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- Expiration of Bush-era tax cuts, resulting in higher tax rates for most individual taxpayers (between 3 to 5 percent)
- Higher tax rates on long-term capital gains (between 5 to 15 percent)
- Expiration of the payroll tax holiday on wages and self-employment income (increase in tax on qualifying income of 2 percent)
- New Medicare tax on higher-income employee wages and self-employment income (additional 0.9 percent)
- New surtax on investment income of higher-income taxpayers (3.8 percent)
- Application of estate and gift taxes to more taxpayers (estate and gift exemption drops from $5 million to $1 million) and at higher tax rates (increases from 35 to 55 percent)
- Severe cutbacks in the amount of business equipment that can be expensed in a year
- Determine control. If Ivan were to leave all of the stock equally to his three children, there could well be conflicts among family members as to critical business decisions, including salaries, profit distributions, general debt obligations, capital infusions, and other tax and nontax issues. Ivan has decided to separate control from the ownership of the company by recapitalizing the company into voting and nonvoting shares. For each share of common stock issued there will be issued a small amount of nonvoting shares.
- Equalization of Estate. After recapitalization, Ivan would own 1,000 shares of voting and 10,000 shares of nonvoting stock. He would then be in a position to devise or gift the voting shares to Lackey, thus determining control. The remaining nonvoting shares could be left in trust for the benefit of all children and their descendants.
- Asset Protection. The nonvoting shares devised in trust could be protected from creditors of the beneficiaries, including from divorce and bankruptcy. The trust should include a “spendthrift protection” clause, prohibiting the beneficiary from assigning his interest to any potential creditor; a child could even serve as her own trustee provided distributions are limited to a standard such as “health, education, maintenance and support.”
- Perpetuate Business. The terms of the trust could restrict the sale of the stock to certain family members, or grant them rights of refusal upon death of the beneficiary. The trust term could be as long as law allows (approximately a century in North Carolina).
- Save Estate and Gift Taxes. While the present applicable exclusion amount (“credit”) is $5,120,000, it is due to fall to $1,000,000 on January 1, 2013. Nonvoting stock could be gifted (probably at a discount) now in trust that would care for Ivan’s wife for life, and then go to children. The stock in the trust, as well as its growth, would not be included in wife’s estate when she died, and Ivan’s full 2012 credit would have been used. Corporate distributions would benefit wife for her life. The stock thereafter could remain in trust for the lives of children.
The North Carolina Legislature made several changes to the mechanic’s lien and bond law, some of which begin January 1, 2013 and some of which begin April 1, 2013. Please consult an attorney as there are specific and strict requirements which must be followed to comply with the lien law. Also effective January 1, 2013, sanctions for the filing of fraudulent lien waivers will expand to include potential loss of contractor’s licenses.
Beginning January 1, 2013, a Claim of Lien on Real Property filed by a contractor must also be served on the owner. Up to now, such service was not required. A subrogation claim of lien filed by a subcontractor must also be served on the contractor as well as the owner. A certification that the Claim of Lien has been served on the necessary parties must also be included with the Claim of Lien. Therefore, a claim of lien is perfected upon both the service of the claim of lien upon the owner (and contractor if it is a subrogation claim of lien) and the filing of the Claim of Lien.
One notable change in the filing of a subrogation claim of lien being asserted by a subcontractor is that, beginning January 1, 2013, the new law allows the subcontractor to use either its own date of first or last furnishing of labor or materials or the contractor’s dates for the first or last furnishing labor or materials.
Beginning April 1, 2013, the lien law will require potential lien claimants to provide written notice to what is referred to as a “Lien Agent” to preserve their lien rights. Chapter 44A-11.1 will require an owner to designate a Lien Agent no later than the time the owner first contracts with any person to improve real property where the cost of the project is $30,000 or more at the time the original building permit is issued, except for certain existing single family residential dwelling units.
A Lien Agent is defined as a title insurance company or title insurance agency designated by an owner. Failure to follow the new requirements specified in the statute could result in the potential lien claimant having its lien rights terminated or subordinated to the interests of others.
For any project subject to a Lien Agent designation, a sign disclosing the contact information for the Lien Agent must be conspicuously and continually posted on the property until completion of all construction if the contact information for the Lien Agent is not contained in a building permit or attachment thereto posted on the property.
