Michael Campian, B2B CFO®

Michigan’s unemployment rate dropped to 8.5 percent in March – down from 8.8 percent in February — with total employment increasing by 21,000.

“The bold reforms made to Michigan’s business climate by Governor Snyder and the Legislature are working,” Michigan Economic Development Corp. President and CEO Michael A. Finney said. “We are reinventing our state in a way that works better for everyone and moving forward with a new economic certainty that is very attractive to investors and businesses making new location and investment decisions.”

The unemployment rate for March is the lowest since August 2008 and marks eight straight months of improvement.

Finney said that all that’s happened here of late is catching the nation’s attention. Michigan’s new, competitive business tax has propelled the state’s corporate tax ranking to seven from 49 in the nation and overall tax rank to 12 from 18.

Confidence that Michigan is on the right track helped to create 80,000 private-sector jobs in the state last year. Newsweek ranked the state No. 1 for job growth in August, Bloomberg ranked Michigan’s economic health second in the nation and CNN called Detroit the next Silicon Valley. In February, the Federal Reserve projected Michigan on track to lead all other states in job growth over the next six months.

You hear it all the time: the rich don’t pay their fair share in taxes. Baloney! For proof, consider the daunting tax bills that will be faced by winners of the recent Mega Millions jackpot. Here’s the true story.

The jackpot for the March 30 drawing was a whopping $656 million. There were apparently three winners. Each could choose to receive an annuity that would pay out about $219 million over 26 years. However if a winner selects the cash option (the only sane choice in my opinion), he or she would collect about $128 million before taxes. The key words are “before taxes.”

Federal Income Tax

Lotto jackpots are fully taxable. And huge jackpots are currently taxed at a maximum federal rate of 35%. So the winner of $128 million will owe the Internal Revenue Service about $45 million. That leaves about $83 million.

State Income Tax

Say a new Mega Millionaire is “unlucky” enough to live in a state with a personal income tax. In most states, the tax rates on high-income individuals range from 5% to 10%. If the rate is 7%, the winner of $128 million will owe the friendly state tax collector about $9 million. That leaves about $74 million.

One of the big reasons why some lotto winners wind up bankrupt is failure to recognize the federal and state income tax hits before it’s too late.

Federal Gift Tax

Despite having already lost $54 million to the IRS and the state tax collector, your tax situation can quickly deteriorate even further if you share your newfound wealth generously with loved ones. That’s because you’ll owe a 35% federal gift tax after you’ve given away more than the $5.12 million exemption. Say you give away $25 million to siblings, children, parents, aunts, uncles, and friends. The gift tax bill would be about $7 million [($25 million - $5.12 million exemption) x 35% = $6.958 million].

Say you give away another $25 million to your grandkids. You will get socked with a 35% generation-skipping transfer tax (GSTT) on gifts in excess of the $5.12 million GSTT exemption. Worse yet, the GSTT is on top of the gift tax. The gift tax on the gifts to your grandchildren is about $9 million ($25 million x 35% = $8.75 million), and the GSTT is about another $7 million [($25 million - $5.12 million GSTT exemption) x 35% = $6.958 million].

Bottom line: you owe $77 million in taxes and you’ve given away $50 million to loved ones. Guess what? You only have $1 million left for yourself ($128 million – $77 million – $50 million = $1 million). Oops! Another big reason why some lotto winners wind up bankrupt is failure to understand the gift tax rules before it’s too late.

Federal Estate Tax

Now let’s assume you don’t give away any of your $128 million. You just pay the $54 million in income taxes and break even for the rest of your life, dying with a cool $74 million. If you kick the bucket this year, your estate will owe federal estate tax equal to 35% of the excess over the $5.12 million exemption. That would amount to about $26 million [($74 million - $5.12 million exemption) x 35% = $25.9 million]. Your heirs would get $48 million (nothing to sneeze at), but $80 million was lost to taxes. That’s a whopping 62.5% of what you started with. Ouch!

State Estate Tax

We’re not done yet. If you live in one of the 22 states with a state death tax, your estate could be whittled down even more. The tax hits just keep on coming!

