Five Things to Know When Hiring Your Child to Work for You



By John D. Faucher, Esq.
Introduction by Gary Wartik
April 1, 2015

Vision Economics works with John Faucher, Esq., an attorney in Westlake Village, CA who specializes in bankruptcy and tax law issues.  Mr. Faucher has an active website on which he regularly posts articles of interest.  This month we are happy to publish an article about a common practice about parents hiring their children to work in the family business.  As Mr. Faurcher points out, there is a legal way to employ family members, and then there is the other way.  Do beware, for the IRS may be watching.

The story

I love having my 18-year-old daughter work in my law firm.  She’s smart and motivated.  She gets to see law in action.  She’s done wonders for my website, and she gets the mail out.

She keeps a timesheet.  I pay her through a payroll company, which withholds funds for income and social security taxes, among other deductions.

Not every employer is as honest and real-world as I am about the employment relation with a child.  Hiring your child is perfectly legal, in fact, I encourage it, but it must be done carefully and transparently.  Some parents mistakenly believe that if they take some of their income and pay a child, they may take a deduction on the payment to the child and the child will pay tax at a lower marginal rate than the parent: a seeming win-win. Not so.

The IRS frowns on these schemes. The latest person to fall foul of the rules is a Ms. Patricia Diane Ross, who took her case to the Tax Court and lost: T.C. Summary Opinion 2014-68.

Ms. Ross owned a Schedule C business, Ross Professional Services, LLC, that helped government agencies staff their operations.  She had three children, ages 8 through 15.  The children, according to Ms. Ross, shredded paper, stuffed envelopes, copied, sorted checks, filed documents, put out the trash, carried equipment, and helped her shop for supplies. For these tasks, she paid the children.  But she made some mistakes that came back to haunt her:

1. She paid the children in pizza.  Rather than give the children a paycheck, she claimed she kept a ledger of how much they had earned and deducted the cost of their restaurant meals and a tutoring/play activity service from that ledger.  These expenses sounded to the IRS and the Tax Court judge more like the regular kind of support that a parent is expected to give to her children.

When I represented the Commissioner of Internal Revenue, I came across a family that paid their minor children a very regular wage: $5,000 twice a year, two days before the children’s private tuition bill was due.  The tuition bill got paid out of the children’s accounts.

Lesson one: if you employ your children, pay them in money rather than support.

2. She did not pay a regular hourly wage.  Dividing “wages” paid by the hours Ms. Ross reported for each kid resulted in an hourly wage varying from $4 to $30 with little correlation between the child’s age, skill, or task, and the wage paid.

Lesson two: if you hire your child, keep good time sheets and pay a regular wage.

3. She did not withhold Federal income tax or other deductions, saying that the children did not need to file tax returns.  But anyone who makes more than the standard deduction ($6,200) plus the exemption amount must file a tax return.  When the child is being claimed as a deduction on Mom’s tax return, the exemption amount is zero.

Lesson three: treat your employed child as a real employee subject to withholding.

4. The children got paid for chores: “the activities performed by petitioner’s children seem analogous to . . . washing windows, cleaning screens; shoveling snow; moving grass; tending shrubs, trees, and underbrush; assembling papers; picking up mail.”  The Court found these activities sounded more like parental training and discipline, not services performed by an employee for an employer.

Lesson four: pay your children only for tasks that advance the business, not for tasks that advance the household.

5. She did not give the children their own bank accounts.  Well, the children actually had bank accounts about 200 miles away (where their father lives?), but Ms. Ross said she was too busy to open local accounts for them.  Thus, she said, it was “more convenient” to pay for things as the children directed her to, matching spending against their “earnings.”  It does not appear that the judge found this explanation convincing.

Lesson five: give your employed children real accounts in a real bank.

I am pleased to say that, if the IRS were to audit my law firm, it would find that my daughter’s earnings are real earnings and a real deduction from the income I collect.

Mr. Faucher may be reached by writing him at jdf@johndfaucher.com, or by calling 818-889-8080.

Baby Boomers Looking at Retirement – Business Succession Plans Crucial



By Cristian R. Arrieta, Esq.
Edited by Gary Wartik
January 15, 2015

Our monthly newsletter continues to offer articles of interest provided by professional colleagues that offer sound advice to our clients and associates. This month we are offered some timely and compelling direction by Cristian Arrieta of the Lawthorp, Richards law firm in Oxnard, CA, a firm that offers a substantial business law practice. He specializes in trusts and estates planning.

