Business Trends

Archive for November, 2009|Monthly archive page

Peak Oil Reality: Industry Experts Warn About Looming World Oil Supply Constraints

In Uncategorized on November 24, 2009 at 9:48 pm

Groups and individuals speaking out about forthcoming world oil supply challenges are frequently stereotyped as a fringe element with little knowledge about the oil industry. But their warnings are increasingly supported by some surprising allies: senior petroleum industry officials, consultants and analysts. Call these serious-minded critics the Harsh Realists.

Most prominent are CEO’s from several large oil companies. Christophe de Margerie, CEO of France’s Total SA, said earlier this year, “world oil production may plateau below 90 million barrels a day (mb/day)” — marginally more supply than today’s 85 mb/day rate. Last month, CEO’s James Mulva (ConocoPhillips) and John Hess (Hess Corp.), sounded similar warnings, though with less specificity about the numbers, at the Oil & Money Conference in London. At ASPO-USA’s October conference in Denver, Ray Leonard, CEO of Hyperdynamics Corp., said, “world oil was nearing peak oil at 90 mb/day, and that isn’t changed by recent events.”

During September, ASPO-USA representatives interviewed numerous oil industry experts from the UK, Ireland and the Middle East. Links to those online videos are below. Featured is Sadad al Husseini, former exploration and production VP with Saudi Aramco and currently a consultant. Said Husseini, “There is not enough new capacity coming on line, within say the next five to six years, to make up for global declines. And that’s assuming a very moderate level of declines.” For groups that remain in fundamental denial about upcoming world oil supply constraints, Husseini said, ” these centers of information or knowledge that try to pacify people — telling them there is no challenge, with good intentions — are probably compromising the solutions. They’re not helping.”

Talisman Energy’s former CEO James Buckee wonders why major oil companies “aren’t more forthcoming on the peak oil issue.” He then opines, “if Exxon were to come out [about peak oil], it would be world-shaking, and political, and maybe they don’t want to go there.”

Jeremy Gilbert, former Chief Petroleum Engineer with BP and now a consultant, stated “I find it hard to believe that the [oil] companies cannot see that the exploration record suggests that there’s a real problem with new discoveries.”

Jeremy Leggett, former petroleum geologist and lead author of the UK’s Industry Task Force on Peak Oil and Energy Security, worries that “we’re dealing with dysfunctional culture in the energy industry in the same way the world had to deal with the really dysfunctional culture in the investment banking community. It’s different [from the financial crisis] in that this time, there are many people warning. Many people in and around the oil industry…But most governments are not listening.”

Related links

IBISWorld industry reports:

Oil Drilling & Gas Extraction in the U.S.
Global Oil and Gas Exploration and Production
Mining, Oil & Gas Machinery Manufacturing
World Production – Oil
World Price – Energy – Crude Oil


Entrepreneurs Thrive During Recession

In Uncategorized on November 20, 2009 at 8:44 pm

In light of poor economic conditions, entrepreneurial activity is showsing some positive signs, according to the Global Entrepreneurship Monitor (GEM) and its 2008 report, the “National Entrepreneurial Assessment for the U.S.” 

The global economic crisis that started in 2007 presents a different set of economic conditions than in the prior periods of GEM examination. As such, the 2008 report reflects the entrepreneurial behavior in times of economic distress. While traditionally GEM has examined entrepreneurial behavior for those in the 18-64 age group, this year’s report examines entrepreneurial activity for those in the 18-99 age group.  Given growing evidence of entrepreneurial behavior past the age of 64, and the likelihood that all GEM countries will move to this new convention, the GEM U.S. team decided to make this change immediately in order to have a fuller picture of entrepreneurship in the United States. When appropriate, comparing the United States to other GEM countries, this report uses data from the 18-64 age group.

One of the great advantages of a research program such as GEM is that it systematically examines entrepreneurship issues through annual surveys, allowing for examination of the characteristics of entrepreneurship, actions and qualities of individual entrepreneurs and factors in the environment impacting entrepreneurship in diverse economic conditions.

Report findings

-Total entrepreneurial activity (TEA) increased to 10.8% in 2008 from 9.6% in 2007.

-Opportunity continues to be the main driver for entrepreneurs in the United States – 87% started their businesses because of a business opportunity while only 13% started their businesses out of necessity.