If the contact information for the Lien Agent is not on the building permit or posted on the property, a potential lien claimant can deliver to the owner a written request for the Lien Agent contact information and the owner must, within seven days of receiving the request, provide written notice to the potential lien claimant containing the contact information.
A contractor or subcontractor must, within three days of contracting with a lower-tier subcontractor who is not required to furnish labor at the site of the improvements, provide the lower-tier subcontractor with a written notice containing the contact information for the Lien Agent designated by the owner. Failure of the contractor or subcontractor to provide this notice shall subject the contractor or subcontractor to damages suffered by the lower-tiered subcontractor resulting from the failure to give this notice.
In order to preserve its full lien rights under the new law, a potential lien claimant needs to serve a Notice to Lien Agent on the Lien Agent. The best way to preserve full lien rights is to serve a Notice to Lien Agent within 15 days after the first furnishing of labor or materials by the potential lien claimant. The Notice to Lien Agent must include certain information specified in the statute.
If the potential lien claimant fails to serve a Notice to Lien Agent on the Lien Agent within 15 days after the first furnishing of labor or materials, a potential lien claimant can still perfect a claim of lien on real property. However, by waiting a claimant may have its lien subordinated to a previously recorded mortgage or deed of trust or have its lien rights terminated if the property is sold before the service of the filing of a Claim of Lien.
With the approach of the holiday season, many of us begin making plans for overseas travel. While the world is becoming smaller, it is also becoming more dangerous, especially for Americans. Robberies have always been common, but kidnappings have increased significantly since 2009. Mexico is now averaging 49 kidnappings per day. International agencies report that many of those abductions are U.S. business persons and have involved organized crime assisted by taxi drivers and local police. This risk is also prevalent throughout most of the world and requires the American traveler to be better prepared.
A key element of safe, international travel is Situational Awareness. Before you travel, it is important to identify specific risks in a region or city. Travel agencies and online services are not a reliable source of information, often downplaying risks with statements such as, “You will be safe if you stay in the tourist areas,” or “Attacks against tourists are rare.”
While these statements might be generally true, more accurate information is available from the State Department which continuously monitors international crime and threats against Americans travelling abroad and publishes that information. Using Mexico as an example, the State Department issued the following warning on November 20, 2012:
The number of kidnappings and disappearances throughout Mexico is of particular concern. Both local and expatriate communities have been victimized. In addition, local police have been implicated in some of these incidents. We strongly advise you to lower your profile and avoid displaying any evidence of wealth that might draw attention. Carjacking and highway robbery are serious problems in many parts of the border region and U.S. citizens have been murdered in such incidents.
Travelers should also research the local area on their own, paying particular attention to crimes committed near the resort, hotel, airport, and tourist areas. Recently, a colleague travelling in Bogota, Colombia, sent me an email warning of a new threat to business travelers.
Local newspapers were reporting that women were welcoming businessmen to their country with an embrace and “Mi Amor.” Unfortunately, the embrace included a drug dispensed with lapel stick pin that caused confusion and disorientation. Once drugged, the victim was robbed or held for a ransom. This type of information is not widely available from the U.S. search engines, so it takes some digging to find it.
A large part of travelling safely is avoiding risks—don’t make yourself an easy target. Below is an abbreviated list of simple actions that will make you less of a target:
Ø Arrange transportation. Arrange for an airport pickup before departing the U.S., which can be done through most hotels or vetted driving services. Avoid using taxis waiting at the airport and never use a “homeboy” that is trolling for business near the baggage claim. Be sure to get the name, cell phone number and a photo of your driver if possible. Never assume that the person holding the sign with your name is the right person. Avoid driving as it opens many opportunities for problems. When travelling from the hotel, use the concierge to arrange a driver. Avoid hailing a taxi from the street as freelance drivers often have questionable records.
Ø Local currency. Obtain a small amount of local currency before leaving the U.S.—typically enough for the taxi and service gratuities, and use credit cards for everything else. Avoid using currency exchange counters and automated teller machines (ATMs) at foreign airports. Not only are they expensive, but they lure predators. Before travelling, I often buy a preloaded, debit card and then withdraw local currency from the hotel ATM.