As Mr. Arrieta notes, it has been commented that working for oneself is great because you get to work half-days. You even get to choose which half – the first 12 hours or the second. Funny as that may seem, Baby Boomer generation business owners smile knowingly, and the thought of retirement is alluring. Logistically, however, said Boomers might find themselves in a pickle when it comes to business succession, unless they focus now on some forward-thinking.

Born between 1946 and 1964, the US Boomer generation of small business owners has been, and continues to be, a major driver of our economy (by some estimates 66 percent of all businesses with employees are Boomer owned). Sometimes referred to as the “Me Generation,” Boomers sunk their teeth deep in the American Dream, and they have become the wealthiest generation on the planet. They are also the most numerous – approximating 80 million, and they are currently celebrating their 65th birthday at the rate of about 10,000 a day!

On the heels of the Boomer generation is Generation X, numbering about 50 million, currently aged forty-something, by and large, and entering their professional peek years. Proportionately, there’s about half as many Gen Xers as there are Boomers with any comparable business acumen. With that in mind, if every Boomer-aged business owner today sought to hand the torch off to a Gen Xer, there would be a major demographic bottleneck.

As a trusts and estates attorney, without betraying any confidences, I can disclose that very few of my small business-owning clients have devoted much thought to their business succession plan prior meeting with me (only about 30% of people have done any estate planning at all). Business succession needs to be carefully crafted, preferably at least five years in advance of retirement, and there are a number of moving parts. Moreover, considering the demographics, it should be clear that failing to plan now will likely dampen future opportunity (and therefore value) translating to a less-than-optimal crossroads for retirement age business owners: sell my business for a song or continue to work 12 hours a day.

Take, for example, the business owner who has built a firm over thirty-five years of dedicated, hard work. Now that the business is profitable and rewarding for the owner, he finds that he or she wants to live a little. So he hires a young go-getter who is aggressive and ambitious, with good people skills, and a knack for generating new accounts. In time, the owner is able to play some golf and travel with their spouse, while the identified key employee is content managing the firm.

With retirement in sight, the owner crafts a business succession plan. He provides bonuses for key employees, say 10 shares of common stock, keeping 90 shares for himself. In conjunction with this, he offers his key employee the opportunity to buy his shares at the rate of 10 shares each year. In the fifth year, the owner will take a secured promissory note for the balance of the purchase, payable to him over five years and bearing an annual interest rate of 10%.

Such an arrangement would nicely supplement the owner’s income in retirement and defer income taxes. A structured buy-out will tend to maximize the long term value of the firm, which could otherwise dissipate in the absence of a plan. However, it will work only if it is implemented from a position of strength, early on, instead of waiting until the options become few.

Building a successful business takes guts and years of hard work. Business succession requires careful planning and foresight as well. Boomer generation business owners ought to consider the demographic challenges ahead, and implement a plan now, so they can secure their accustomed standard of living in retirement.

Vision Economics continues to work with small and medium-sized businesses that have need for outside professional services, including those dealing with succession planning issues. Mr. Arrieta is available to provide legal advice and appropriate legal documentation of succession plans as needed. Mr. Arrieta may be contacted through Vision Economics at 805-987-7322, or by calling him directly at 805-981-8555.

Decline in Business Bankruptcy Filings Offer Good News



By Gary Wartik
January 27, 2015

In a continuing trend, bankruptcy filings for both individuals and for businesses declined during 2014 for the fourth year in a row, according to data available through the office of the United States Trustee in Los Angeles. The report noted that total filings decreased by more than one-half percent when compared with those filed during 2010, the high point of filings during the Great Recession.

Filings of Chapter 7 petitions, those that wipe out the debt of an individual or a business, decreased almost 24 percent when compared with 2010 filings, although in Ventura County, just over 2,000 Chapter 7 petitions were still filed during 2014. As well, only one-half of corporate reorganizations under Chapter 11 of the Bankruptcy Code were filed during 2014 when compared with a high point in 2007, although a total of 19 Chapter 11 filings still occurred in Ventura County. The decrease in Ventura County bankruptcy filings was mirrored in most other jurisdictions around the nation.

