Congressman Rick Boucher, D-VA, has released a draft bill of new privacy legislation that is designed to impose tighter regulations on the online advertising industry (Google, Yahoo!, Bing, and other well-known affiliate-type advertising platforms) that will negatively impact the ability of small businesses and entrepreneurs that use these platforms to promote their businesses and make money. Additionally, the proposed legislation could severely impact publishers (like me) that display content-based advertising through programs such as Google AdSense and affiliate-based programs like Clickbank and others.
The impact on my business alone could—at best case—reach 4 figures a month in lost revenue; and if it ends up really ugly, it could even realistically reach 5 figures a month. This type of legislation could put me and many other publishers out of business and on welfare overnight! Unfortunately, since I am self-employed, and even though I pay unemployment taxes on my income, I am not eligible for unemployment benefits. This is your government, again, at work helping small business owners…
Along with many other respected internet publishers, I have been invited to meet with members of Congress on June 15th, 2010 concerning the impact that this type of legislation could have on the millions of Americans—both advertisers & publishers alike—who make full and part-time income online via the internet using these types of advertising platforms.
While I am sure Congressman Rick Boucher believes he is “helping consumers,” a reduction in consumer choice through regulation only leads to greater abuse of consumers. The reality remains that he, and many like him now serving in Congress and the Senate, have never created or run a business (much less an internet-based business); they have never had to advertise or promote their business, never had to make a profit with their business, and have never had to meet payroll that is dependent upon making that profit. They seriously lack the experience necessary to actually regulate the industry, effectively or otherwise. Reading a law, or writing a law, does not make you an authority in an industry. If it did, all of the CEOs and corporate presidents out there would be attorneys.
Will this type of regulation hurt operations like Google, Yahoo!, Bing, Clickbank, Valueclick, and other big name web advertising firms? The answer is yes; it could seriously reduce their overall profitability from the advertising-based platforms that each significantly depends on to generate profit.
Will this lead to job losses? If the income losses are significant enough, it certainly could. However, the big losers in this type of government over-regulation will always be the consumers, small business owners, and entrepreneurs who are actively in business or dreaming of going into business. The big box firms have the resources behind them to modify how they will do business and survive. The little guy will most likely drown under the oppressive weight of regulation and the extensive costs associated with compliance.
In ten plus years of being an entrepreneur, I have personally felt the adverse effects of government over-regulation already, as they have completely eliminated (i.e. made it illegal) an entire private sector industry that I was involved in. You didn’t hear about this, because when the economy is booming and unemployment is under 5%, it’s simply not newsworthy.
With nearly one million annual visitors seeking help, and with the government eliminating the very private sector assistance they were looking for, tens of thousands of Americans across this country are now out of work—literally overnight. Choice has been eliminated for consumers. Regardless, it is how I eventually ended up as an advertising publisher; I needed to monetize that traffic, and fortunately for me, advertising platforms like Google AdSense allowed me the luxury of making serious money without dealing with the government red tape.
In another industry, I have nearly 360,000 visitors a year seeking services. However, through new and expansive government regulation, that business plan became far too expensive and financially risky to pursue. With the brand new “Financial Regulation” legislation, I am sure it’s only going to get worse. Once again, in this industry, the new and punitive laws introduced have helped put tens of thousands of people out of work, resulted in many small businesses choosing to shut down, and significantly reduced consumer choice and opportunity.
Does all of this hurt the big box chains? Absolutely not! This type of regulation reduces competition, improves revenue for “bigger chains,” dramatically reduces consumer choice, hurts only the small business owner, and makes it that much harder for the individual entrepreneur to actually enter the industry. And to make matters even more detrimental, this has happened at the worst possible time excess regulation can happen—in a serious economic recession. Fortunately, advertising again has helped me to monetize that traffic.
In yet another industry, we see a very attractive website selling a wide range of related products that will serve nearly half a million visitors annually who are seeking to purchase these products. Just this year—without the legislative authority to support it—a division of the federal government created by Congress to regulate consumable products, has declared a group of non-consumable products illegal to import into the U.S., therefore shutting down another entire U.S.-based industry.
You didn’t hear about this; and thanks to our corrupt media, you never will. Now, any U.S. business or entrepreneur who elects to continue selling these products is committing a federal crime. Ironically, it did not stop businesses in other countries from selling the product into the United States—after all, what do they care about U.S. laws? And guess where these jobs are moving…overseas, or just across the border. Fortunately for me one again, there have been advertising platforms to monetize what the government ruins.