-The United States continues to be at or near the top of the world’s innovation-driven economies in terms of early-stage entrepreneurial activities.

-Perceived opportunity is substantial despite a greater fear of failure. This fear of failure has increased appreciably in the U.S. and in the other GEM countries. Perceived opportunity has declined in the U.S. and in the other innovation-driven countries. It is important to note, however, that the decrease in perceived opportunity is only off its high levels of 2007. Thus, perceived opportunity is still substantial despite a greater fear of failure. This contrasts with the marked decrease across the board in GEM countries for individuals who expect to start a business in the next three years.

The Changing Entrepreneur

The Aging Entrepreneur: For the total entrepreneurship and the established firms measures, the results indicate a marked reduction (around 8% to 9%) in entrepreneurial activity for individuals in the 18-44 age group and an increase of a similar amount in the 45-98 age group. While previous reports pointed toward this trend, this year’s data indicate the need to follow this trend closely because of possible implications for U.S. entrepreneurial behavior.

The Shrinking Entrepreneur: Size of the ventures entrepreneurs are thinking about is changing. From 2007 to 2008, the number of jobs entrepreneurs expected to create from their startups decreased in all categories – no jobs, 1-5 jobs, 6-19 jobs – except in the category of 20+ jobs.

* The Service Economy: GEM indicates a continuation of the trend toward a business service- and away from a manufacturing-economy. Looking at particular sectors of entrepreneurial activity, U.S. activity is more concentrated in the business services sector and less concentrated in the transforming sector than the activities of other countries in the innovation-economy group, for both early-stage and established firms.

Battle Of The Sexes

Women Rising: The TEA for women shows a marked increase (6.1% to 7.5%) while the TEA for men shows a slight decrease (10.7% to 9.8%).

Cash Crunch: Women start ventures with eight-times less funding than their male counterparts.

Different Visions: Men and women differ on the businesses they start. Men are more likely to start business-service businesses than consumer-oriented businesses (47% vs. 24%), while women are more likely to start a consumer-oriented rather than a service-oriented business (52% vs. 26%). However, for established businesses, roughly one third of businesses started by men and women are consumer-oriented and service businesses.

Opportunity Vs. Necessity: Men are substantially more motivated than women by opportunity (93% vs. 68%) as opposed to necessity (5% vs. 21%).

Failure And Status: In the realm of established business, women entrepreneurs have reported greater fear of failure and lower perceptions that business success leads to higher status than male entrepreneurs.

Ethnicity And Immigration

African Americans Are Starters: African Americans have higher levels of start-up activities than whites (13.9% vs. 8.4%) while having significantly lower rates of established ventures (8.1% vs. 1.8%)

Non-Mexican Hispanics Vs. Whites: Activities of non-Mexican Hispanics are near those of whites for start-ups (8.6% vs. 8.4%), but for established firms are lower (5.5% vs. 8.1%).

The Immigrant Experience: With few exceptions, the entrepreneurial pattern continues when breaking the data down by immigration status.


Individuals Invest, Governments Don’t: In terms of financing, the number of adults reporting that they had invested in someone else’s business increased (to 5%), as did the amount they financed ($17,500); yet those numbers are countered by the precipitous decline in SBA lending.

Geek Economy: In terms of technology, the 2008 survey data indicate that while early-stage entrepreneurs continue to be cautious when it comes to developing technology products, the number of entrepreneurs involved in the technology sector–either by starting an Internet business and/or using web marketing or being willing to spend more than $1,000 on new technology–all increased in 2008.

Where’s The Cash?: There is a decline in both the perception of good opportunities and in the availability of funding for entrepreneurs.

Shift In Social Entrepreneurship: GEM concludes that more new and established ventures are seeing the necessity and opportunity of serving a broader social mission while also managing and growing the bottom line.

Costco Dumping Coca-Cola

In Uncategorized on November 19, 2009 at 10:35 pm

Costco customers looking for “the real thing” now have to look elsewhere: The warehouse retailer said on Monday that it’s no longer buying Coca-Cola (KO) products. Once stores run out of their dwindling supplies, they won’t be restocking.