It Could Get Even Worse

Unless Congress takes action and the president (whoever he is at the time) approves, the maximum federal income tax rate for 2013 and beyond will be 39.6% (up from the current 35%). The maximum federal gift and estate tax rate will be 55% (up from the current 35%), and the gift and estate tax exemptions will be only $1 million (versus the current $5.12 million). If these changes come to pass, the tax hits on future Mega Millionaires will be far bigger than what I’ve shown here.

The Last Word

Tax-wise, the only difference between Mega Millionaires and people who have gradually become wealthy through hard work over many years is the hard work. So it’s just plain wrong to claim that rich folks don’t pay enough in taxes, unless you really believe the government should be entitled to confiscate 60% or more of their wealth. On the other hand, it’s true that once you become rich you can take advantage of some nice tax breaks that are not readily available to the rest of us. For example, the new Mega Millionaires can invest what’s left of their dough after paying income and gift taxes and pay only a 15% federal rate (for 2012) on long-term capital gains (20% in 2013 and beyond). But they will have to take risks to get that low rate, and they can only invest what remains after paying the heavy tax hit on the front end.

Michigan’s business tax structure has moved from 49th best in the nation to seventh, according to projections by The Tax Foundation, Gov. Rick Snyder announced Monday at a meeting of the Detroit Economic Club.

The governor said the Washington D.C.-based research group has projected where Michigan will fall when it releases nationwide rankings this summer. The state’s overall business climate will move from 18th place to 12th due to Republicans’ major tax overhaul and other reforms, he said.

Michigan must continue the hard work of recovery and not rest on its laurels, Snyder cautioned a packed ballroom at the Westin Book Cadillac Hotel in Detroit.

“Michigan is coming back and we’re coming back strong,” he said. “(But) Michigan has been going through a period of decline over the past 30 to 50 years, so just coming back isn’t good enough. We need to build a new path, a reinvented path of how we operate. We can’t afford the old attitude of taking things for granted.”

Snyder said he looks to Detroit’s auto industry as a role model for Michigan’s continued economic recovery.

“It’s about fire and passion,” Snyder said. “We’re following their path.”

Snyder, who just weeks in the run-up to Michigan’s Feb. 28 primary still has not endorsed a Republican presidential candidate, said he will make that announcement this week. The Detroit Economic Club Thursday will host Republican presidential candidate Rick Santorum., and Gov. Mitt Romney on Feb. 24 at Ford Field.

Snyder gave a call out to Detroit Mayor Dave Bing, who was seated in the audience. He said public safety and partnering with local governments and school districts in tough financial straits will be key areas of focus in 2012.

“We need to provide basic services to our citizens,” Snyder said. “How can we provide police and fire, getting the trash picked up, good government services.”

The governor said Michiganians needs to fix their attitude to continue to move forward.

“Let’s talk about the good things that are going on in Detroit,” Snyder said. “The biggest single challenge we have is our culture.

“We spend too much time looking in the rearview mirror. Michigan’s best days are not behind us, they’re ahead of us.”

Nominations for the Inaugural “Smart 25 Awards” are being accepted through March 20, 2012

B2B CFO, the nation’s largest CFO services firm, is accepting nominations for the first annual “Smart 25 Awards” through March 20, 2012. The award program recognizes outstanding companies and individuals for driving smart business growth in one of the toughest economies.

Honorees and finalists will be celebrated during the awards ceremony on May 4^th, 2012, at the Aria Resort in Las Vegas, Nevada, during B2B CFO’s annual National Partners Conference.

The Smart 25 Awards were launched to coincide with B2B CFO’s silver anniversary and recognize the critical components of best business practices that create jobs and improve the economy.  Open to all growth-oriented privately-held businesses from around the United States, the awards honor companies and leaders for their significant accomplishments.

Award categories include:

•  Fastest Growing in Sales – presented to companies that demonstrate strong sales growth over a period of three years 2009-2011.

•  Top Job Creators – presented to companies that created most jobs over a period of three years 2009-2011.

•  Largest Loan Secured – presented to companies that managed to secure the largest loan (single or cumulative) during a three-year period 2009-2011.
•  Best Working Capital Increase – presented to companies that demonstrate the healthiest growth in their working capital.

