Pennies make dollars

I had a great uncle that told my sister and me one bit of advice every time we visited.  "Pennies make dollars kids" and sometimes he would add "That applies to everything else as well."  We knew deep down that the advice was sincere and sound, but we thought it was kind of strange that this was the same thing over and over.  I did not realize until later in life how true that statement does apply to every aspect of our lives, not only business.  When you take care of the small things the big things take care of themselves either more easily or even as a surprise bonus.  But let's focus on the business aspect only for this discussion.

In my experience of appraising, buying, selling and analysis of businesses in Iowa and the bordering states, I have learned that you can't beat the basics.  No matter how anyone presents fancy numbers about a business or business asset, it all boils down to dollars and cents, profit and loss, rate of return.  I have seen people move from our area to South Dakota to establish residency because they have no state income tax.  I see people moving business assets from one state to another, again mostly because of tax.  I see other state residents buying a few selected products in Iowa and transporting them across their state lines because of sales taxes.  Partnerships are sometimes formed to shield from liability, but there can be tax reasons as well.  Corporations are formed to capitalize on tax rates and tax benefits.  After a certain amount of time some corporations are run into the ground while the assets are moved to another corporation.  Everyone wants to earn as much as they can for themselves and their families.  I applaud everyone who honestly earns their livings and each deserves our thanks for helping to make our state and country strong.  They are all reacting to the systems that have been created in each state to maximize benefits to themselves.

My experience reveals to me that the next new frontier in maximizing benefits will be not for profit groups.  If we take an objective step back from being too busy in our lives we can see that there are many businesses that have formed or have become over time not for profit.  I did not notice all of the aspects of this until I studied the business plan a bit closer.  What a great system.  The business can earn as much as it wants and it pays the top employees or shareholders very well.  The everyday working employees can be told the company line at any discussion of wages, "Don't you know that we are a not for profit business?  Why do you want more wages when it will only hurt all of the good things that we do for everyone else?  How can you be so greedy?"  The earnings here can be tremendous.  Why?  No tax.  Genius.  All we have to do is pay something in for our declared charitable goal and we have beat the system beyond belief.  Right now this is the domain of the largest organizations because of a perceived risk of audit.  Over time and as tax rates continue to rise I believe there will be a larger flow of businesses that are organized in this system.

Is this all we have to show for playing politics with our tax laws?  We have created citizens who hire experts in finding loopholes to keep up their bottom line.  Those that don't take advantage of every loophole are the poor schmucks that get to pay the taxes.  If you are a regular working man or woman, what hope is there to fight the not for profit for wages and then not have the ability to shield it from tax?  Our pennies seem to make the dollars that the state spends and their collection of our pennies seems to amount to real dollars.  There are better systems than this.  Open and honest systems that reward earning money through hard work, risk and investment and saving.  Fighting through the politicians to change this will only be one fight in a large battle.  The other battle will be with the businesses that have already formed into whichever partnership, LLC, corporation or not for profit that they have already become.  They want to protect their bottom line.

My goal is to work at changing the tax system in Iowa so that every man, woman, child, partnership, corporation, LLC and not for profit group is back on a level playing field.  If we have more money in each individual pocket to save, spend or waste at the individual level there will be more opportunity for real business growth and employment in our state.  Iowa alone can't change national tax policy, but maybe if we are a good example, other states or our nation will follow our lead.  My great uncle will be proud of us all at that point for remembering his advice: "Pennies make dollars!"