The formal bankruptcy process has a time-honored place in American law and American history, dating to the time of the Constitution. So too does the out-of-court settlement or “arrangement” with creditors that avoids the lingering bankruptcy stigma for many individuals and some business people. Even in good economic times, businesses and individuals have issues related to managing their debt.

Vision Economics is one of the firms that work nationally to offer “informal” arrangements by which we, the client and the client’s creditors work to resolve debt issues. With the greater availability of credit in the marketplace following the Recession, settlement of debt has become easier for businesses and individuals without the use of the formal bankruptcy process.

Chapter 11 Bankruptcy proceedings are a costly and time consuming process. It is not unusual for even smaller companies to spend two years and between $100,000 and $200,000 in professional fees and expenses to go through the Chapter 11 process, even if the process ultimately proves unsuccessful. In many cases there is a viable alternative, working with creditors through the “Informal Arrangement,” “Out of Court Arrangement, or “Out of Court Settlement,” as mentioned above.

Non-bankruptcy matters may be resolved much more quickly than the average Chapter 11 process, and at greatly reduced costs. With no court hearings to prepare for and attend, management is left with more time to focus on rehabilitating their business. As well, the savings in professional fees and costs leaves more funds available with which to help the business recover from its operational losses and to resolve its debt.

There are, of course cogent reasons for using the formal bankruptcy process, especially when the goodwill of creditors has been exhausted and collection lawsuits against the business are piling up, where foreclosure on property is imminent, bank accounts are about to be seized, or tax liens are about to be filed. In those cases, Vision Economics may be of assistance in resolving issues and making an introduction to a highly qualified Attorney specializing in bankruptcy matters. For further information, we may be reached at 805-987-7322, or email us at gw@visioneconomics.net.

Watch Those Lease Costs – Some Advice for Office, Commercial and Industrial Tenants



By Gary Wartik
December 31, 2014

Lease terms can be challenging to understand, especially for someone new to business or one operating a small business who is involved in negotiating a new lease. When questioned about lease terms, Brokers often say that the questioned terms “are just standard language” or “boilerplate.” While that may be the case, this does not mean that tenants should accept lease terms without understanding all of the obligations thereunder.

Most leases of course provide for a base rent. In addition, so-called Common Area Chargers (CAMs) are added as lease costs and add significantly to monthly lease costs. CAMs include costs for water, property taxes, landscape and parking lot maintenance, and even building repairs. One of the recommendations made by tenant representatives such as Mazirow Commercial, Inc. in Westlake Village, is to ensure that leases include provisions for auditing CAM charges. This should ensure that a tenant limits its liability for CAMs to those actually due at month’s end or at year’s end. Audit provisions are not normally included in standard leases, so tenants need to ask that audit provisions be included. In most cases, landlords will agree to audit of CAM charges since it also serves to protect their interests as well.

Audit provisions should include language that deals with any over-charges in the form of either reimbursement of the overcharges or credits against future lease payments. In the event that CAM charges have been under-charged, of course audits would disclose that too and would leave the tenant liable to the landlord for the difference in costs. It is noted, however that CAM overcharges are more common than undercharges. Audits cost money, so who conducts the audits and who pays for the audit needs to be included in the lease terms.

For additional information or assistance in lease negotiations, please call Vision Economics at 805-987-7322, or Sheryl Mazirow at Mazirow Commercial, Inc. at 805-449-1945.

The Economy is Looking Better as State Jobless Rate Continues Decline



By Gary Wartik
December 31, 2014

Economists have differing interpretations about changes in the economy. Some paint an optimistic picture of the post-recession economy and what to anticipate in 2015. Others are more pessimistic about the figures related to GDP/GNP, unemployment figures, the retail economy and housing starts. The economy likely is somewhere in-between the two schools of thought.

Looking at the economy from an optimistic point of view, we close out 2014 with a recovering economy. The stock market has hit new highs based upon, in part upon improved corporate sales and earnings. Employment levels have continued to increase. Employment remains a key economic indicator. As the 2008 recession gained a head of steam, unemployment rates at the state and national levels increased by more than 50 percent. During the last three years we have witnessed a significant recovery in the job market as employers enjoyed increased sales and recognized the need to fill open positions and create new ones. The California unemployment level in June 2008 stood at 7 percent and grew to 12.4 percent by February 2010, one of the highest in the nation at the time.

