Debating a Small Business Bailout; SpaceX Lifts Off
BY Jason Del Rey
Possible bailout for small business lender? As the Washington Post reports, the Obama administration is facing a crisis of conscience in regards to whether it should bail out the struggling small-business lender, CIT Group. The New York-based company, which has about $75 billion in assets, has seen its stock value tumble 94 percent since the beginning of 2008 and its credit rating was slashed four notches by Moody's yesterday citing "growing concerns with CIT's liquidity position and prospects for survival of the franchise." While most analysts believe that CIT's failure would have relatively modest consequences for the overall financial system, the president's economic team is highly concerned because of CIT's focus on small-business lending. Administration officials met yesterday and were apparently split between leaving CIT alone and rescuing the failing lender.
How the Democrats' proposed surtax will affect small business. Late last week Ways and Means Chairman Charlie Rangel disclosed that a bill that he drafted would impose a "surtax" on individuals with an adjusted gross income of more than $280,000. In an op-ed the Wall Street Journal says that the tax will "hit job creators especially hard." According to a 2007 Treasury study, 6 out of every 10 people that earn that much are small business owners, operators or investors. That two-year-old study also found that almost half of the income that would be taxed under this proposal is small business income from the 500,000-plus sole proprietorships and subchapter S-corps where owners pay the individual tax rate. Small business owners will be further impacted by the Rangel plan's payroll tax surcharge, which will apply to all firms with more than 25 employees that don't offer health insurance to their employees. According to the Journal, under this proposal, American small businesses would pay higher tax rates than the Fortune 500 companies. (The corporate federal-state tax rate applied to GE and Google is about 39 percent in the U.S.) In light of a new Kauffman Foundation study, which found that entrepreneurs have gotten the U.S. out of its last seven post-WWII recessions and generate two-thirds of new jobs during the recovery, the op-ed claims this policy prizes income redistribution over job creation and economic growth.
Another loan option for entrepreneurs. Nine months after it first shut itself down to register with the SEC, peer-to-peer lender Prosper has received permission to relaunch its operations. The site allows small business owners with good credit (640+) to borrow money directly from lenders in an auction-style setting. Lending Club, one of Prosper's largest competitors, completed its registration in October. With Prosper's relaunch, lenders will be permitted to sell their notes as securities on a secondary market. Here's the company's take from CEO Chris Larsen.
SpaceX takes flight. Wired.com has the news that SpaceX, the private rocket start-up founded by Tesla's Elon Musk, has completed its second successful launch. The California-based company yesterday used a rocket to launch a satellite that "carries a high resolution camera that will be used to monitor natural resources." Watch the launch here.
Tax penalty reprieve is welcome relief. Shirley Hu, co-owner of Kustom Graphix in South El Monte, was losing sleep over the possibility of jail time - her company's $1 million-plus tax penalty would have sent her to the slammer. But thanks to Congress' plea to the IRS to delay collection of smaller cases, ranging from $100,000 to more than $1 million, those long nights are over - at least through Sept. 30. The issue is a 2004 tax-shelter disclosure law that has identified and killed multimillion-dollar shelters used by large companies, but it's endangered small businesses along the way. The Senate Finance Committee said it never intended to hurt the "little guys." "When I advanced this legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," said Sen. Charles E. Grassley of Iowa, the ranking Republican on the committee. "I was focused on the big corporations that were actively seeking to hide their participation in tax shelters."
California counts calories. As state-mandated calorie counts make their way on to California restaurants' menus, options will be changing as well. The Sacramento Bee reports that chains with more than 20 outlets will be required to list calories alongside descriptions--which is causing some restaurants to lighten their fare in order to appeal to customers. A scallops and spinach salad from Romano's Macaroni Grill weighed in at 1,270 calories not long ago (health officials recommend the average adult to eat 2,000 calories in a day). Perhaps because that information is now posted, the dish has shed 880 calories, down to 390. Other states such as New York have similar laws in effect.
JASON DEL REY was a senior reporter covering technology, branding, and company culture for Inc. magazine. Before joining Inc., his work appeared in Newsday, The (Newark) Star-Ledger, and the Staten Island Advance, and on ESPN.com. He lives in New Jersey. @DelRey