Ø Important documents. Make copies of important documents such driver’s license, passport, and health insurance card before you depart. Give a copy of each to your emergency contacts in the U.S. Carry copies with you as the originals should be locked in a hotel safe—not carried in a wallet, briefcase or backpack that can easily be stolen.
Ø Itinerary. Enroll with the State Department’s Smart Traveler Enrollment Program and file your itinerary. In case of an emergency, enlist the help of the U.S. Government. Be sure to keep the Embassy contact numbers in your wallet or as a speed-dial number on your smartphone.
Ø Smartphone. Smartphone service outside the U.S. is highly dependent on your service agreement and does not typically include international voice and data. Don’t assume that your iPhone or Android device will work overseas, and be sure to ask your service provider for a single-month global data plan—paying roaming data rates of $15 per megabyte could easily translate to into several hundred dollars.
Ø Hotel security. Assume that anything in your hotel room can be stolen. Theft of electronics is especially problematic as they are easily exploited for personal, financial and corporate information within minutes.
International travel is always exciting. With just a few precautions, it can be done safely.
If you are a business owner experiencing marital difficulties, you should seek advice from an experienced family lawyer knowledgeable of the methods for protecting you, your business and your family from potential damage caused by separation and divorce. Here are some issues to consider with your lawyer as you work through separation or divorce.
The Business as “Marital Property.” Property accumulated during a marriage is subject to division during separation or divorce. A business may be considered such property. The business is typically the most difficult asset to value in marital property distribution, and often the source of a substantial part, or even all of the family income.
Distributing the value of the business between spouses may be difficult, particularly when the goal is to not damage or destroy the business. Often, the capital needs of the business compete with the needs of the family, as well as the ability of a spouse to transfer to the other spouse a fair share of the property value. Structuring such distributions are a critical aspect of separation and divorce planning.
Spouses as Business Partners. It is difficult enough to run a business with one or more partners. If you and your business partner barely speak, or your business partner wants you out of their life, the effects can be disastrous. How do such partners communicate? How are decisions made? Are the partners equal decision-makers? What do the ownership documents say? What if there are no ownership documents? Is there a way to turn over decision-making ability to a neutral? What if one spouse intentionally harms the business? What if your spouse starts a business as your competitor?
Paying Alimony and/or Child Support and Managing Cash Flow. Business owners often determine the amount and frequency of their own compensation. This is a business decision that may literally affect the viability of the company. The amount of compensation is often an issue in deciding the amount of spousal or child support and how it is structured.
How support is paid, as well as the amount, can have an obvious affect on business cash flow. Can the business owner sustain the payments over a long period? What happens in difficult economic times; how does support get paid or restructured? What if the compensation cannot be paid as in the past; how does this affect support?
Sharing Kids and Running a Business. Running a business is demanding. It can be difficult to manage work and time with the children. How does this affect a business owner’s rights to his or her children? What if the owner works particularly long or odd hours, or must travel frequently? How are children shared and exchanged?
Litigation and Lost Work Days. Days spent in court on separation, divorce, or custody issues are days not spent working. They are not productive days. This can be particularly difficult for the sole proprietor or one with a professional practice, for example doctors or dentists. Court schedules are subject to frequent modification, and the amount of time in court is usually unpredictable.
Delayed Ability to Retire. Often the business owner’s largest financial asset is his or her business and retirement accounts. When value is pulled from the business or retirement accounts to satisfy a division of the marital estate, the business owner may face a sharp reduction in lifestyle choices and inability to retire at the age anticipated. This in turn can affect the owner’s succession planning, making such planning even more critical.
Workplace Disruption. One of the most distressing problems a business owner may face is when contentious marital issues spill into the workplace itself. An angry spouse suddenly appearing at work to discuss or argue personal issues, or repeatedly calling co-workers, employees, customers, or others, can wreak havoc.
Employees are often used to seeing a spouse enter a workplace, and so may not be prepared to handle such problems when they arise. Vindictive spouses have been known to sabotage business dealings, steal from the workplace, or drive customers away.
Although issues facing a separating or divorcing business owner may have potential to endanger his or her business, it is important to remember that with proper planning and guidance such issues are manageable, or even avoidable. They need not threaten the survival of the business. It is important to seek advice from a qualified professional to protect you, your business and your family.