Data from the California EDD reflects that the state added 90,100 jobs during November 2014, accounting for 28.1 percent of all jobs added nationally. Over a year’s time, California payrolls have increased by 2.2 percent, comparing favorably with the U.S. rate at 2.0 percent. With continued net increases in employment, California’s jobless rate has decreased to 7.2 percent.

Leaders in California’s November employment figures included the hospitality and leisure sectors which led job increases with some 15,600 new positions. Retailers added 14,500 new jobs. Construction also added a healthy 12,900 jobs during the period. Unfortunately, during the same period, manufacturing actually shed 10,500 jobs, and the movie and sound recording studios lost 3,000 jobs despite a newly enhanced state tax credit program designed to keeping movie and TV production from leaving California to film elsewhere.

The challenge in reading unemployment figures is that it does not reflect the pay level of new jobs, nor does it measure the level of under-employment. Many of the new jobs cited are in food service, hospitality and retail, reflecting improvement in those industries, but most are offered in the range of $10.00-12.00 hourly. These jobs are important to the economy, but pay poverty wages for anyone who is the source of their own financial support. “Under-Employment,” those who are not working a full forty-hour work week, and at a pay level well under their previous employment, also reflects another gap in employment data. These two caveats are not reflected in local or national government employment data.

On the bright side of employment equation, there are tens of thousands of jobs in California and around the nation that are available at any given time. Many pay reasonable salaries and above. A visit to the growing number of on-line job sites such as Job2Careers, Career Source Network, JobQuicken,com, JobGrabber.com, CareerBuilder.com and others makes it obvious there is employment for those with applicable work experience and for those holding at least a bachelor’s degree. The listings reflect that education and experience still count.

Next month we will examine the entire employment landscape from the position of looking back at the year of 2014. Then, looking ahead at 2015 we will offer a few thoughts about the economy that continues to recover, and why.

For further thoughts on business and the economy, please contact us at Vision Economics at 805-987-7322 or by email at gw@visioneconomics.net.

Do Single Member LLCs Provide Asset Protection?



By Ted Schneider, Esq.
Edited by Gary Wartik
December 31, 2014

During the formation of a new business, the legal form of the business is important since it impacts how to protect personal assets from the creditors of the business in the event the business meets with financial challenges. Some businesses operate as sole proprietors, others incorporate under California law. Nearly twenty years ago the Limited Liability Company came into being in California.

As explained by Ted Schneider of the Oxnard law firm of Schneiders & Associates, a limited liability company is a very popular business form that combines some of the best features of a corporation and a partnership. Like a partnership, an LLC is taxed through its individual members (aka “shareholders”). Like a corporation, it provides limited liability to its members. In most situations, the personal assets of LLC members cannot be reached for the debts or liabilities of the business. Similar to a corporation, there are certain scenarios where personal assets can be reached by creditors. Most LLCs have more than one member. In recent years, a variation called the single member LLC has become widely used. As the name suggests, these LLCs have only one member. While the structure and organizational requirements of single member LLCs are essentially the same as ordinary LLCs, there has been some uncertainty as to whether these businesses afford their members the same type of limited liability.

Initially, not all states recognized single member LLCs. Now, all fifty states and Washington, D.C. recognize these business forms and have statutes governing them. Generally, single member LLCs provide personal asset protection to their members for the liabilities of the business. But, they do not always provide the reverse protection that a corporation or ordinary LLC includes. In the case of an ordinary LLC, the personal creditors of the member cannot go after that member’s share without what is referred to as a “charging order”.

A charging order is a legal device that allows the creditor to place a lien on the member’s LLC interest. The member’s interest is essentially any distributions made to them by the LLC.  Therefore, creditors can collect the members interest but not outright and not without jumping through a number of hoops.  In the case of a single member LLC, the charging order protection may not be provided.  While some states like Wyoming have specific laws making the charging order protection applicable to these types of businesses, other states, like California and New York, have made no decisions distinguishing ordinary LLCs from single member LLCs.  Therefore, in these states it is important to remember that legislation and judicial decisions have the potential to cause serious problems for business owners in the future.

When considering business formation, there are many factors that need to be considered and the advice of a seasoned business consultant or business law attorney can help.  For additional information, please contact Vision Economics at 805-987-7322, or Schneiders & Associates, L.L.P. at 805-764-6370 for a consultation.

Marketers Make a Difference – Where is Your Plan?



