Toby: Welcome to the BOSS Business Brief, your weekly dose of business commonsense, the how-the-heck do I run a business/taxes, keep from getting ripped off, and other stuff someone had told you 10 years ago show. I am your host, Toby Mathis, joined in t he studio today by the spin doc, Steve Pellegrino. We also have a special guest, the honorable Judge Larry Weinstein, judge protem. I always have to throw that in. He was appointed by the City Council and our beloved mayor, Oscar Goodman.
Larry: Not a full time guy. Therefore, I get to deal with the real people of the world as well.
Toby: Yes. So, for those not familiar with judicial politics, it means that he has a private practice and he is a protem. He comes in and he works off the city of Las Vegas to go out there and do all sorts of stuff, right?
Larry: Right. 10 years of doing "the city's work" if you will.
Toby: It means you don't have to get elected, which means you are not beholden. That is the way I like to look at.
Larry: That's true.
Steve: Everybody is beholden to someone. Let's get the Steve, spin doc, cynic going, and everyone is beholden to somebody.
Toby: Well, he is not having to pander to the electorate, how about that?
Larry: That is true.
Steve: That is true. He does not have to. He has to pander to other people, but not to the electorate.
Toby: Alright. So, you have been doing it a while. I mean, I have known you f or over a decade.
Larry: A long time, yeah.
Toby: And we always talk about some of the issues that pop up, so I thought you would be a good guest today, because we have so many things going on in politics today. We have…
Steve: None of it good, mind you.
Toby: Well, some of it could be good.
Larry: Depends on what happens in November, I suppose, in your prospective, doesn't it? Can't be any worse than the last two years, from at least my standpoint.
Steve: Theoretically, if it gets much worse than the last two years, boy, you know. When you have gone flush down the toilet, how much lower can you go? You have to go back up the pipe somehow, don't you?
Toby: Yeah. We always say is, go back and listen to some of the shows from before the election and what we predicted. Because what we said was, when you raise taxes, you are going to increase unemployment, your going to decrease the ability of small business to get us out of this mess. So, what did this wonderful state do? They doubled the payroll tax, they doubled the business license fee, you have a federal congress just going nuts spending as much as they can, and so what is the result? We have higher unemployment and we are really struggling.
Larry: The irony is that this is with a fairly conservative, anti-tax governor. Imagine where the state would be if we actually had a liberal governor.
Steve: People didn't realize that we were prognosticators. That we were the business version of Nostradomus at the time.
Larry: Well, let me ask you, Toby. You obviously have a tremendous background in this. We are now, what, at least about 1 trillion dollars, or 800,000,00 on the stimulus, 1.2 trillion or so on this unfunded health care bill, and actually the taxes increases have not gone into effect yet. The expiration of the Bush tax cuts come December.
Toby: The federal tax increases. The state knocked us up pretty good.
Larry: Tell me, how this is going to impact the economy upcoming in the next few years in businesses?
Toby: It is going to make it worse. Because one of the things that business thrive on is predicability. So, when you have a bunch of unknowns, you have money on the sidelines, which is exactly what is going on. I don't care. Anybody can tell me that there are trillions of dollars that they are lending out there, and I say hog wash. It is not getting lent. They are finding every reason not to loan money right now as humanly possible, because they are scared to death of what is going to happen. For every tick of tax increase you see in the upper levels, if we talk about the top 5% of tax payers, paying basically 99% of the taxes in the country, every time you see a tick going up, which is if the Bush tax cuts come through, you are talking about going from a top bracket of 35% to 39.6. Plus, you are talking about an extra 3.8% surcharge on certain types of revenue. So, you are talking about a down tick in the amount of money spent on investment and, specifically, on payrolls.
Larry: Let me tell you also a big concern I have got. Even if republicans win congress, if they win the house, which I think at least is looking good for republicans for now, and the senate, my concern is that there is going to be a lame duck session. Even if Reed is defeated, he is still going to try and push through the tax increases in December with Obama's help with the lame duck session. So, you still are going to get that kind of damage to the economy, even if republicans were to win.