Projects often appear to be the lifeblood of a company. In contrast to daily operations, projects are defined by having a beginning, an ending and a goal to achieve a change in some organizational aspect. Project Management is the structured discipline applied to support organizations in managing these projects from beginning to end.
Change, on the other hand, is often the new behavior or performance an organization desires to reach through the project. Change Management is the application of a structured process and tools to lead the people side of change and increase the probability of project success.
So, if projects create change to reach goals, why are Project Management and Change Management professionals often at odds? Project Managers often contend, “I don’t need those warm and fuzzy change people messing up my project,” while the sponsors and finance people often believe the project manager should handle the change—after all the Project Manager is tasked with successfully managing the project. In some cases change managers may be assigned to manage the technical change through Change Control Boards or ITIL Service Management. While there is change management involved in that process, it is technical and project change, not the people side of change.
In reality, Project Managers and Change Managers need each other: It is the integration of Project Management and Change Management which delivers the most successful projects.
How successful? According to global Change Management benchmarking research conducted bi-annually by Prosci, projects which utilize Change Management strategies and activities are six times more successful in reaching the targeted project goals than projects which do not include Change Management. Six times? Is Change Management really that important?
Consider this scenario: In a recent program undertaken by a major energy organization, more than 80 issues were identified as impacting the ultimate adoption of a new technology and business processes within the organization. Of the 80 issues, at least one issue created a $500,000 (and growing) problem—primarily due to increased equipment costs of replacing equipment erroneously removed by employees and the labor costs of utilizing contractors to re-install the equipment.
In review, the root cause was the people (operations) did not understand the changes the first time and dependent processes increased the volume of the problem. The project was technically on time and in scope—but the people were not cooperating!
Ultimately a Change Management effort was developed, root causes were identified, a change strategy was deployed and, in less than three months, incorrect installations were reduced by more than 80 percent.
The result was real money being saved—this project is anticipated to bring benefits of more than $200 million to the organization. What is the impact of having a major portion of that program off track? In the end, is it worth it to pro-actively invest in Change Management to eliminate the issue and reach the benefits?
Now, Change Management is not magic. It works best as part of an integrated approach with an active and visible sponsor (or sponsors), properly defined scope and charters, and governance. And ultimately the Project Manager does generally have the responsibility to bring the project in on time, on budget, in scope and with quality. That job is made easier by integrating Change Management tools and processes within the project.
Another consideration is the ultimate sustainability of a change. Delivering the change is hard enough—the real challenge is often sustaining that change within the organization. It’s the “stickiness” or adoption that is the ultimate measurement of a project success—the delivery and achievement of the ultimate benefit.
Now suppose the project is to deliver a new integrated SAP or ERP program—big, expensive programs which generally impact most if not all business units. If an organization is targeting saving $20 million annually, the integration of effective Change Management within the project helps organizations reach that targeted benefit 95 percent of the time.
This is the most compelling reason to insist Project Managers and Change Managers work together on a project to develop an integrated approach—we need the people to help us design, develop, test and execute the change. By considering the stakeholders (the people) upfront, we are more likely to reach and sustain our project goals including those important financial benefits.
As business managers, and project sponsors, the real question should be: How can we not afford to integrate Change Management into our Project Management approach?
The objective of tax planning is to minimize one’s tax liability. Early planning can aid tax avoidance by paying only what one is required to pay and nothing more. One of the most widely used tools in planning is deferral of revenue and acceleration of expenses.
Generally, tax planning is performed towards the end of the year when there is more predictability of what the year’s end results will be. The year 2012 may be a crucial year in which to conduct planning for future years due to the possibility of tax rate hikes and the expiration of various deductions and credits.
Consider the impact of the following changes:
The lame duck Congress goes back into session mid-month and tax matters are but one important issue it is under pressure to address before adjourning. It is unknown what Congress and the President will come to agree on and pass, if anything.
Tax Planning for Business
Timing of expense payments and income recognition
When a business operates on the cash basis, expenses and revenues are usually recognized for tax purposes when cash is paid or received versus when expenses are incurred or revenue is earned (accrual basis). A cash basis taxpayer has some additional control over its taxable income through the timing of when it pays bills or collects for its services.
