Question 1 1page
In providing assistance to the states, Washington has in the past attached “strings” that have dictated state legislation. For example, all states now require that individuals be at least 21 years of age to drink alcohol; states adopted such rules because Washington conditioned transportation aid on enacting tougher anti-drinking laws. Discuss the degree to which you agree or disagree with Washington attaching policy conditions to the fiscal assistance it provides to the states. To what degree, if any, should states refuse such assistance when national policy goals either do not coincide, or directly conflict, with state goals?
Question 2- please see second uploaded attachment for the article to be read for answering this question. 1 page
Governments at the federal, state and local level routinely enact policies to encourage business and economic growth. At the same time, governments enact policies that, no matter how well intentioned, tend to discourage business and economic growth.
In the article What Entrepreneurs Really Want From Government (Links to an external site.)Links to an external site., Joshua Steimle lists six things that he believes entrepreneurs need from their government: fewer financial incentives, fewer employment regulations, fewer taxes, fewer regulations on banking transactions, no crony capitalism, and no barriers to trade. After reviewing the article, choose one of these six things that you believe to be important to entrepreneurs and discuss the following:
- Why is the need you chose important to entrepreneurs?
- How well (or how poorly) is that need met by United States’ federal, state and/or local governments?
- What could the United States’ federal, state, and/or local governments do to better meet that need?
Resources: to use in both questions
- Steimle, J. (April 26, 2014). What entrepreneurs really want from government(Links to an external site.)Links to an external site.. Forbes. Retrieved from http://www.forbes.com/sites/joshsteimle/2014/04/26/what-entrepreneurs-really-want-from-government/
- Tax Policy Center(Links to an external site.)Links to an external site.. )
- Report from a joint center created by the Urban Institute and the Brooking Institution reviewing revenue generation and expenditures in a fiscal federalism construct. The site supports the Discussions for this week.
- INTELECOM Intelligent Telecommunications. (2005). Infrastructure and Political Issues(Links to an external site.)Links to an external site.. [Video file]. Retrieved from http://searchcenter.intelecomonline.net/playClipDirect.aspx?id=E22DB555B562B4634AD0CBFC2DC0C4A7BE16169CE0CC34CD39F7758DB41CB5FE25BE7A35025444E63F58EE01F8CEBFA1
Federal versus State Powers
As noted in your text, the nature of American federalism and intergovernmental relations evolves as a result of many factors, including demographic, economic, technological, and social forces (Stephens &Wikstrom, 2007). U.S. Supreme Court decisions have also interpreted what is a power delegated to the federal government or left to the states.
Landmark Case: McCulloch v. Maryland
McCulloch v. Maryland was the first major Supreme Court case where the Court defined the relationship between federal and state powers (O’Connor, 2012). This case decided the issue of whether Congress had the authority to charter a bank and if so, whether the state of Maryland had the power to tax it.
In 1818, Maryland passed a law requiring all banks not charted by the State of Maryland to have to pay a tax. Congress charted the Second Bank of the United States, and James McCulloch, the head cashier of the Baltimore branch, refused to pay the tax. As a result, the state of Maryland sued McCulloch. When McCulloch lost in state court, he appealed to the U.S. Supreme Court. The Court decided that first, Congress did have the power to charter the bank through the Necessary and Proper Clause, which, as noted last week, deals with the implied powers that Congress has. Although the word “bank” cannot be found in the Constitution, the Constitution does allow Congress to levy and collect taxes, borrow money and issue currency. Hence, it is reasonable to imply that Congress also has the power to charter a bank, which could be “necessary and proper” to the exercise of its expressed powers. (O’Connor 2012).
As to the answer to the second question, the Court held (decided) that the state tax violated the Supremacy Clause. In other words, when a state right conflicts with a federal right, the federal right always wins (see last week’s guidance). Because of this case, the Necessary and Proper Clause is often used to justify federal action in many areas.