Costco is playing hardball; negotiations between the two companies to reach a recession-ready wholesale price have apparently broken down. Costco acknowledges this problem on its Web site: “Costco is committed to carrying name brand merchandise at the best possible prices. At this time, Coca-Cola has not provided Costco with competitive pricing so that we may pass along the value our members deserve.”

Narrow Margins

It’s an uncommon move for Costco, but not a surprising one. Consumers are looking for ways to squeeze their budgets, and retailers are trying to increase profits while cutting prices. That’s been a hopeless quest for Costco this year; the 3% pretax profit margin it posted between 2004 and 2007 is now just 2.5% — a net profit margin of somewhere around one cent on the dollar after taxes, overhead, and other incidentals. With such a narrow margin, the slightest uptick translates into a major value shift.

Every 0.01% the company ekes out on its pretax profit margin translates into a one-cent increase in earnings per share, and a likely 0.5% uptick in its stock value. The superthin profit-margin model, and its major influence on stock value, follows Walmart’s (WMT) example; Walmart, with its 3.3% net profit margin, regularly strong-arms its suppliers into deals that guarantee its famously low prices.

Complicit Coke

Coca-Cola may seem like the wronged party here, but it’s complicit in its own undoing. Coke, after all, caves in to Walmart’s demand for a razor-thin profit margin by slashing its products’ prices, in return for Walmart’s massive distribution — and swamping not only Coke’s smaller competitors but Walmart’s smaller, higher-priced, higher-profit rivals.

The result of recession, unemployment, and an increasingly desperate push for profits have left Walmart, Costco, Coke, and thousands of other companies in a cannibal buffet. Having feasted on the easy pickings offered by smaller chains, these companies now find themselves eyeing each other. With unemployment still rising, retail sales won’t be getting fatter anytime soon.

In Other News: Suit Charges Coca-Cola With Profiting From Seizure of Jewish Property in Egypt

Lawyers for the Bigio family, Jewish Egyptians whose property was seized by the Egyptian government in a 1960s program to rid the country of its Jewish population, are demanding summary judgment and a jury trial to establish damages against Coca-Cola for exploiting “for immense profit” property that Coca Cola has been occupying since 1994 with the knowledge that the property was taken unlawfully from the Bigios. In a brief filed today in federal district court, the Bigios – responding to the Court’s request for supplemental briefing – spelled out the extensive web of international laws violated by the Nasser regime’s anti-Jewish campaign which included the nationalization of the Bigios’ property in 1962.

The Egyptian government has acknowledged that the property was seized illegally and rightfully belongs to the Bigios. A federal court of appeals has twice rejected technical jurisdictional contentions made by Coca-Cola. The case has been before the courts for 12 years.

“Coca-Cola is the occupier of stolen property,” said attorneys for the Bigios. “Coca-Cola has been stonewalling for years, hiding behind a veil of artificial and inapplicable legalisms and it will now be able to respond to our latest brief only by denying that Egyptian Jews were persecuted by the Nasser regime. If it makes such an argument, Coca-Cola will be engaging in the same conduct as Holocaust deniers. Such flagrant behavior will not hold up in the court of public opinion. It is time for Coca-Cola to acknowledge that the property belongs to the Bigios, was unlawfully confiscated from them, and compensate them for its occupancy and use.”

Coca-Cola was aware that the Bigios owned the land, buildings, business and machinery involved in this case because the two companies did business together for more than 20 years prior to the seizure of the properties under the ethnic cleansing campaign of Egyptian president Gamal Abdel Nasser. In 1965, the Bigio family, left destitute by the seizure of their property and business, immigrated, as stateless persons, to Montreal where they now reside.

In 1994, after it was informed by the Bigio family of the Egyptian government’s determination that the family owned the property, Coca-Cola took control of the property under various forms of ownership of Egyptian companies bearing the Coca-Cola name.

The Bigios filed a request for summary judgment September 14. Oral arguments were heard November 10. The letter brief responds to the judge’s request for legal authority demonstrating that the Egyptian government’s nationalization of the disputed property in 1962 violated international law.

Related links

IBISWorld Industry Reports
Soft Drink Production in the U.S.
Big Box Retail Stores in the U.S.