Steve: And honestly, in all likelihood, Reed is not going to be defeated.
Larry: Oh, I don't agree. We will see. I don't think so. I think you are going to have much more enthusiasm on the republican side.
Steve: Well, the cynic coming through in me tells me that statistically it is somewhere in the vicinity of 96% of elections are won by the candidate with more money.
Toby: That is probably about right.
Larry: He certainly has more money, but he has got such a horrible record and he has such high negatives. He still cannot break 45%. Sharon Angle has got the enthusiasm, albeit she certainly has some problems.
Toby: She took some torpedoes right after she got elected, because they sat back. Then again, they do not have the same amount o f war chest. So, they have to sit back and wait, because the real fireworks start probably in the next few weeks.
Steve: She needs a good spin doc. If anyone needs a good spin doc, who is going to tell her when she should not say anything. Because she really has got a lot of things that she said kind of off the cuff. You have to understand, and I have worked with some fairly volatile political figures in the past.
Toby: You have worked with Damato and with..
Steve: And Guiliani.
Larry: Both of whom were known to speak their mind, good politics or not.
Steve: Which never made my job any easier, however. You have got to have somebody on your staff who can take it when you speak off the cuff and turn it into a positive. The other thing is, you have got to have somebody guiding you, telling you, you know, you cannot say things like, "we should do away with social security." You just cannot say it. You cannot say, "It is not my job to create…" You can’t say those sorts of things. Even if it is taken out of context, it is going to be smashed back into your face, which is what the Reed campaign is trying to do.
Larry: When you have Reed's kind of money to be able to run campaign commercials 100 times a day about each of those comments, it certainly has an impact on independent.
Toby: Again, you address some of these issues. Because you could do absolutes. You know, "all taxes are bad." Well, no because then we would have a failed society. In other words, there is a big realm, and we talk about this…
Steve: In relation to what we have.
Toby: Well, you have zero taxes, which is bad. 100% taxes, which is bad. There is something in the middle, which is good, and you want it to be the best possible situation for what is going on in the country. So, when you start saying absolutes like "this is bad" and "taxes are bad" – no, taxes are not bad. Taxes are necessary. It is just that too much taxation is bad, because it oppresses and causes restrictions in certain areas of the economy.
Larry: And the irony of this election, same election as my dad always point out, is a referendum on Harry Reid, not on Sharon Angle. This needs to be a referendum on Reed, and he is a liberal left wing extremist, and I think that is what voters need to be remembering. It is not a question about Sharon Angle and her statements. Reed has proven that he is unfit to represent the people of Nevada, as far as his views being far out of the mainstream.
Toby: Now, you guys don't know this, but when I was up in Seattle, when I first started practicing law, I bought this little place in Georgetown, which is just to the south of Seattle. We used to joke. 90% of the population goes home at 5:00, which means it was all industrial, it was all small business. Who voted in that area? It was the residence and there was literally, I was next to a die cast plant and across the street from, gosh, a hot dog manufacturing place and Muzak was down the road from me. I was in the middle of it. There was a house kiddy-corner to where my office was, and that was residential. That person voted. The die cast plant, me, Frankfurter, which is the hot dog place across the street, none of them could vote. In other words, what is getting left out of this election are the businesses. They are the ones that don't get to vote and it is driving me nuts. Because if there is one area that needs to be addresses in this country, it is making it easier to do business, and they have done the exact opposite. That is what is causing us the most pain. If you want to increase unemployment, add regulation to business. Make it more expensive to do business. Make it less beneficial for people to risk their hard earned money by putting it into a business. I don't care if you are rich or poor, the fact of the matter is that if you have money and are thinking about going into an endeavor, you need to have a risk reward. You need to be able to have enough reward that it makes sense to do it. When you take away the rewards… Look what happened to this state. Folks don't realize this, but you have had a decrease in filings in this state of something like 25%.