Post-Civil War and the Retreat of National Authority
The controversy over slavery that led to the Civil War took the form of a fight over national supremacy versus state rights. Ironically, the effect of the Southern states’ desire for increased state rights and the subsequent war that followed resulted in an increase of power of the national government, including passage of the 13th, 14th, and 15th amendments.
Since that time, federalism has evolved through different phases. During the era of dual federalism, each of the states and the federal government remain supreme in their own sphere.
The Impact of the New Deal
The concept of dual federalism retreated during the 1930’s when the United States had to address the Great Depression. When Franklin Roosevelt was inaugurated into office, thousands of banks had failed, more than thirty-two thousand businesses had shut down and almost one-fourth of the labor population was unemployed (Schmidt, 2013). The public expected the national government to intervene, but the prior president, Herbert Hoover, insisted that unemployment and poverty were local issues, and hence a problem for the individual states to address. Roosevelt, in contrast, expanded the national authority, passing laws as well as creating the National Recovery Administration (NRA) to allow the national government to restrict competition and regulate labor activities. During this era, the term cooperative federalism was created, meaning the national governments and the state had to work together (or cooperate) to solve complex economic problems.
Categorical grants or grants-in-aid are money given to the states by the national government to help finance many projects such as Medicaid, highway construction, and unemployment benefits. (Schmidt, 2013). The national government can affect policy changes in areas typically governed by the states by attaching special conditions to the receipts of these grants.
The term New Federalism refers to the state-federal relationship in existence during the Reagan administration where certain powers were returned to the state governments. This trend continued into the 1990’s, and while George W. Bush’s administration was also committed to this devolution, the September 11, 2001, attack led to substantial growth in the size of the federal government, which has continued through the Barrack Obama’s administration (O’Connor, 2012). Block grants, introduced during this time, are broad grants with few strings attached. The federal government will give the state money for general categories of activity such as secondary education and health services. In contrast, federal mandates are national laws that direct state or local governments to comply with federal rules or regulations. These mandates contain little or no federal funding to help ease the burden of cost for meeting these requirements. Some examples include the Clean Air Act and The No Child Left Behind Act.
The U.S Supreme Court and Federalism
From the 1930’s until the 1980’s, the Supreme Court’s decisions largely expanded federal powers at the expense of the states. However, starting in the 1980’s, the Supreme Court tended to back off in allowing Congress to regulate a variety of areas (O’Connor, 2012). This revolution was led by many Reagan appointees, including Sandra Day O’Connor, Antonin Scalia, and Anthony Kennedy. These justices were committed to the notion of states’ rights and to rolling back federal intervention in many areas. For example, in the case U.S. v. Lopez (1995), the Supreme Court ruled that Congress lacked the constitutional authority under the commerce clause to regulate guns within 1,000 feet of a school (see U.S. v. Lopez (1995) 514 U.S. 549). According to the Court, despite Congress’s intentions, gun control laws were not substantially related to interstate commerce.
Ironically, though a conservative president, George W. Bush, appointed John Roberts as Chief Justice in 2005, beginning in 2011, the Roberts Court (named because of its Chief Justice) sided with the power of national government in cases dealing with immigration and health care reform (O’Connor, 2012).
Barnes, J., Morehead, T., & Dworkin, E. (2008). Law for business (10th ed.) Columbus, OH: McGraw-Hill/Irwin.
O’Connor, K., Sabato, L., &Yanus, A. (2009). Essential of American government: Roots and reform (2012 ed.). NY: Pearson Education.
Schmidt, S., Shelly, M., &Bardes, B. (2013). American government and politics today (16th ed.). Cengage Learning.
Stephens, G., &Wikstrom, N. (2007). American intergovernmental relations:A fragmented federal polity. New York: Oxford Press.
What Entrepreneurs Really Want From Governmen
I cover digital marketing for the entrepreneur as well as the CMO.
