September 12, 2009

A State Unable to Save Itself

Justin Katz

So the news is that Rhode Island ranks very low among the states for receipt of small-business, no interest loans through the federal America's Recovery Capital (ARC) program. Reading along, one can already hear the partisan and ideological attacks on the governor.

Well, those may be forthcoming, but the article lays the blame elsewhere:

The problem for Rhode Island businesses, [state director for Rhode Island Small Business Development Center at Johnson & Wales University John] Cronan says, is that they often aren't healthy enough to qualify for ARC loans. In addition to other requirements, the businesses must have been profitable for at the least one of the previous two years.

"We entered the recession much earlier than anybody else. Now, we have too many companies that are not bankable," Cronan said. "You still have to be a stable company to get a loan. The criteria being used is strict. The banks are making loans to stable companies, but we don't have enough stable companies."

In other words, the state has so burdened its businesses and burned out its economy that the federal government has little confidence that individual companies would be able to pay back a $35,000 loan. If the General Assembly would just get to work trimming the taxes, slashing the regulations, and eliminating the mandates that it imposes on the economy, this state would soar.

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I have asked repeatedly over at why Rhode Island has such trouble attracting and retaining small businesses while a low-tax, largely deregulated (libertarian) state like New Hampshire two hours away consistently ranks as one of the top states in the same categories.

Their responses vary from outright denying that Rhode Island has a problem, to pointing out irrelevant demographical/geographical differences, to blaming it on some sort of amorphous government mismanagement of funds. The scary thing is that many of them are intelligent people.

To avoid the appearance of sniping, if anybody from that site has a clear answer to my question, please prove me wrong and post it here. I have been trying for weeks to get it out of you, and I would genuinely be interested to hear it.

I am not a conservative for the record. I know many progressives consider discussion with "the other side" to be futile, but I am not from "the other side."

Posted by: Dan at September 12, 2009 8:50 AM

My friend Dave's small business located in New Hampshire just went under. Things aren't much better there than here. I'm not sure if that is because the political climate there has shifted from conservative to liberal or if things are just tough all over.

In my experience with aquaintances who run small businesses taxes and regulations have forced them to use dubious methods to stay afloat, two sets of books for example, unreported income, workers "under the table," etc.

I have no data to back up my assumption that big business pays a fraction of their share of taxes due to their ability to pay CPA's and attorneys whose expertise is getting around paying taxes.

When I am annointed King I'm eliminating all itemized deductions, loopholes and tax shelters and incorperating a simple flat tax on profits. Then, I will enlist black hooded tax collectors to make sure nobody cheats.

Posted by: michael at September 12, 2009 9:54 AM

Agree with your take on this Justin. Quite obvious the problem lies with the strict loan requirements vs the shape these local businesses are in. The article also notes how quite a few local businesses sought out their own lenders to rework their finanacing rather than involving themselves in a government program. What's interesting is how it's the smallest of states geographically (RI, Del, Haw) who are giving out the fewest loans.

Dan, can you honestly think of a single issue where our "progressive" (lol) friends are truthful with their analysis? NEA union head Bob Walsh does not post here anymore. Was it because he was treated rudely? No! Walsh doesn't post here anymore because Don Hawthorne repeatedly and quite politely challenged Walsh to provide FACTS to back up his rhetoric. Walsh couldn't provide those facts so Walsh ran away. Libs can't be truthful because they do not have truth on their side. You only needed to hear President YouLie's speech the other night to recognize the fact based truth of my analysis regarding the left.

Posted by: Tim at September 12, 2009 9:59 AM

Michael - I am sorry to hear that your friend's business went under, but New Hampshire is doing relatively better than Rhode Island and most of the country. Things are tough all over, but they are less tough there. Their business numbers are much healthier and they have lower unemployment. This has been consistently true for a number of years.

Tim - I believe that you are right on this one issue, because I cannot get a satisfactory answer from the progressives at RIFuture after giving them many opportunities to offer one. However, I do want to be clear that I do not believe in this false left-right/Democrat-Republican dichotomy that so many offer as the only viable positions. I am a libertarian and I believe in individual liberty. With regard to the issues on which conservatives are pro-liberty, I support them. With regard to the issues on which liberals are pro-liberty, I support them.

Posted by: Dan at September 12, 2009 10:32 AM

I am amazed that so many people still believe that a tax on a business ends there. A tax on a business is a tax on its customers. Does anyone believe that increased taxes are simply paid out of "profits"? Of course not, like evry other "cost of doing business", taxes are added into the price of the final product.

This may appear to bode well for a state if most of the product is sold out of state, in that event non state residents pay the tax. But how does that work for all of the restaurants, doughnut shops and every other business which is primarily local? If you increase the tax on a local business, you are simply drawing more cash out of the local economy.

As to attracting new businees, wehave a lot of history to overcome. We laugh about Mayor Cianci and "how much he did for Providence". Residents of other states are not laughing. Having the FBI lock down the city's tax assessor makes a dent in the conciousness of the residents of other states. This mostly effects small businesses and "start ups". Big businesses are familiar with pay offs and assume that appropriate contributions will buy them out of such problems. In fact they are comforted that the state is for sale, so long as the price remains reasonable.

Posted by: Warrington Faust at September 12, 2009 12:36 PM

"The problem for Rhode Island businesses, [state director for Rhode Island Small Business Development Center at Johnson & Wales University John] Cronan says, is that they often aren't healthy enough to qualify for ARC loans."

Wow. That says it all.

Posted by: Monique at September 12, 2009 9:17 PM
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