Larry: As far as companies incorporating here.
Toby: Yes. Actual formal businesses doing business here. It is like 25%. You have unemployment that is probably in the 15% range to 20% range.
Steve: 15% reported. There are some studies that say our actual state unemployment is at the highest level ever. Even higher than the great depression.
Larry: Even higher than what they report.
Steve: It could be as high as 35%, if you included illegals and people that have fallen off the grid.
Toby: Okay. So, now we know that when you increase business licenses, when you increase payroll taxes, when you add regulations onto business, this is your result. Isn't it logical to say, well the opposite would probably be true. If you wanted to eliminate the direction you are going, do the opposite.
Larry: I hate to say it, though, do you think either gubernatorial candidate, either Brian Sandoval or Roy Reid, are going to do much about helping business to that extent, or what have you heard from either one?
Toby: Nothing, and that is the thing.
Steve: The interesting thing is that Sandoval came from a pro-business standpoint.
Toby: But they are not voting. So, that is the whole thing. Again, I was on the business council.
Larry: Both say they are not going to raise taxes, you know. Both have committed to it. Do you believe either one when they say that they are not going to raise taxes? I am skeptical of both, to be honest.
Steve: Read my lips.
Toby: I was on the business council down at south Seattle, actually, in the Georgetown business association at the time. The biggest issue – I mean, anything that you did in that town, you had to get the residents on board. People could literally do things and ignore the businesses, because, again, they don't vote. That is the problem we have right now, is the businesses do not get a vote, but the business owners certainly do. The thing is that if you are a business owner, you are going to have to kind of get together with the other business owners and say…
Larry: What do you recommend? Do you recommend to the businesses that they should, like, contribute to campaigns? I mean is that what one way to go? Should they get active? What do you recommend business owners should do?
Toby: Most folks are just doing 24/7 just trying to keep their business going.
Steve: And here is the problem, Toby. I mean, this is somewhat we have discussed in the past – I cannot tell you how many small businesses that I work with, and that I work with on a regular basis, that are actually enjoying tremendous growth over prior years. But, the fact that they are growing at say 20%, they are still less profitable because their expenses, including health care, taxes and other things, have risen 30%. Now, at the end of the day, if they raise taxes more, what you are going to find a whole slew of small businesses that are currently just getting by going under.
Toby: Well, you already have it. It is like a big crowd on the edge of the Grand Canyon and you are just pushing that front. You say, "Oh, we only moved you a foot." What they don't realize is that everybody that was at the back of the line, that was up against that edge, that foot of people just got shoved right off the edge. Now you are looking at the front liners going, "hey, did you feel that?" "Yeah, it was annoying, it pushed us off." It is the people that are on that thin line right now that are getting pushed over the edge.
Larry: Well, I think that is due to the fact that this current Obama administration certainly does not, not only not care about business, doesn't have any interest in business and does not like business. They care about government. They think government is the engine to create jobs.
Toby: That is because the business people, again we are looking at absolutes again, and the philosophy is, "hey, they are going to take advantage of you." Business is bad.
Larry: Right. That is the philosophy of Washington.
Steve: You want to know the funny part? This kills me. The administration talks about the stimulus plan and what they did to help with the banks. Well, the bottom line is, now they are saying, "well, we help stimulate by giving the banks all this money, but now the banks are not giving it out to you?" Well, than why did you give it to them in the first place? You gave it to them to increase lending and then they just kept it and thumbed their nose at you. What kind of regulation is that?
Toby: I am going to share with you guys some stuff that occurred before the big meltdown that was kind of blatant and is still occurring to this very day. We have got to take a quick break and then we will come back.