Usually a cash basis taxpayer will try to decrease current year income. However, if individual tax rates increase next year, the opposite would hold true, as pass-through entities could save tax by accelerating income to be taxed at more favorable 2013 rates. Note that pass-through entities do not pay tax at the corporate level as net income is passed through to the individual members and taxed at their respective individual rates. As of now, if Congress is able to act at all, it may extend current tax rates for some or all taxpayers, but a decrease in rates for 2013 is highly unlikely.
Make contributions to a qualifying retirement plan
Qualifying business retirement plans have higher contribution limits than IRAs. Through contributing to traditional qualifying plans, business owners and employees can defer more income tax and have larger amounts grow tax-free until withdrawn.
Accelerated depreciation for equipment purchases
Taxpayer-friendly rules governing accelerated rates of depreciation are scheduled to decrease significantly after this year. For 2012, Section 179 expensing is available for up to $139,000 for new and used items placed in service during 2012. This expense may not be available to businesses with a current year loss and begins to phase out when total additions exceed $560,000.
In situations where Section 179 expensing is limited, one may qualify for Section 168 50 percent bonus first year depreciation for assets bought new and placed in service during 2012. Unlike the Section 179 deduction, there are no restrictions on the amount of qualifying property nor is there a taxable income limitation. However, bonus depreciation rules only apply to the purchase of new equipment, not used. Unless Congress acts to extend the bonus depreciation, it will not be available for 2013 and Section 179 expense will be scaled back to $25,000 and become limited when total additions exceed $200,000.
Tax Planning for Individuals
Individual taxpayers should be aware that most of the scheduled tax changes apply to them.
Plan for changes in tax rates
The expected tax rate increase on ordinary income and capital gains encourage recognition of income in 2012 and deferral of deductions to 2013. The maximum capital gains tax rate is scheduled to increase from 15 percent to 20 percent.
Make taxable gifts in 2012
Currently in place is a $13,000 annual exemption on gifts one can make to reduce one’s taxable estate without triggering a tax filing requirement. In 2012, there is a unique opportunity to move investments, real estate, or business holdings to the next generation tax-free. For this year only, you may make gifts of up to $5,120,000 in excess of the annual exemption without incurring gift tax. That amount, as well as the estate tax exemption, is scheduled to decrease to $1,000,000 in 2013.
As with most things tax-related, even exceptions to the rules have exceptions. It is very important to consult your qualified tax professional to see if any of these tax saving strategies apply to your own unique tax situation.
Team Promotions, Inc. is a family business, founded by Ivan, its owner, in 1949, currently valued at $10,000,000. The 83-year-old patriarch, Ivan, married with three children, wants to keep the business in the “family.” Two of his children work in the successful college pennant manufacturing enterprise, and the third child is a minister. His oldest son, Lacky, has effectively been running the business for eight years; his daughter, Barbara, is a loyal hardworking employee. Both children are concerned that the demand for college pennants is on the wane.
Leaving a Business in Trust
Duty to Diversify
Extracting from efforts of scholars (Uniform Trust Code, Uniform Prudent Investor’s Act and Restatement of Trusts 3rd), North Carolina adopted a new comprehensive Trust Code in 2005. This Code provides trust assets should be diversified, and invested in a prudent, businesslike manner considering both risk and growth. But this is a default rule, and comes into play only if the trust instrument does not otherwise provide for how assets are to be invested.
A boilerplate provision often seen in trusts that are designed to hold closely held businesses state the trustee may hold one class of investment disproportionately weighted if the trustee in his discretion deems it appropriate. The trust might even include an exculpatory clause that states the trustee is not liable if he fails to diversify.
What happens if the business value drops while owned by the trust? Ivan has insisted on continuing the pennant line, despite his children warning him that college students are now texting and twitting during the games and not waving pennants.
Even with mandatory provisions to retain stock coupled with exculpatory provisions in the trust instrument, North Carolina and common law, require trusts to “benefit beneficiaries”. Court cases across the country come down on both sides of whether the trustee is liable for failing to diversify closely held business interests, even when there is mandatory language not to sell, despite the opportunity to do so.