Like many small business owners, with SEO King, Inc., I am faced with many uncertainties and have had to let good employees go as a result. Not just 18 months ago, I was in the process of looking for a larger office space with plans for hiring 3 more employees. The election of President Obama gave me pause; and fortunately, I waited to see what this Congress and this President were going to do.
Now, the impending annual expenses of $6,000 to $8,000 per employee with employer paid healthcare, the impact of future government regulation that is sure to come, the increased taxes that I will be paying, the costs of complying with current and future legislation, the unnecessary stress it creates, and the increased probability of IRS audits that would result from the healthcare bill make it all seem like I must be living in a nightmare.
Speaking of audits, these cost me dearly to deal with, with the $275 per hour that I must pay my tax attorney for authoritative representation. The last corporate audit I dealt with just last year cost me nearly $2,000, in addition to the cost of lost billable hours, in order to put together the documents they wanted to review and meet with the IRS Agent.
All of this so the United States Treasury could charge me an extra $500 on my tax return by restating dividend income as wages on advertising websites in which no labor had been done for over 2 years. Even though they were wrong, it was cheaper to pay it than fight it. They could have said you owe $10K in restated income and it would have been cheaper to pay it than fight it. Again…your government at work, creating work!
The fact remains; dealing in business-to-business, I am not alone in the decision to let people go, retire, or simply not hire people at all. As a small business, with a primary focus on helping other small business owners succeed, we have never operated on huge profit margins. On a typical $1,500 web project, after payroll and expenses, I might be lucky to see a $150 to $400 net profit—money that could easily be eaten up in payroll during slow months. Part of the reward of taking this approach has been the satisfaction in the work being done and the idea that I was actually helping people.
However, personal satisfaction does not pay the bills, nor does it make the work worth doing. When I finished looking at what I actually make for working 60-plus hours and 7 days a week, the added costs associated with doing business after healthcare reform and the sunset of the Bush-era tax breaks, took the value of doing what I do right out of the equation.
Here I am making 5 figures a month without getting out of bed. Even with no direct customers and no employees, I could grow this all day long. But instead, I have chosen to spend all those hours working my buns off, growing a business, and hiring more employees so I can gross an extra $60K per year. I then get to send nearly 50% of that “extra” money to the United States Treasury between income tax & SSI, and as an added bonus, I get to pay state unemployment taxes (something I must pay, but never get to collect) and higher personal tax rates in 2011.
Now, the federal government thinks that a measly 35% “Healthcare Tax Credit” on $6-8K in private healthcare insurance costs (that eventually goes away), along with the added costs and liability that they burden me with to comply, is going to mean I am “incentivized” to keep employees, hire more employees, work the same amount of hours 7 days a week, all so I can make even less, with significantly higher risks on even smaller profit margins? Sure Mr. President…this makes perfect economic sense.
With “healthcare reform” alone, starting in 2011, we are going to begin seeing a reduction in consumer choice as many small business owners walk away from business. As one of the largest costs for most businesses is payroll-related expenses, we are going to begin seeing increases in the costs of goods and services. I expect these increases to begin showing up as early as the 4th quarter of this year. This is bad for consumers, as it will further reduce the buying power of an already shrinking amount of “net” dollars consumers have available to spend.
To make matters worse, we are going to begin seeing a reduction in real wages used as a tool to offset the higher benefits costs to businesses. I believe with some of the larger firms, we’ll see salary freezes and we’ll also begin to see more layoffs. This time, the government will not have Census workers to offset the actual employment numbers.
I have no doubt that new employees will be hired at lower wages to compensate and I suspect we’ll begin seeing a rollover of existing employees as a tool for payroll reduction. Employee rollover simply means that an employee making a $45K annual salary will be let go and replaced by a new employee who will be hired at $30K or $35K a year. The initial upfront costs of unemployment benefits being paid today will easily be offset by long term savings in payroll and future benefits costs. Continuing high unemployment rates will make this a smart choice for many business owners.
Other business owners will simply elect to pay the $3K yearly tax penalty, eventually pushing employees into a government program that will lead to even higher income and corporate taxes. Finally, I believe we are going to see an uptick in self-employed people. While their earnings will most likely be slightly above average, their net earnings and spending power will be reduced by the self-employment taxes and healthcare costs which they must now absorb.