“Businesses are thriving despite these tough economic conditions and the Smart 25 Awards is our opportunity to celebrate and showcase their accomplishments,” said Jerry L. Mills, founder and CEO of B2B CFO. “These awards recognize the smartest business practices and provide a platform for national exposure. So we encourage the business community from around the nation get involved and get recognized for the great impact they are making in our economy every day.”

Company nominations and self-nominations are accepted. Up to five finalists will be chosen for each category by a selection committee comprised of distinguished representatives from the media and financial community.

The inaugural Smart 25 Awards will be presented at the B2B CFO National Partners Conference which brings together Partners and Service Providers from around the country.  More than 300 attendees are anticipated to participate.

“2012 marks a very big year for B2B CFO,” added Mills. “It’s our company’s 25^th anniversary and we cannot think of a better way to celebrate then by launching an awards program that recognizes other successful businesses.”

Conference sponsors include Morgan Stanley Smith Barney, SAP, and Intuit among many others.

B2B CFO^®’s record growth is pushing the firm to become the world’s largest CFO services firm with more than 200 Partners across 39 states and more than 800 clients across North America. B2B CFO^® surpassed the 200 Partner mark in September of 2011. Corresponding with the pace of the growth, the company today announced the appointment of Joseph C. Worth to Vice President of Operations.

Jerry L. Mills, Founder and Chief Executive Officer of B2B CFO^®, said: “We have entered a very exciting time for B2B CFO^®. As we further drive our growth, we must focus on streamlining our operations and ensuring the consistency of our brand. Great people have always been the key to our success and I am so pleased to have Joe Worth join our executive ranks. His leadership skills, deep roots in service, sales and the financial industry will be an invaluable asset in our future growth.”

“There are tremendous opportunities ahead for B2B CFO^®,” Mr. Worth said. “I look forward to further elevating the success of our firm by focusing on the individual development of each one of our Partners and supporting their accomplishments and growth.”

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Michigan’s banks and credit unions led the country in providing government-backed small-business loans, according to new data from the U.S. Small Business Administration.

The Detroit Free Press reports that from October 2010 through September 2011, $689 million in small-business loans went to businesses in a variety of industries in Michigan. During that time frame, lenders made 2,063 of the most popular type of SBA loans, called 7(a) loans, up 47 percent from the 1,406 loans worth $386 million in fiscal 2010.

According to the article, “The increase is credited to a variety of factors, including greater awareness of the program, more banks that are offering these kinds of loans and stepped-up marketing from the SBA’s Michigan district office. Last fall, the SBA also waived fees for these loans.”

Meanwhile, Governor Rick Snyder just announced that Huntington Bank has made more than $800 million in loans to nearly 1,300 small and commercial Michigan businesses in the first seven months of a four-year program—almost two years ahead of schedule. The bank’s commitment is part of Pure Michigan Business Connect, a groundbreaking economic gardening partnership of the state of Michigan, the Michigan Economic Development Corporation and a broad range of businesses.

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…

If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do…

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,” but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

The Small Business Administration announced on Tuesday that it had formed a $130 million venture capital fund to invest in high-growth companies in Michigan. The fund is the first of what Karen Mills, the S.B.A. administrator, said is a $1 billion commitment over five years through what the agency calls Impact Investment funds, part of the Obama administration’s Startup America initiative announced in January.

In Michigan, the S.B.A. has joined forces with the State of Michigan Retirement Systems, which will contribute $35 million through its own investment fund, and Dow Chemical, which will invest $15 million. The S.B.A. will provide up to $80 million in debt financing. In the next three or four years, the fund, called the InvestMichigan! Mezzanine Fund, will invest between $5 million and $15 million in about 20 companies that either do business or have a substantial presence in Michigan or are poised to relocate there.

Speaking on a conference call that included the chief executive of Dow and Rick Snyder, Michigan’s Republican governor, Ms. Mills said the state’s dire economic situation made it a logical starting point for the program. “This is an economy in transition,” she said. “But the good news is the opportunity is also there. Many of the high-growth firms in Michigan simply need more capital to grow, scale up, and hire.”

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The Michigan Economic Development Corporation (MEDC) today announced that the Michigan Strategic Fund (MSF) is awarding $25 million to eight organizations that will support entrepreneurs in launching and growing start-up companies throughout the state.