Even if there are provisions to eliminate the need for diversification and even if there are exculpatory clauses, the trustees must be careful when dealing with a family business.
There are many good reasons to establish a trust to own your business, whether a corporation, LLC, or partnership. But unless you are committed to seeking frequent tax and legal advice regarding the administration of the trust, be ready to defend your actions as trustee to beneficiaries.
Most small business owners and managers are acutely aware of how their company is performing on a daily or weekly basis. In addition to leading the company, many also process customer orders, create invoices, post payments, make bank deposits, and sign checks for employees and vendors.
As they perform these tasks, they receive updates about daily sales volume; current cash; accounts receivable and accounts payable balances; inventory levels; line of credit balances; and so forth. This keeps them informed about the company’s overall performance, so they are better able to identify issues and react quickly.
As small businesses grow, employees are hired, and owners and managers pass duties to others. As tasks are delegated, however, leaders may also lose their full view of the company’s current performance. They may still receive weekly sales reports or a daily cash balance information, but this information only highlights a few segments of the business.
For the full view, the owner or manager may rely on the month-end financial statements, but these provide a historical picture that can be several weeks old. Instead of observing current performance, these managers look backwards.
Today, most business or enterprise software systems offer management dashboards or executive summaries to help owners and managers understand current business conditions. These are usually reports or screens within the software that consolidate data and give real time, high level views of important information.
These executive summaries can be very useful, but they can also be frustrating if the data is too limited or hard to understand. There may also be important information outside the software that cannot be added to the software-generated dashboard.
For a small or mid-size company, building your own executive summary may be a better alternative. You can create a management dashboard, using a spreadsheet, which can be customized for your specific needs. It can be easily updated and provide a full overview of the company’s current performance. Below is an example and several useful tips:
Keep the report short and simple. Create a report that fits on one printed page. You should be able to quickly review the report and easily understand the information.
Focus on the basics and only include high level data. Include 10 to 25 key items that you need to make good decisions, and exclude unimportant details. If the summary figures suggest a problem then research further.
Combine financial and statistical data. Balance sheet and income statement summary data should be combined with other statistical data, for example: number of employees, quantities produced, overtime hours worked, etc.
Compare with past periods. Comparisons show if your performance trend is better or worse.
Share the results. Talk about the data and the trends with other managers and employees. Executive summaries should include the company’s most important performance data, so discussing this information reinforces, to everyone, those factors that are important.
Executive summaries or management dashboards highlight current business conditions. Unlike monthly financial statements, an executive summary includes only the most important factors driving the business. High level information is gathered, consolidated and shared several times each month. Owners and managers stay informed about current operations and have a real time tool to help manage future business performance.
Dear Political Hopefuls:
I’m one of America’s business owners. With less than a month to go before the election, we want you to hear something: When you applaud us as job creators, as innovators, as the backbone of the American economy, we don’t feel esteemed. We feel like pawns.
Business owners know we’re part of the solution. But when you say it, it feels like lip service. Why? Because most of what you’re saying doesn’t ring true. Most of what you say just convinces us that people in Washington don’t have a clue about the problems business owners face or what we have on our minds.
If you believe business owners are such a big part of the solution, why aren’t you really listening to us?
That’s why I’m writing. Republican, Democrat or somewhere in the middle, we want you to spend less effort trying to get our votes and more effort on a process for seeking real solutions to the tough reality of business ownership in America today. Sure, that’s an unreasonable expectation. Hey, business owners are an unreasonable bunch.
Who am I to speak for America’s entrepreneurs? It’s true, nobody elected me. You could say I nominated myself. I’m just another business owner—a business owner who has worked with other owners every day for almost 20 years. I help owners adapt and build infrastructure and sell their assets and make decisions about capital and other financial issues. How do I help them find solutions? I listen and ponder and seek with them.
So if you’re serious about engaging private enterprise to create jobs, then take the time to find out what’s really on our minds. Start acting like you recognize our value as collaborative partners in figuring out how to save this economy. Here are some of the things we want you to hear:
Private enterprise is not the same as Corporate America. Imagine replacing the creativity and innovation of entrepreneurship funded by private dollars with corporate thinking funded by public investors. Private enterprise grows out of courage, determination and a willingness to risk everything for the freedom to innovate and create. Corporate America is organized around practices designed to squeeze every dollar out of every product and service in order to maximize profits for stockholders.