Toby: Okay. We are back and you are listening to the BOSS Business Brief and just before the break I was just going down something that was occurring a couple of years back now, if not longer, three years ago. We were looking at financing a commercial building. We were dealing with Lehman Brothers. This was before they went under, obviously. We were getting the run around, run around, run around. I remember talking to the guy saying, "I don't think Lehman wants to lend right now." I didn't know what was coming down the pike, but all I know was every outward signal, everything that they were doing, other than what they were talking about, but everything they were doing told me that they were just spinning their wheels. So, we went with a different lender and got it closed pretty quick. Then Lehman Brothers goes out of business not much longer. The same thing is going non with a lot of lenders right now. That does not mean that they are all going to go under, it just means that they are giving it lip service. They are talking about lending, but they really do not want to lend. So, we have to get to the root of the issue. Obviously, these are folks that are very recipient of a lot of tax payer dollars.
Steve: Yeah, they don't want to lend your money to you.
Larry: Right.
Toby: But the issue is much bigger. If somebody gave me a whole bunch of cash and said, "hey, I want you to lend it." I tend to want to lend it, I want to do what whoever gave me all the money…"
Larry: Well, it depends on what incentive you had to lend. If they gave you the money and they said "lend it" and you said "you know what, why should I lend it if I am going to make more money, or just decide to keep it and do what I want with it, if there are no ties to it."
Toby: But they also don't trust the party that gave them the money. I think that is the bigger one, is that somebody handed them a bunch of dough and you are looking at them what, like, "hmm, yeah?"
Larry: But that does not make them the problem. That is not the solution. The problem is that, the bigger picture issue, is that…
Steve: They are thinking to themselves, "I am going to hold onto it and thank you f or all the money. What are you going to do about it?"
Toby: Well.
Larry: Oh geez, we are just going to secure ourselves. We are going to make sure we use this money and keep our reserve.
Toby: They are trying to be prudent.
Larry: Right.
Toby: That is the thing. I don't blame them for what they are doing, because they are operating in the same system.
Larry: Absolutely. They are operating in their own self-interest. They don't see the government as being solvent or that the economy is going to improve, so why should they put themselves at risk?
Toby: And there is a big stick that is over them right now. They are talking about fundamentally changing the way that we do business. If the tax cuts that Bush enacted under the Bush administration expire, you are talking about major, major ramifications.
Larry: Absolutely. Exactly. If taxes get raised, which is very possible that they will under the next how ever many months, you are going to see businesses decide at that point that t hey are not going to be able to hire. You are going to see the economy potentially double dip recession, right, and all of a sudden….
Steve: Well, let's just be honest here. We are not in a double dip recession, we are not in a recession, this is a depression. This is the not-so-great depression. Let's just be honest about it. All of the spinning, and again believe me I know, that is what I do, but all this spinning about "recession, recession," this is not a recession. This is the worst economy since the great depression.
Toby: This is a confidence thing. This is a huge confidence thing. American public..
Larry: You feel more confident spending the trillion dollars or two trillion dollars that we don't have? Is that going to help? Has that helped a lot?
Toby: What I am saying is, if we are going to get out of it, we have to get confident again, and right now nobody trusts what is going on.
Larry: You have to put in place the right policies to get out of it, which have not been done. If anything, they have exacerbated the problem.
Toby: Okay. Let's talk about the policies, Larry. You are a political guy.
Larry: Right.
Toby: So, what are the policies that you would enact.
Larry: I would enact, first of all, I would stop the crazy spending and stop the deficit spending. I would start cutting the spending. I would start putting in tax cuts for business to actually hire workers. I would put incentives in to grow the economy.
Toby: That is funny, because we have talked about that so many flipping times.
Steve: Thank you Mr. Reagan.
Larry: It is true. Reagan grew the economy, unlike this current administration.
Toby: Well, if you want more of something, incentivize it. So, give me some examples of what you would incentivize.
Larry: First of all, you would create tax cuts for businesses to hire workers. You don't put workers on the government payroll. If fact, the reality of the stimulus bill it did not add, it was not government works projects. People think it built roads and stuff because you see those big signs for the American Investment Project. That is not what it did. That was about 2% of the spending. All it was was payoff to special interest groups and unions. The money did not actually go towards actual businesses that would create jobs.