IBISWorld company profile
Coca-Cola Company
Costco Wholesale Corporation

Commodities Continue Positive Performance Across All Index Sectors

In Uncategorized on November 19, 2009 at 6:20 pm

Christopher Burton, Co-Lead Portfolio Manager for the Credit Suisse Total Commodity Return Strategy said, “The commodities market continues to perform well as global markets remain on track for recovery. Despite minor losses in equity markets, performance remains positive year-to-date. Although commodities have recovered some of their losses from 2008, we continue to believe current prices offer an exceptional entry point into the asset class, especially as central banks announce their intention to maintain low interest rates, which could lead to the stockpiling of certain commodities.”

Co-Lead Portfolio Manager, Andrew Karsh, added, “As inflation has not yet developed in terms announced by government figures, the potential for unexpected inflation remains quite high. Considering the fact that commodities are a leading indicator of inflation, we believe the time to invest in commodities is now, well in advance of lagging indicators such as in increase in CPI.”

The Dow Jones-UBS Commodity Index Total Return gained 3.28% in October as a result of positive performance from all sectors, bringing the year-to-date performance of the Index to 12.64%. Lean Hogs, continuing its positive performance from September, was the top performer in October, gaining 14.33% most likely due to the conclusion of China’s ban on U.S. pork products. Gasoline also demonstrated strong performance this month, up 10.51%, because of a larger than expected reduction of stored gasoline. Sugar was the worst performer in October as it reversed its recent gains, declining 10.16% in October, but is still up significantly, 57.63%, for the year.

Related Links

Credit Suisse Report
Clarifying Misconceptions About Commodity Indexing

IBISWorld industry reports
Commodity Dealing and Brokerage in the U.S.
Cattle & Hog Wholesaling in the U.S.
Excise – Petroleum Product Wholesaling – Federal
Global Sugar Manufacturing
World Price – Agriculture – Sugar

CMOs Need Greater Engagement Internally and Through Social Networks for Their Brands to Thrive

In Uncategorized on November 17, 2009 at 6:21 pm

More than four out of five (84 percent) chief marketing officers (CMOs) allocate less than ten percent of their budgets to experimenting through social media and non-traditional communications channels, with more than half (55 percent) allocating just five percent or less, according to a study by The CMO Club and Hill & Knowlton released today. By contrast, according to a recent study(1), the number of adult Internet users who have profiles on social networks quadrupled to 35 percent in 2008, from eight percent in 2005.

Our research shows that seven out of ten CMOs say they have medium or high levels of comfort in dealing with non-traditional media, yet few are adopting these strategies for their own brands, missing out on learning from and contributing to the conversations that are taking place online.

“Marketing used to be a linear process, with a discussion flowing from the CMO to the target audience. In today’s digital age, communication has evolved into a new model that requires active listening and engaging in numerous conversations,” said Pete Krainik, CEO, The CMO Club. “CMOs are finding the additions to the job more challenging and the need to lead beyond the marketing department is critical for their success.”

Adopting social media policies

According to a survey of its members, three out of ten (29 percent) of CMOs report having a social media policy that is widely adhered to within their company and a further 31 percent are currently developing a policy. Implementing these policies is proving to be a challenge, with just over a quarter (26 percent) of CMOs stating they have a policy but it is not complied with within their companies.

“Bloggers are the new media trendsetters/reviewers for products and services, a trusted voice by those who follow their posts,” said CMO Club member Ted Rubin, chief marketing officer, e.l.f. Cosmetics. “If you empower these consumers to evangelize your brand, establish yourself as a trusted source and give them the tools, they will run with it and lend you their credibility.”

Added member Erin Hintz, vice president, worldwide consumer marketing, Symantec Corporation, “While the social media world is new territory for all companies, we already have some best practices with our Norton brand that many CMOs can glean from. Our company has striven to deliver transparency in this space and we work hard to ensure employees understand their role and responsibility.”

Lack of integration

CMOs report a lack of managing or interacting closely with departments within their businesses and, more importantly, with those responsible for communicating with key audiences. Nearly half of all CMOs questioned (48 percent) said they have no formal interaction with the department responsible for NGOs. More than a third (39 percent) do not formally liaise with their investor relations departments, and only around a fifth (22 percent) do collaborate with those responsible for liaising with financial analysts.

“I have found that in the past several years, my job has required greater collaboration with colleagues running other departments to create a more unified brand message to all of our audiences, both external and internal,” said member Kent Huffman, chief marketing officer, BearCom Wireless. “Today, brand and reputation go hand-in-hand, and no company can afford not to work seamlessly as a team.”