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I live in Hong Kong where I’m opening a branch office of my digital marketing firm MWI, which is headquartered in Salt Lake City, Utah. In addition to Forbes, my writing has also been published in Entrepreneur, Fast Company, VentureBeat, Business Insider, TechinAsia, and the South China Morning Post. I focus on entrepreneurship, startups, online marketing, and Asia. Born and raised through high school in Arcadia, California, I also spent two years at college in Idaho, two years in the Amazon as a missionary for The Church of Jesus Christ of Latter-day Saints (aka Mormons), and 15 years in Utah, first at Brigham Young University studying information systems management, and then working for various startups including a few of my own. In June, 2013 I moved to Hong Kong where I’m opening a branch office of my online marketing firm MWI and learning Cantonese and Mandarin with my wife and two children. My hobbies include skateboarding, triathlon, reading, and blogging. I write about entrepreneurship, startups, learning from success and failure, online marketing, innovation, and anything lean. If you have a question or suggestion, email me. I’m always looking for good ideas and great startups to write about.
The author is a Forbes contributor. The opinions expressed are those of the writer.
What do startups and entrepreneurs really want from government? Is it free money? Connections and favors?
In Ayn Rand’s best-selling novel Atlas Shrugged, the genius inventor and individualist hero John Galt is given the opportunity to become the head of the government, a dictator with absolute power. The parasitic government sees in Galt a chance to save itself from irrelevancy and ruin. But Galt recognizes that even he, with his benign intentions and incredible intellectual abilities, would merely be legitimizing a corrupt system. What Galt understands is that increased standards of living do not come by government decree, but from individuals who are free to create and compete. His response made to a national TV audience sums up the feelings of many entrepreneurs toward government institutions when he memorably growls “Get the hell out of my way!”
It is entrepreneurs, many of them unaided by any sort of government funding, who are eradicating poverty, providing free education, curing diseases, and cleaning up the environment. It’s not that government can’t do these things, but that it doesn’t do them very well. Government operates on tax revenues collected by force, rather than by selling something using persuasion, and therefore government doesn’t receive the same signals as companies in the private sector.
Governments all over the world have enacted policies, often (although not always) with the best of intentions, that harm entrepreneurs, consumers, and workers. While I can’t yet make my case based on data, I have been an entrepreneur for many years, and have had the chance to speak with and interview countless entrepreneurs. Intertwined in their stories is a consistent theme: government regulations, including incentives, stifle entrepreneurial creativity and innovation.
Below are a few things entrepreneurs really need from their government:
Fewer Financial Incentives
Earlier this year the South Korean government announced it will double its funding for startups in 2014. In the United States the Small Business Administration guarantees between $20 billion and $30 billion in business loans each year. Perhaps no government in the world is more aggressive about subsidizing startups and the adoption of new technology than the government in Singapore, which has a number of incentive programs for entrepreneurs.
Entrepreneurs, like all people, are generally happy to take money from anyone willing to give it to them. I, myself, am a case in point. In 2003 I applied for and received a $100,000 Small Business Association loan. Within six months it was gone, I had nothing to show for it, and I spent the next five years paying it off. It was one of the worst business decisions I’ve made, especially in that it facilitated other poor decisions I wouldn’t, or couldn’t, have made, had I not been able to cover up my mistakes with cash.
One might claim I am an exception to the rule, that other SBA loan recipients are better entrepreneurs than I am, but the evidence would seem to indicate otherwise. Despite my negative experience, the “data” used by the government shows me as a success story, a poster child for how the SBA is helping entrepreneurs. After all, I am one of those recipients who actually paid my loan back in full and has remained in business, rather than one of the failed SBA investments that cost the US taxpayer upwards of $6 billion in 2011.
Private markets are fully capable of funding promising entrepreneurs, if allowed the freedom to do so. Relaxing Securities and Exchange Commission (SEC) regulations regarding crowdfunding is a step in the right direction, although the 585 pages it took the Commission to explain the new rules shows the US government could do much more to simplify the process. A simple “Do whatever you want but investor beware, you’re on your own,” would suffice.