“Early-stage companies require seed capital and access to a strong network of public and private resources,” said MEDC President and CEO Michael A. Finney. “We are confident that with the funding of these organizations and the types of programs – from federal grant support to business plan completion to providing services and angel and pre-seed funding – we will continue to accelerate the growth of innovative technology start-ups in Michigan.”

The funding comes from the state’s 21st Century Jobs fund, which is focused on the commercialization of competitive edge technologies in areas that include alternative energy, life sciences, homeland security and defense, advanced manufacturing and materials, agricultural processing, information technology, and other innovative sectors.

Organizations that received awards from the MSF include the following (funding is for two to three years):

• Ann Arbor SPARK, $10.8 million: Michigan Pre-Seed Capital Fund, a statewide co-investment program in collaboration with all Michigan SmartZones that makes investments in pre-seed stage companies; Accelerate Michigan Innovation Competition, an annual business competition that awards $1 million in cash prizes to start-up and emerging companies; and the Michigan Angel Fund, a new fund that will invest in Michigan start-up companies.
• Biosciences Research & Commercialization Center (BRCC) of Western Michigan University, Kalamazoo, $3.8 million: Statewide pre-seed fund that will invest in life science start-ups.
• Biotechnology Business Consultants (BBC), Ann Arbor, $1.6 million: Statewide support for Michigan companies to secure funding through federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
• Detroit Creative Corridor Center (DC3), $400,000: Creative Producers, a program that will deliver targeted business acceleration services to early and second stage businesses in the digital and media production fields.
• Great Lakes Entrepreneurs Quest (GLEQ), Lansing, $1.1 million: Statewide annual business plan competition that provides a network of volunteer coaching, investor talent, and entrepreneurial support programs for early stage companies.
• Inforum Center for Leadership, Detroit and Grand Rapids, $700,000: Implementation of two programs focused on high-growth women entrepreneurs: ACTiVATE, a technology commercialization curriculum, and Astia, a global network of mentors and investors.
• Michigan Small Business & Technology Development Center (SBTDC), Grand Rapids, $3.5 million: Business Accelerator Fund, a fund that can be accessed by participating business accelerators statewide to provide specialized business acceleration services and resources regardless of their client’s geography.
• Michigan Venture Capital Association (MVCA), Ann Arbor, $3.1 million: Entrepreneur-in-Residence and CEO placement programs, to improve talent in entrepreneurial companies; the Michigan Venture Fellows program, to develop talent for Michigan venture capital firms; and the Angel Network Growth program, to strengthen angel investment networks across the state.

The 21st Century Jobs Fund, a 10-year initiative begun in 2005, is a Michigan Strategic Fund program that is administered by the Michigan Economic Development Corporation to accelerate the growth and diversification of Michigan’s economy. The MEDC, a public-private partnership between the state and local communities, promotes smart economic growth by developing strategies and providing services to create and retain good jobs and a high quality of life. For more information on the MEDC’s initiatives and programs, visit the website at MichiganAdvantage.org.

By Jeffrey Paulsen, Paulsen Law Firm PLLC

Typically when a client hires a lawyer, it is because of the education, legal background and life experiences of the lawyer as well as the belief that the lawyer can provide the legal advice, counsel and solutions needed to resolve the client’s legal concerns.  The foremost thing on a client’s mind should be selecting the correct lawyer.  Selecting the correct lawyer is dependent upon the type of relationship that the client hopes to achieve.  Here is a short summary of the types of relationships a client can build with a lawyer:

Highest Level-Trust Based

The highest level of legal advice and counseling a client can receive from a lawyer is based upon trust. This type of relationship takes time to develop and involves focusing on the lawyer-client relationship as individuals. In this type of relationship, the lawyer should be someone that can tell the client what he or she thinks and not what the client wants to hear.  The client comes to rely on the lawyer on both a professional and personal level.

Relationship Based

This type of relationship focuses on the client organization and involves a lawyer providing insights and ideas based upon his or her knowledge of the business organization and its objectives.  This type of relationship typically leads to multiple interactions between lawyer and client based upon various legal issues and needs.  These relationships are longer term and can over time lead to a Trust Based relationship.

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