Gauging stakeholder sentiment

The majority of CMOs (95 percent) formally track the attitudes or opinions of their customers to their brands, falling to seven out of ten (69 percent) among potential customers. Other non-revenue generating stakeholders take second priority: four out of five CMOs (84 percent) do not gauge the opinions of NGOs; 59 percent do not gauge the general public, and a third (32 percent) do not formally gauge sentiment among their employees.

“The marketers’ job is increasingly challenging and many CMOs still are learning how to engage audiences beyond their customers. Everyone is an influencer in today’s marketplace,” said MaryLee Sachs, US chairman and worldwide director, marketing communications, Hill & Knowlton. “Building advocacy by engaging all audiences can lend a tremendous amount of credibility to any marketing program. A holistic approach helps forge new paths to customers, generating brand loyalty and building critical relationships.”

Brand alignment

Currently, only one out of ten CMOs utilize a digital dashboard to disseminate branding or customer data internally through a “real-time” delivery method, while 44 percent of CMOs report using and sharing this data formally on a quarterly or semi-annual basis.

“As we experience this business transformation, CMOs are seeing that they need to focus on three key areas in order to maintain relevancy with their customers and consumers,” said Krainik. “First, expanding internal collaboration is essential; second, timeliness of monitoring and sharing customer data is critical – they must move quicker; and finally broadening their perspectives and formally engaging new external stakeholders is imperative.

Investors Driving Gold Price To All-Time Highs

In Uncategorized on November 10, 2009 at 11:37 pm

42-16219665Inflation concerns have been put on the backburner over the past year as the credit crisis intensified and inflation expectations declined – allowing global central bankers and political leaders to aggressively address more pressing deflationary impulses. In response to the combination of last week’s Fed announcement that its zero-interest rate policy would continue “for an extended period of time,” and the weekend’s G20 meeting in which policy makers renewed their commitment to stimulus initiatives, investors drove the gold price to all-time highs. There is a growing contingent of inflation hawks that view the colossal efforts to avoid global deflation through massive increases in the money supply by the world’s central bankers as destined to lay the foundation for a period of widespread and intractable inflation.

In spite of a strong recovery in asset prices, a contraction of credit spreads and a marked drop in volatility, the Bank of England disclosed on Friday that it was increasing the money supply by an additional 25 billion GBP ($41.9 billion USD) after the UK economy posted an additional 0.4% decline for the third quarter. Like the Fed, the Bank of England cited continuing spare production capacity as one of the factors that prompted the action.

The aggressive expansionary policies of central bankers has caused investors’ risk appetites to increase as the perception that governments will be there to step in at the first sign of any turbulence becomes entrenched. The inflation in asset prices is partly a result of investors being pushed out on the risk curve due to the fact that rates of return on capital in traditional savings accounts has been driven to zero. Although holders of risk assets have responded to these moves by driving all assets classes higher, the increase in the gold price portends an inflationary outcome as a result of the easy money policies being undertaken.

Although inflation is more popularly defined as an increase in the price levels of goods and services, it is technically a decline in the value of money caused by an increase in the money supply.  An increase in the price of goods and services that is caused by a fundamental shift in supply and demand factors – say, an increase in oil prices due to the increase in aggregate demand caused by economic development in emerging economies – is not an example of inflation. However, an increase in the money supply caused by central bank policy – such as the Fed’s direct purchase of Treasury bonds or open-market purchases of mortgage-backed securities – fits the classical definition of monetary inflation. Price increases usually attend inflation because as the supply of paper money increases – without a commensurate increase in production – the excess demand manifested by a greater money supply causes the price of goods and services to rise. More currency chasing fewer goods will eventually lead to price inflation.

Although the adjusted monetary base in the United States has been growing at an increasing rate since the dollar was taken off the gold standard, it has grown by more in the last 14 months than it has in the previous 80 years to $1.96 trillion. In percentage terms, growth since August of 2008 is a staggering 125%. The next-highest period of monetary growth took place during the depression and World War II – but year-over-year growth never exceeded 28%.

