A Peek Inside The Real American Economy – Trickle Down And Trickle Up Economics



In all of the media wrangling over the fiscal cliff, the tax increases, phony spending cuts, “trickle down economics” and all the rest, I think the media and the federal government have lost all sense of the realities of day to day life for the typical small business owner.

Image by Occupy* Posters via Flickr.com

Image by Occupy* Posters via Flickr.com

They say they want to create jobs. But as a small business owner, struggling to maintain profits in this economy, I have to ask myself “how can people who are not responsible for a business, have never hired anyone and never had to make a payroll, understand how to solve economic problems which they themselves created in the first place?”

The guys in Washington just got a pay raise courtesy of a presidential order. That was handy. Congress can now avoid being lambasted for voting themselves a raise, the president simply ordered that they get one. But it doesn’t work that way for the small business owner. No one I know of can sign a document that will automatically guarantee that my income will increase in 2013.

So let me get this straight… we have people who receive a regular paycheck, can order or vote themselves a pay raise, exempt themselves from any particular law they don’t like, like the social security system and Obamacare, for example…claiming they are going to solve the economic problems in an economy that they don’t have to deal with and whose operation few of them even understand.

Hmmm, what’s wrong with this picture? If I wanted to hire a consultant to help me make my business more profitable, would I hire someone who’s business model involves taking money from others by a threat of force? Isn’t that also the definition of “armed robbery”?

The reality is that our economy, at the small business level, does trickle down and even occasionally trickles up. As my mom used to say, “poop always runs down hill”. But sometimes poop can get backed up and go up hill as well.

I’ll be candid about my own experiences as a small business person as an example. Most of the time we all like to give the impression that things are rosy, but I think it’s time we took a hard look at how the economy really does trickle down and trickle up for the small business owners who are supposed to be the primary job creators in this country.

By 2005 I had been in the real estate industry for 10 years. I was part of a group that operated a well established, well funded business that employed a core team of folks, but had revenues that were spread among as many as 100 commissioned people who contributed to our sales base.

Prior to the market peak, we were buying and selling more than 200 cash flowing properties per year to real estate investors. The company generated revenues in excess of 1 million dollars per year, and paid nice salaries, bonuses and/or commissions. But by 2006, steady increases in housing prices, property taxes and insurance had virtually eliminated all the positive cash flows.

Properties began to sit on the market, unable to generate a positive cash flow for their owners. Within a year the entire business collapsed. This didn’t just happen in my market, Atlanta, GA. Local governments riding the backs of property owners all across the U.S. helped destroy the goose that was laying the golden property tax eggs. A clear case of government policies causing a trickle down effect for property owners.

Local governments increased taxes on real estate with relentless regularity, using the money to pay themselves higher salaries, increase department budgets and build fancy new municipal buildings to work in. This process trickled down onto the heads of every private property owner, and helped destroy the real estate market.

Today hundreds, perhaps thousands of municipalities worry about how they will collect enough “revenue” to keep their massive bills paid. In this case, the “poop ran back up the hill” to the ones who dished it out in the first place. Local and state government has been forced to eliminate several million jobs as a result. This is an example of “Trickle up economics” at it’s finest.

With my real estate business hitting the rocks, I started another small business involving boat and RV storage. From 2002 to 2005 I grew this business while caring for a husband who was terminally ill at the time, and built a small property into a thriving business. By 2005 my little lot was full of vehicles, and our shop was busy refurbishing boats for customers. I also had a boat trailer dealership, selling trailers manufactured by a local small business that had been around since the 1960’s.

The storage business continued to chug along, until late 2007, when other cutbacks in defense spending at the local Lockheed plant forced several of my storage customers to transfer out of state, resulting in less income for my business. Next a few customers who were also in the real estate industry suddenly lost their businesses, resulting in the repossession of their vehicles. A few more spaces opened up and revenues continued to fall.

By late 2009 I had lost 40% of my storage business, due to my customers losing jobs and incomes as the market crash ensued. The problems my customers had were trickling down to me. The boat trailers stopped selling as well. With folks losing their boats, who needs a new trailer? By 2009 my trailer sales had evaporated, and the trailer manufacturer went out of business after 40 years. More trickle down economics.

Image by uvw916a via Flickr.com

Image by uvw916a via Flickr.com

I was able to stay in business by cutting my expenses to the bone, and eventually I regained most of the storage business. But the shop is currently closed and the trailer dealership is long gone. That resulted in reduced business for my vendors – more trickle-down economics. Taxable incomes were falling, so we owed less in federal and state taxes. The government was collecting less and less from me – another example of “trickle-up economics” at it’s finest.

Governments will never succeed at increasing tax revenues by implementing administrative, tax or monetary policies that continue to send unending streams of poop flowing down from “the hill”.

 

Donna S. Robinson is a real estate investor, author, and housing market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults. Her latest book is now available on Amazon.com. It’s called Basics Of Real Estate Investing