Fewer Employment Regulations
Employment laws designed to protect workers often create more problems than they solve. If you have any doubts, just try to fire an employee in France, and you’ll gain some appreciation for why unemployment in that country is at a record high. Entrepreneurs run high-risk businesses and can’t afford to hire someone they can’t let go immediately if that’s what it will take to keep the company alive. When governments interfere by getting between employers and employees, the result is often that they increase the risk of hiring to the point where companies simply don’t hire at all. This hurts workers, as well as entrepreneurs, and ultimately entire countries suffer economically.
Some will say taxes don’t make a difference, because companies simply pass this expense on to customers, and entrepreneurs end up making the same money for themselves one way or another. But tax policy sends a message to entrepreneurs. French President Francois Hollande has made headlines over the past year by threatening to tax the income of successful entrepreneurs at the rate of 75%. Even though France has not implemented this tax regime, the message from its government to entrepreneurs is a loud and clear “You’re not welcome here.” By contrast, Hong Kong has a top marginal tax rate of 17% and no capital gains tax. Where would you prefer to locate your business?
Fewer Regulations On Banking and Transactions
Just today I met with an entrepreneur who provides a payment system for large, corporate clients. His company provides a service to large companies that I wish I could access, but I am stuck allowing my clients to pay via credit card, for which I pay a 3% fee. Technically, there is no reason this fee couldn’t be squeezed to nearly zero, but government regulations make it impossible, to the benefit of the banking sector.
I’ve been told this has to do with policies aimed at preventing money laundering activities that benefit the illicit drug trade and terrorism, both of which have been shown to be largely government induced phenomena. In other words, the government creates the problems and provides the solutions, which we are required by law to pay for, and it and its cronies skim their benefits off the top. How long will we continue to buy the line that this is all done “for our protection?”
No Crony Capitalism
Charles Hugh Smith has explained how the banking sector is obsolete and may be removing as much as 9% from the GDP of the US. Why would we voluntarily take nearly one-tenth of the American economy and dedicate it to bank profits, rather than allowing entrepreneurs to keep their money to create innovative products and services, while allowing consumers to retain more of the money they earn to purchase those products and services?
We do this precisely because it is not voluntary, but effectively mandated by government through various regulations that put control of capital in the hands of a few well connected corporations. Crony capitalism, in which business interests influence politicians to create regulations that favor their industries, is a lucrative business model. Is it any wonder Wall Street is such a large donor to both political parties?
Businesses and their surrogates spend billions to lobby the US government, and presumably they expect something from it.
No Barriers to Trade
Brazil charges a 30% tax on foreign imports, ostensibly to encourage foreign companies to build factories in Brazil and provide jobs, but which in practice mostly fills government coffers with the higher prices Brazilians pay for foreign products. Who is really benefitting? Not entrepreneurs, nor the consumers who would like to buy the products entrepreneurs are making.
As much as governments, intentionally or unintentionally, create barriers for entrepreneurs, there are encouraging signs. China is creating free trade zones. Mexico will allow foreign investment in its oil production industry for the first time in 70 years. The devil is in the details, of course, but these would appear to be steps in the right direction..
More importantly, trust in government is eroding and gridlock is rampant. Those might sound like bad things, but only if you see the current state of government as positive and more of it as improvement. As companies and individuals become more mobile in the global economy, governments are having to compete for our tax dollars just as private corporations compete for our consumer dollars. This process of competition in the private sector has brought smartphones, Lasik surgery, and in-home, on-demand cinema to normal people like you and me at prices we can afford. Competition and increased citizen and corporate mobility will likewise bring improvements and “price cuts” to the products and services we receive from governments. But even better, we can hope for the day when it is widely recognized that the best governments are those that govern the least.
Power to the people.
Joshua Steimle is a Hong Kong based entrepreneur.