Inflation doves insist that deflation still remains the primary threat to the global financial system and discount any notion of inflation, saying that there has been no credible sign or threat of an increase in prices in any of the data released over the past year despite the massive injections of liquidity undertaken by the world’s central banks. The flaw in this conclusion is that while inflation has not yet been manifested in price levels, the seeds have already been sown, awaiting germination in the form of nascent economic recovery. When recovery begins, the liquidity that now sits dormant as reserves in the banking system will flow as banks begin to redeploy reserves and increase lending. In the aggregate, this lending activity will increase monetary velocity, the factor currently missing in the inflation equation. Central banks must precisely gauge this activity, and divine the correct moment and apply the exact pressure required on the stimulus brake or inflation will sprout like weeds after a drenching rain.

Even without hard evidence of inflation, policy makers must tread cautiously. It is inflation expectations – as much as inflation itself – that central bankers must carefully manage. The threat of inflation is almost as powerful as the phenomenon itself. Business decisions become more difficult to make without stable money, hence investment often declines. Inflation distorts the economy. It causes capital to be misallocated and it destroys purchasing power. Inflation and inflationary expectations can lead to hoarding out of concern that purchases must be made now because prices will be higher in the future. It is this terrain of threatened inflation that gold investors have been eying as they push the gold price to new record highs.

According to industry research firm IBISWorld,  over the five years to 2008, the price of gold has increased at an annualized rate of 19.1%. The predominant reason for the high level of growth is attributed to higher demand for gold as investors attempted to hedge themselves against inflation or a possible depreciation in the US dollar. Also contributing to the upward pressure on prices over the last five years was the increase in gold jewelry consumption, particularly as disposable incomes rise in many parts of Asia.

Related Links

World Price – Metals – Gold in the US – Business Environment Report

Pet Health Insurance Growing In Popularity

In Uncategorized on November 5, 2009 at 9:14 pm

pet-health-insurance-imageTo most of the nation’s 70 million pet owners, pets are family too. And when pets get sick or injured, many owners are willing to spend almost whatever it takes to get them back on all four feet. But the price of increasingly sophisticated veterinary care does not come cheap. According to the American Pet Products Association, vet bills last year in the U.S. topped $11 billion.

According to industry research firm IBISWorld, pet-related businesses are recession proof. The Los Angeles-based firm projects pet-related businesses will generate $51.6 billion for 2009 – that’s up 1.3 percent from 2008.

“Pet healthcare is a big business, as awareness in health is driving growth in this area” said George Van Horn, senior analyst at IBISWorld. Veterinary practices are now expanding their range of services in order to cater to the health-related needs of animals. Chiropractics, ophthalmology, dentistry, and dermatology, to name a few, are becoming more readily available.

To control costs, more pet owners than ever are signing up for pet health-insurance plans. Pet insurance industry experts say the offering has become so popular they expect pet premiums to top $328 million by year’s end.

Kroger Personal Finance, a Kroger joint venture that brings together a wide array of quality financial products and services from preferred providers for Kroger customers, is making pet health insurance information available in the check lanes of more than 2,400 supermarkets operated by Kroger, the nation’s largest traditional grocery store operator.

“Kroger shoppers include pet owners and non-pet owners alike,” Kathy Kelly, president of Kroger Personal Finance said. “With 62 percent of U.S. households owning a pet – and 70 percent of those with multiple pets, affordable pet insurance can help pet owners manage their expenses. It can cover everything from routine costs associated with veterinary expenses like annual check-ups and vaccinations all the way to surgeries, x-rays and hospitalization.”

The newest product offered by KPF is its lowest priced — an “accident only” policy for $9.95 per month per pet.

Today, pet health insurance can cover accidents and illnesses, as well as routine care for dogs and/or cats. Depending on the coverage level and the number of pets insured, prices can range from $9.95 to $79.00 per month. The range of service covered by the premiums, as Kelly describes it, is nearly as broad as procedures covered by human insurance.

To pet owners, the appeal of insurance comes down to peace of mind, and hopefully not having to explore the limits of unconditional love.

“By paying monthly premiums there is no need to worry about suddenly struggling to come up with unbudgeted veterinary expenses down the road,” Kelly added. “It allows pets to receive expert care and helps their human families manage costs, now for less than 40 cents a day.”