Steve: Well, t hat's not true. The IRS is hiring.
Larry: That right, exactly. 15,000 more IRS workers for the health care.
Toby: That is because of the health care act. They are policing it. What people don't realize is… read the fine print. You just increased the size of government.
Larry: I think the American people are getting wise to it, though. So, that is the only upside. But you have to create, you know, private enterprise jobs.
Toby: That is the problem. They are getting wise to it. You want to go back to that gal that was screaming about Obama got elected about, "hey, now I don't have to worry about my mortgage" and things like that. You are not going to have to worry about it because you are not going to have a house. They are going to foreclose on you. They just booted you. You are going to be worrying about rent. "I don't have to worry about my mortgage, I only have to worry about rent, now."
Steve: Nobody told you the truth of why you are not going to worry about your mortgage.
Toby: People eventually are like, "hey, wait a second. This is not better. This sucks."
Larry: Where did all that money go that supposedly was going to make it better?
Toby: I don't know.
Steve: The banks have it. I think we all know where it went. The banks have it.
Toby: It is not all banks. I don't know where it went.
Steve: And the special interest groups. Well, AIG had a bunch and what did they do? They threw a big party. Sweet! Hey, the government gave us a bunch of money, let's throw a party.
Toby: But that is not what they did with the money. I mean, we are talking about 100s of billions of dollars, and the question is "how much did they actually," I mean, "where is it?" That is a good question. Where did it go?
Steve: Ford, Chrysler…
Toby: That is a small percentage.
Larry: That is bail out money. We are talking about these large expenditures that went to larger special interest groups.
Toby: And some of it is still sitting there being earmarked, doing nothing.
Steve: And let's not even begin on the "billions of dollars" that are unaccounted for in the black hole that was Iraq.
Larry: That is a separate issue, though. I mean, right now this money all went…
Steve: How is that a separate issue? It is all our money.
Larry: Sure, but this spending bill was supposed to help the economy and all this money has gone to special interest.
Steve: But the question is this – The government themselves, without any over site, has just given… How can billions, literally billions, of dollars just disappear without anyone knowing where it might have gone?
Toby: There is some over site. In fact, it is people like us that are supposed to be pushing the over site. We are supposed to be the ones who are, you know; you vote based off of your confidence in what is going on. And that is the thing is, politics aside, eventually people are going to have to say, you know, "do you trust that person?" When they tell you something and they tell you they are doing something in your best interest, do you believe them? Because I am a small business guy, it has been a rough few years, including for my clients.
Larry: But I think that is why a loot of independents, forgetting about partisan politics, I mean if you are a republican or democrat, I think a lot of independent voters who swing elections are saying, "look, you what, we need some checks and balances on this administration." Even if they were tired of President Bush and voted for Obama, they are seeing now when you have Obama with large democratic majorities and no checks on that power, you probably want to have at least some checks on it with republicans in congress to be able to at least have some breaks.
Toby: The problem is that you have given so much power over to the government and it is hard to take it away.
Steve: Absolutely. And theoretically, if you think about it, let's just say we lost 100 billion in Iraq, I could have overseen that personally and I guarantee I would have only lost 25 billion. That is a profit of 75 billion.
Toby: Yeah, I’m sure. Well, anyway, what other things can we do, Larry? Since I got you here.
Larry: I am not running for office, but I think that it is clear that you have to just fundamentally turn around, in my opinion, these economic policies. I think the last two years have shown that Keynesian economics and, for that matter, you know, massive government intervention and spending and socialism, light if you will, don't work. The fact is that you need to return to the idea of less government, of lower taxes, of less spending, and return to the idea of free markets, because free markets do work.
Toby: You don't spend yourself out. If spending yourself out of the recession through government spending was the way to go, we would build a brand new navy, go out and sink it, and then build another one and sink that one, and so on and so forth, because, boy, that would b e a lot of spending.
