We Are All Corporations Now

Owners and advisors of small businesses are always monitoring the costs of expansion. Renting additional space and buying a new computer system are examples of familiar cost-benefit calculations that need to be performed.

Federal corporate income tax rates (Form 1120)

But there are many costs that accelerate with size. Examples are the San Francisco tax on payrolls larger than $150,000, higher Federal tax rates on higher corporate income (much like the rate schedule for individuals), or even mandated e-filing for eleven or more tax returns.

One number that is likely to influence decision-making is the 50-employee threshold for company-paid health insurance under the Patient Protection and Affordable Care Act, aka "Obamacare". (Failure to comply can result in fines of up to $2,000 per employee.)

We will bet our bottom dollar that there will be thousands of small businesses that will avoid having 50+ employees like the plague, not only because of the out-of-pocket health-care cost but also because of the regulatory headaches.

One IT entrepreneur foresees a dramatic restructuring of small business because of the PPACA:

"Going protean" offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations. [snip]

It's not about replacing employees with contractors, but about replacing employees with corporations.

These new contracts will be a mix of large corporations, small businesses, micro-corporations and even nano-corporations (an individual doing business as a corporation). But to be a protean solution, it must involve a corporation-to-corporation relationship. Any substitute—e.g., a sole proprietorship—is only a time bomb because eventually the government will pressure you to turn any so-called 1099 contractors into employees.

The IRS is already aware of simple work-arounds, such as using temp agencies and part-time workers, to escape the 50-employee rule. It has threatened "anti-abuse" rules and penalties, the thrust of which will be to examine the substance, not the form, of working relationships between the hirer and the hired.

However, the "protean" corporate-to-corporate system that is forming before our eyes involves real changes in rights and responsibilities of all parties and is very likely to withstand legal challenges. Many of us, as owners of companies, will become our own bosses. And we will have President Obama to thank for setting us free. © 2013 Stephen Yuen

Now That the Election's Over

Now that the election's over we are likely, finally, to learn the truth about:

Benghazi

Obamacare's costs

End-of-year defense layoffs

FEMA's before-and-after performance on Hurricane Sandy

Unemployment statistics

Whether General Motors is really healthy

What the President meant when he said he would be "flexible" on missile defense

Your humble observer believes that the President will wind up unscathed on at least some of these issues, so this post is not a criticism of him.

The mainstream media turned a blind eye to these questions in the run-up to the election. Their neglect was a gross dereliction of its duty to help the electorate make informed choices.

Reporters sometimes have to choose between their professed responsibility to discover and disclose the truth (please, no sophistry about the subjectivity of knowledge) and their personal politics. CPAs tabulate inventory counts that could unexpectedly lower their clients' earnings. Scientists report the harmful side effects of experimental drugs and possibly negate millions of dollars and years of research. Even lawyers, who have a primary responsibility to their clients, have a duty to disclose material facts that could help the other side.

If the press had pursued these 2012 stories with even a fraction of the enthusiasm with which it pilloried the Bush Administration over Hurricane Katrina, Abu Ghraib, Guantanamo, and the 5.5% unemployment rate in 2004, then it would be deserving of the esteem with which we regard most of our venerable professions. After its performance in 2012, it's doubtful whether the press will ever recover, and we all will be the poorer. © 2012 Stephen Yuen