in the mirror. Instead, you pour money and time into something, and if you are successful, the government wants a piece of it. I realize that we have to pay for military and other services that government provides, but I can also understand why business owners are often less sympathetic about regulation and taxation than those who get a paycheck from someone else.

Which is probably why a lot of small businesses are owned by people who don't really have a lot of options, like recent immigrants (just ask Joe Biden or people who have been laid off and unable to find another job. I've found the little bit of interaction with taxes to be difficult - and I'm a reasonably smart guy with an MBA. I can't imagine the baker or landscaper who wants to go into business for himself having an easy time dealing with not only taxes, but also regulations governing employees and food safety or EPA regs or whatever, all the time hoping that they don't mess up and find an inspector on their doorsteps.

And the government also discourages businesses from growing - as this NRO post points out, there are a lot of regulations - such as Obamacare - that have requirements if your business is larger than a certain size. Which gives a pretty powerful incentive for businesses that are close to that size to not grow, lest they be swamped by a rush of expenses and forms.

A government that discourages people from starting businesses, from hiring, from creating value by supplying something that people want that isn't supplied, or doing a better job of supplying it - is discouraging growth, it's discouraging the things it needs to continue being dynamic and increasing living standards. And I have no real answers on how it can do that, while still raising necessary taxes and providing a reasonable level of services and protection. But I get the feeling that most people don't even see that there is a problem.


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