Pelosi Health Bill a Threat to U.S. Economy

In Uncategorized on November 4, 2009 at 12:04 am

Small Businesses Will Take a Hit With Tax Increases

The Joint Committee on Taxation (JCT) is reporting what the small business community has been saying all along — proposed tax increases on the “wealthy” amount to big tax increases on small business owners. In a November 3, 2009 memo, the JCT estimates that one-third of the $460.5 billion estimated to be raised from H.R. 3962, the “Affordable Health Care for America Act,” through a proposed 5.4 percent surtax is business income. According to the Small Business & Entrepreneurship Council (SBE Council), America’s economic recovery is highly dependent on small-business job creation and investment. Seizing more of their hard-earned capital flies in the face of White House efforts, for example, to provide small businesses with access to credit and capital, according to the advocacy group.

“No wonder small business owners are gripped by uncertainty. With mixed messages coming from Washington, they don’t know whether to add to their payrolls, hoard cash, cut jobs or stay-the-course,” said SBE Council President & CEO Karen Kerrigan.

Kerrigan added: “More than $150 billion of the proposed surtax alone falls on the backs of small business owners, according to the JCT. When will those who support these tax hikes wake up to the fact that they are sucking oxygen out of the very businesses that need this capital for survival and growth. Businesses can’t save or create jobs without money. All of the tax increases proposed in the House health bill will deprive the private sector of the capital it needs to hold onto their workers, create more job opportunities, invest, innovate and grow.”

Senate Health Bill Raises Taxes on Families of Special Needs Children

There are 18 separate tax hikes in the Reid-Obama healthcare bill. One of them caps the amount that can be deferred in Flexible Spending Accounts (FSAs) at $2500 per year (a similar provision was included in the Pelosi-Obama health bill and written about by Congressman Cathy McMorris-Rogers, R-Was., for National Review Online). There is currently no limit to how much can be saved, though all monies must be used by the end of the year. Employers may put a cap in place for their employees, but this would put a cap in federal tax law for the first time. According to the Employee Benefit Research Institute (EBRI), 30 million American families use an FSA.

-For most people, the $2500 cap won’t be noticed. FSAs tend to be used for things like small deductibles, co-payments, eyeglasses, over-the-counter medicines, and laser eye surgery. The amount deferred in the typical FSA is probably much less than $2500 today
-There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year.
-Under tax rules, FSA dollars can be used to pay for this type of special needs education.

According to IRS Publication 502, Medical Expenses:

-You can include in medical expenses fees you pay on a doctor’s recommendation for a child’s tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders.

-You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. A doctor must recommend that the child attend the school. Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. Special education include teaching Braille to a visually impaired person; teaching lip reading to a hearing-impaired person, or giving remedial language training to correct a condition caused by a birth defect.

AAFPRS Opposes the Proposed Tax on Medical Procedures

The United States Senate is about to consider health system reform legislation which contains a 5% tax on cosmetic surgery deemed unnecessary for medical purposes. The American Academy of Facial Plastic and Reconstructive Surgery (AAFPRS) announces it strongly opposes the inclusion of this tax as it is discriminatory and has already failed in other states.

If passed into law, the tax will go into effect on January 1, 2010, in hopes of generating $5.8 billion over the next 10 years to help fund the $849 billion health care plan. The law defines cosmetic surgery as “any procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.”

The proposal further stipulates that if a patient declines to pay the increase when initially billed for their surgery, the physician is entirely liable for all charges.

Various experts declare this tax would be discriminatory against women, noting that 86 percent of patients are working middle class woman. Plastic surgery is no longer considered a luxury for the wealthy, as 60% of respondents reported a household income of $30,000-$90,000 a year. Breaking down this data further, 40% of the 60% reported an income of $30,000-$60,000.

“The bill claims to not tax reconstructive surgery, however, in many cases there is thin line that separates ‘cosmetic’ from ‘reconstructive’,” states Daniel E. Rousso, M.D., president of the AAFPRS.

Several states have already tried to impose taxes on cosmetic surgery, including New Jersey which currently has a 6% tax on cosmetic surgery. Since New Jersey adopted the tax on elective medical procedures in 2004, the Department of Taxation has experienced a 59% shortfall based on projected revenue estimates. In fact, New Jersey Assemblyman Joseph Cryan, the sponsor of the 2004 bill, is leading efforts to repeal the tax. Eight other states have considered cosmetic taxes and have rejected them.