What’s good for corporations is not necessarily good for private companies and the communities they serve. Listen: Men and women who own businesses generating a quarter million…a million…$10 million in revenue a year can tell you what conditions we need in order to adapt, survive and regain our footing on Main Street, not Wall Street.
We don’t expect you to save us, but you can strangle us. We’re not looking for bailouts. Stimulus money has contributed to a lowest-bidder mentality that hasn’t helped owners whose margins are already too low. Regulations? Their impact makes doing business more costly for us every day. And your blame games focusing on greed versus entitlement alienate us; both greed and entitlement work against us. Listen: We disengage a little more every time you take an action that throttles us.
Our confidence has taken a beating. Our businesses have lost disproportionate value on our balance sheet. We feel vulnerable. Many of us have adapted by letting employees go or contracting them or selling equipment or moving back into home offices. We feel poorer today—hardly the mindset of an investor. Listen: Don’t expect us to create jobs or reinvest in our businesses when our risk tolerance is shaken to the core.
We’re cockroaches. You can stomp on us, but you can’t kill us. We may shrink or go quiet, but we will regain our footing and gather influence again. Listen: Don’t count us out. The only question is how much will be lost before we regain our strength.
Business owners have been sucking on the vapor of hope and pulling on frayed vision for four years. Those of us who are still here are lean, ornery and aware. We know there’s no easy answer to this crisis. We also know that we want the twin behemoths of Wall Street and Washington to listen to the voice of Main Street shouting across the ravine that separates us.
An American Business Owner
The H-1B visa is often the only nonimmigrant (temporary) visa available to a U.S. company seeking to employ a foreign national in the U.S. To secure approval of an H-1B petition, the company must intend to fill a specialty occupation (a job which normally requires a bachelor’s degree or higher). It must also demonstrate that (i) it will pay required wages, (ii) offer the same working conditions afforded U.S. workers, and (iii) the foreign national’s employment will not adversely affect similarly situated U.S. workers. The H-1B petition may be approved for a maximum initial period of three years and may be extended for an additional three-year period.
Issuance of new H-1B visas is limited to 65,000 annually, plus an additional 20,000 for those foreign nationals who have obtained a master’s or higher level degree from a U.S. college or university. The HB-1 cap has been reached every year since its implementation in 1990. As the U.S. economy struggled through the Great Recession, H-1B usage slowed, but the cap has been reached every year since—on the first day of the filing period in April 2007; during the first week in 2008; and approximately eight weeks into the filing period this year.
With 8.2 percent unemployment in the U.S., many may wonder why the H-1B cap is reached so quickly every year. Surely American companies would rather hire U.S. workers than sponsor foreign nationals (less time, hassle, cost, etc.). Surely there are U.S. workers who can fill the jobs that are being taken by foreign nationals on H-1B visas?
The simple answer is STEM (Science, Technology, Engineering and Math). It is occupations in these disciplines that attract the majority of H-1B visa holders. Until American colleges and universities turn out more U.S. scientists, engineers, mathematicians, analysts, etc., or until changes are made to U.S. immigration laws increasing H-1B visa availability, we will continue to run out of H-1B visas each year.
U.S. employers who need employees in these disciplines will either need to file H-1B petitions earlier and earlier in the filing period (and hope that a visa will be available), hope alternate visa options are available, struggle to find U.S. workers who meet their requirements, offshore jobs to places where qualified workers can be found, or simply do without critical employees.
Form I-9 Employment Eligibility Verification Audits remain a useful, cost-effective tool in U.S. Immigration and Customs Enforcement’s (ICE) efforts to fight against illegal immigration. In addition to its field auditors, ICE’s Employment Compliance Inspection Center (ECIC) is an important resource serving as the centralized point of contact for I-9 audit issues. It is tasked with assisting field auditors in streamlining and reducing the backlog of I-9 audits.
As a result, ICE is more current with its inspections and able to “touch more employers and do more inspections.” ECIC is involved in large scale audits (1,000 or more I-9s) and smaller backlogged cases.