The net effect of this type of legislation is that the small business owner and consumer will lose. The economy, by tax year 2012, will reflect the real cost of this legislation as the actual costs to businesses begin showing up during 2011. Consumers will have less to spend and the cost of many products and services they buy will increase, leading to a stagnant economy and a gradual increase in unemployment and underemployment. This, of course, leads to reduced tax revenue for government and higher costs to government in “benefits” paid to non-tax payers.
It’s a never ending cycle…a true formula for disaster that will take a decade or more to undo—just like it did with the Great Depression. When the money supply dries up, there will not be a lot left to restart the economic engine.
This is what happens when politicians—and the people that elect them—have no idea what it costs to start or run a business that actually creates jobs while forced with competing for a small slice of the market segment against major corporations. This is what happens when government makes short-term policy decisions without taking into account the long-term consequences. What compounds the problem when government over-reaches is the undeniable fact that it takes the “heart” out of people who have the means and ability to start new business ventures. An environment is nurtured where the reward no longer justifies the risk, leading to a stagnant or declining economic outlook.
Just this past Friday, I received a phone call from one of my clients. The government just shut down an entire industry in the state of New York, putting him, those that work for him, and a thousand other people out of work. What makes this even more troublesome is the median income for the area is only right around $20K a year. How did they do it? As I understand the secondhand story, New York, working with Washington D.C., has made it illegal to mail cigarettes through the U.S. Postal Service. FedEx and UPS do not ship cigarettes.
Why would the state want that? Well, the Indian reservations in New York are exempt from state taxes, just as they are here in Florida. They sell the cigarettes online and ship them via USPS around the state and around the country. The state wants that sales tax revenue, so in a move that eliminates the sellers’ right to profit, the state of New York has made it impossible for them to make money shipping a legal product. The irony is, if the state didn’t have their taxes so high on the cigarettes in the first place, they wouldn’t have this problem.
Now just imagine how many more stories there are where government regulation has killed jobs, repressed opportunity, and destroyed those that create them. It ends up being a thousand jobs lost here, ten thousand jobs lost there, in actions you and I never even get to hear about; actions not because of the economy, but direct consequences to government over-reactions which lead to over-regulation.
As isolated incidents, the layoffs might seem small or insignificant—of course, with exception to the people they directly affect. When we begin adding together the totals for these so-called isolated incidents, the numbers can be truly staggering. And they don’t just affect your neighbor or someone you don’t even know; in reality, they begin to affect you directly in how your employer thinks and the future decisions they will make about your own job.
Democrat, Republican, Independent; we are all affected by policy. I find it highly doubtful that the dreams we have for our children are found in poverty and lost opportunity.
With the government controlling nearly 60% of our economy—and yes, it is now indeed nearly 60%—the unfortunate consequence of this control means more and more dreams of individuals, small business owners, and entrepreneurs will crumble under the weight of bureaucratic regulation, red tape, and what is called “the cost of doing business.”
Rather than expand consumer choice and individual opportunity, this tactic eventually leads to fewer opportunities, reduced choices, and more abuses of consumers by gigantic corporations and government itself.
More regulation, by its very nature, will almost always increase costs, reduced opportunity, and will ultimately lead to more and more people dependent upon the very government who created the problems to write regulation designed to create a specific outcome that only makes the root problem they created all that much worse. It is at its core a very un-American, co-dependent relationship that is rarely about benefits to the people, and almost always about control over something or someone.
While excess regulation will negatively impact large and mid-size companies, the greatest impact will always fall on those who can least afford it. It falls on those who have the audacity to dream of being something more—on those who have a dream of building a business and the security that comes from the opportunity to create self-earned wealth in this country.
While I am hopeful that the outcome of my trip to Congress will be positive, I am very doubtful my small voice will be heard or make a difference. In the end, I firmly believe the only way we will achieve real change and a truly thriving, blessed economy is a change in the hearts of Americans. Then, and only then, will Americans stand-up to vote out all of these progressive Democrats and Republicans who are gleefully destroying the economic engine that once inspired the entire world.
Hopefully, this true change in direction will happen before we must all pay the ultimate price for what they have done.
Until Next Time.
George Chaney
President/CEO
SEO King, Inc.