By Randy Strong
Introduction by Gary Wartik
December 14, 2014

Randy Strong and Neal Cutler of Associate Marketers are new to the Vision Economics Group team. We welcome the firm, based in Newbury Park, CA because they bring to us more than a generation of experience in the marketing and advertising field. This new association is offered in the effort to provide our friends and clients with the most current approaches to keeping current on your market and how best to reach that market. In this edition, Randy Strong offers an introduction to the subject.

In today’s business climate change happens at the speed of light and in no area is this truer than in marketing. A few things marketers have come to understand in the past year: that traditional media can boost results from Internet marketing, the power of targeted and well produced videos, and that content is still king no matter the media or strategy.

Marketers started the year 2014 scrambling to employ social media as part of their campaigns, only to learn that traditional media still provides a higher return on investment. A recent study of 10 brands by Nielsen Catalina Solutions found brands averaged a sales lift of more than $6 for every $1 spent on radio ads – an ROI double that of even the best results from many recent studies of digital or TV media.

At the beginning of 2014 there was still a strong focus on SEO – search engine optimization. It became the watchword and a necessary part of the overall digital strategy. Now, just twelve months later, that strategy is on life support. Today, there is a general consensus that more important than relevant words, continually infusing new content into your digital platform leads to greater recognition and better results.

As we enter 2015, now is a good time to review your overall marketing efforts, looking at the effectiveness of the message and media choices you made in the past year. No matter your marketing strategy or preferences, be sure to “test and measure.” Make changes to any part of your program that is under performing.

Like the year that just passed, we expect to see marketing rapidly evolve during 2015, so make the commitment now to evaluate your marketing efforts and freshen them as needed! For further information, Randy Strong may be contacted through Vision Economics at 805-987-7322, and by email at gw@visioneconomics.net, or directly at 805-499-6312, and by email at marketingstrong@gmail.com.

The Good News – Redevelopment Agencies Initiative Statute May be on November Ballot



By Russ Watson
Edited by Gary Wartik

In February Vision Economics posted an article that highlighted a proposed state initiative titled “The Jobs and Education Development Initiative (JEDI) Act”.  If approved this statue would essentially reauthorize the use of redevelopment powers, including a distribution of tax increment funds. The California “Jobs and Development” Initiative (#13-0065) has been approved for circulation of petitions in California, targeting consideration by the voters on the November 4, 2014 ballot as an initiated state statute. Proponents have to gather nearly 505,000 signatures to qualify for the November ballot.

Reviewing some of the posted stories regarding the proposal, many of the authors, bloggers and those who take the time to comment on articles/blogs are not supportive of the proposal, citing big government, abuse of power, stealing ‘our, your, their’ tax dollars to give to rich developers…the usual comments.  One article suggested this effort might in fact be effective in growing support in the Legislature and ultimately the Governor’s approval in enacting ‘redevelopment-lite’ legislation similar to last year’s SB 1 (Steinberg), to place the initiative on the ballot.

Identifying actually who is supporting the initiative has not provided a definitive list either.  There are a few cities that have openly expressed support, including some financial contributions.  It is likely there are many economic development advocates, affordable housing proponents and possibility many more legal and professional consulting firms supporting the initiative.

The dismantling of redevelopment agencies has proven to be … let’s say ‘complicated’.  Reactivation of former agencies will likely prove to be even more complicated than the dismantling and sell-off of former redevelopment assets and property holdings.  How does one begin to un-ring the loud bell after having been struck by the heavy hand of the Stat?  It started ringing nearly three years ago, and many cities find themselves still fighting to keep what they believe is their residents/community’s property.  The phrase “Kings X” could become a new legal term!

For now, we are in a “wait and see” period to see if proponents are successful in securing the required signatures.  Then, I guess the phrase…’let the fun begin’ may be appropriate to see if voters can be swayed to support a return of the JEDI program.  And then, if approved in November, the real challenge will be how to reactivate a de-activated public entity, restart projects and programs with limited staff, rebuild financial capacity, undo the undoing…and so on.

For our friends and colleagues in the public sector, we at Vision Economics urge you to look at the proposed JEDI referendum with the goal of generating local support for the initiative.  After all, the JEDI referendum is the key vehicle that would return to local government the ability to help fund infrastructure and other projects, including much needed workforce and senior housing, for which adequate funding is likely unavailable now.