In determining which employers to audit, priority is given to: employers being investigated for criminal I-9 violations, employers in critical infrastructure or involving national security issues, businesses with “national impact” that are too large to audit at the field level, and employers that are egregious violators.
Employers are urged to learn about their responsibilities to hire authorized workers and how to verify employment eligibility to avoid not only sizeable civil sanctions but criminal prosecutions too.
I want to call your attention to a book entitled, “The Coming Jobs War,” by Jim Clifton. Clifton is the chairman of the Gallup polling organization. In that role, he developed the “Gallup World Poll” to give the world’s seven billion citizens a voice in virtually all key global issues. Beginning in 2005, he started focusing on international unemployment. He reports his conclusions in this book.
In his words, “What everyone in the world wants,” more than anything else, “is a good job. Leaders of countries and cities should focus on creating good jobs because as jobs go, so does the fate of their nations. Jobs bring prosperity, peace, and human development—but long-term unemployment ruins lives, cities and countries.”
Let me share some of his thoughts, findings and conclusions with you.
As of 2010, the world’s total gross domestic product (GDP) was about $60 trillion. The United States’ share of that output was about $15 trillion or about 25 percent. Economists predict that the global GDP will grow to an estimated $200 trillion over the next 30 years. So, an additional $140 trillion will be added to current production and consumer spending. The mix of countries contributing to that growth in GDP will likely be determined by the ability of countries to create jobs that will deliver that output.
Economic superiority in the United States has provided substantial moral authority around the world. Only recently, having experienced the Great Recession the last five years, unemployment levels still linger around at 15 million or about 10 percent and there is an equal number of underemployed in the U.S. As a consequence, economic superiority is being questioned, and, as a result, that authority is eroding.
Significant economic growth in China has raised its authority in the world marketplace. China’s GDP is currently at about $6 trillion. It is followed by Japan at $5.3 trillion, Germany at $3.3 trillion, France at $2.5 trillion and the United Kingdom at $2.2 trillion. What matters most in the long term are growth rates.
GDP growth in the U.S. is about 2 percent per year, while China growth rates are averaging 10 percent annually. If that continues, China will vastly exceed the U.S. economy within the next 30 years. When that happens, China will become the new “leader” of the world. That will change the world order.
It is interesting that similar concerns existed 30 years ago when the economies of Japan and Germany were rising dramatically. Economists projected growth rates consistent with their performance at the time and predicted that both Japan and German economies would exceed the United States by 2010. Fortunately, they were wrong. U. S. GDP soared from $3.8 trillion to its current $15 trillion. The U.S. did not fall to third; its GDP grew at nearly five times the forecasted rate and is still number one.
What was not predicted in those numbers was the quantum leap in entrepreneurial growth in the U.S. that surprised everyone. It turns out that classical economics cannot predict the future. Instead, it was American entrepreneurship that successfully capitalized on technology and the Internet, creating millions of new businesses and new jobs and exporting them everywhere.
Now, we seem to be facing a similar challenge and predictions that we will lose the economic race with China. Similar (classical economic) forecasts haveChina exceeding U.S. GDP significantly over the next 30 years.
To stay ahead in the global economy, the U.S. needs a growth rate of 5 percent of GDP annually. We need 5 million new jobs now and another 10 million jobs over the next 5 years.
How can that be accomplished? We need to focus on a new wave of entrepreneurs…people who can take innovations and commercialize them successfully. The U.S. needs to stimulate entrepreneurship just like it has in the past.
Clifton says that the next big breakthrough will come from the combination of the forces within big cities, great universities and powerful local leaders.
Clifton states that jobs can only be created in cities, specifically the country’s top 100 cities. He says the top 100 universities, along with 10,000 local tribal leaders, represent America’s supercollider for job creation.
Last fall, the Charlotte Chamber Entrepreneurial Summit identified the seven Cs they deemed necessary to create a stellar entrepreneurial environment: capital, connectivity, culture, corporations, competitive advantage, clusters and champions.
From the combination of these forces, our strong allies in CPCC and UNC Charlotte, and powerful local leaders, we have the right mix of talent and resources to nurture entrepreneurs and create a supercollider for job creation.
We can be a global hub for entrepreneurship. Let’s get moving!