Larry: Money does not get created out of thin air is the whole thing. This money is tax payer money that is simply being transferred from tax payers into these wasteful spending programs. It does not help the economy.
Steve: Do we have enough genetic material to clone Reagan?
Toby: I don't even know if Reagan could do it. I mean, right now what you really need is you need the house and senate to be…
Larry: I would certainly like to try.
Steve: I tell you something. Reagan had two things which made it work. He had an absolute moral compass, which was great especially for the time, and he had an absolute driving vision of what he thought the economy should be. Whether or not it was even right at the time, but it worked out.
Larry: Lower taxes, less government, and strong national defense. Those were the three principles that President Reagan had. I agree 100%, of course, that that is what we need to return to. We need someone to articulate that vision that is going to lead this country.
Toby: That is not something you can sing around the campfire, though, when you are doing the kumbaya stuff. Those are things…
Larry: The irony is that Obama is the anti-Reagan. He is exactly 180 degrees opposed to everything that Reagan stood for.
Steve: He is the Jimmy Carter.
Larry: He is for more taxes, more government and a weak national defense.
Toby: That is because he believes the opposite is inherently evil.
Larry: Exactly. He blames America for all the world's ills and for…
Toby: And the fact of the matter is, if you gave incentives to people to do the right thing… guess what, they usually do the right thing. If you gave incentives, like you s aid, to businesses to hire… guess what they would likely do? They would go out and they would s tart hiring.
Larry: Free markets are based on that idea. That when people, when they act in their own interest, are nonetheless are going to act in an interest to create profit and to do better for themselves, which of course will lift everybody and will improve the economy. When you let governmental bureaucrats make decisions collectively, it is going to end up creating the collective malaise that this country now sees, because you a re simply going to end up encouraging the worst in people and the worst in the country.
Toby: You are absolutely right.
Steve: There is an old expression that…
Larry: Freedom works, and that is what our founding fathers intended for this country. The idea that freedom works.
Steve: Well, there is an old expression that no single one of us is as idiotic as all of us. I think that that is the perfect statement for the government.
Toby: Well, two years ago we certainly acted idiotic. I mean, because you knew what was coming down the pike. Unfortunately, it is just the way the stars aligned. And I am not a political guy, either. I just look at it and I say, "I want the best environment for our small business," because it is really tough. If you go the flip side and you have too much big business just beating t he heck out of the small guy, it is tough as well.
Larry: It does not mean unfettered capitalism. It is understand that you want to have some kind of regular, but now the pendulum has swung to where you have government control over everything.
Toby: And client's costs are so high that, if you are that small business…. And I always look at it and you go around and you say, what areas are prospering? Well, the businesses that are operating outside the realm of legality is often time profitable during this type of administration. You are punishing the folks that are doing it the right way.
Larry: You are encouraging people to go outside the realm of the system.
Toby: Right. You make it too difficult to do things the right way, then you incentivize people to do it the wrong way, and you have done the exact opposite of what you intended.
Larry: And people lose faith in the system as well when you do that.
Steve: If you listen, that cracking noise you hear is the sound of the backs of small businesses breaking all throughout the United States.
Larry: If some sense, if that happens, I don't know if this administration would be so upset about that, because that creates more need for government control and more government jobs and more government spending. It is a cycle.
Toby: Your right. We used to joke, at least Stalin went out a bullet in the small business guys, they didn't just starve them to death.
Larry: Right. It is kind of the slow move towards socialism.
Steve: Your saying Stalin was more humane than Obama. Nice!
Toby: I'm not saying that. Anyway, if you need some tax help, because there are a lot of regulations out there and there are ways to do things the right way and there are ways to do things the wrong way. We do things the right way over at BOSS Business Services. Give us a call at 214-1100, or visit us on a the web. We always put up on our archives. You can even listen to this thing over and share it with your friends at bossoffice.com. Until next time, this is Toby Mathis with the BOSS Business Brief.