We will attempt to keep you posted.  If you have any questions, please call Russ Watson at 916-217-5997, or Gary Wartik at 805-987-7322.

Filming in Local Jurisdictions is Good Business – CA Tax Credits Help Keep Jobs in California



By Gary Wartik
April 2, 2014

We at Vision Economics have struggled, as have others, with the concept of granting government tax credits in order to support a specific local industry.  Teachers and others understandably looking for more state funding have recently reaffirmed their opposition to California income tax credits to the film industry (film and television production) as providing assistance for special interests.

Available data reflects that California tax credits and those offered by other states have a direct impact on the industry born in Hollywood nearly one hundred years ago. In brief, the more tax credits offered by other jurisdictions, the more California loses production days, and the more negative economic impact there is locally.  California ranks fourth behind Louisiana, Canada and Great Britain in film production. Fifteen years ago 64 percent of the top 25 live-action movies were filmed in California. In 2013 only 8 percent were filmed here.  California is struggling to hold onto that level of activity, and perhaps increase it.

Even other countries, such as Iceland, Canada and Great Britain have been offering California’s film industry tax breaks to produce entertainment in their realm.  The result has been a flurry of both “runaway production” and action in the California legislature to stem the flow.

Effective April 1, Great Britain now offers a 25 percent tax credit on the first $33 million of film budget expenditures on qualified expenses, and 20 percent thereafter, with no cap on the total expenditures.  The changes effectively amount to a 50 percent increase in the value of “tax relief” for the California film industry across the Atlantic.  Iceland’s new tax credit on Icelandic taxes is 20 percent, open ended.  Louisiana, North Carolina and Texas have also increased tax subsidies for the film industry during the last twelve months, and they too have enjoyed increased production days, mostly at California’s expense.  Interestingly, in Louisiana a state report indicates that the subsidy of the film industry there actually costs the state money, the only such report by a major jurisdiction in the United States.

California’s $100 million film and television tax credit program generated an 11 percent return on investment in its first three years, according to an economic analysis by the Southern California Association of Governments.  It was established to slow the loss of productions to other states offering their own financing incentives.  Action is pending in the legislature to extend and expand the program.  Research by the industry reflects, according to a recent report from the San Fernando Valley Business Journal, that tax credits were issued to 109 film projects, which generated $248 million in state and local tax revenues, $4.3 billion in economic activity and $1.6 billion in labor income, supporting 22,300 jobs, during 2013.

The current California program offers tax credits of up to 25 percent to film and create television productions, on a lottery basis, with total credits capped at $100 million annually. The tax credits apply only to California income tax obligations.  The top individual income tax rate is 11.3 percent, while the tax rate for C corporations is 8.84 percent.

Still, the latest report found that California continues to lose market share, with 75 percent of 41 live-action features with budgets in excess of $75 million filmed outside the state in the 2013 fiscal year. The industry report recommends lifting the $100 million California budget cap on films eligible for the tax credits.

Pending legislation in the California Senate would extend the program for two years and would allow films of any size to apply, but only allow the credit for the first $100 million in expenditures. The legislation also would allow television pilots to seek credits.  California’s Film Commission is responsible for administering the tax credits.

Vision Economics joins economic development professionals, city managers and others in supporting the California film industry to the greatest practical extent possible as long as it can be demonstrated that the state and local governments receive a return on the investment.

Job Creation Throughout the Country Centers on Low-Paying Jobs



Job Creation Throughout the Country Centers on Low-Paying Jobs

The latest news on job creation throughout the country saw an increase of 169,000 jobs in the month of August and 168,000 more during September, which is good news, or so it would seem. A majority of the jobs that were created are from low-paying sectors such as retail, hotels, food services and drinking establishments for a total of 44,000 jobs. Compare this to the 23,000 jobs created in the professional and business services, and it’s obvious that employment growth and economic development continue to focus on the low-paying industries.

On the surface, it would seem that any job creation is good for the overall economic development plans at all levels, but reality is quite different. Take into consideration that the ratio of low-paying jobs to high-paying ones is almost 2 to 1. More people are making wages that barely pay enough to cover the bills than those who are working at making a comfortable living. This type of income inequality means that more people are going to slip into the poverty level, and will be unable to purchase goods that help support manufacturing and retail jobs and the overall economy improve. The lack of buying power among a large section of the population directly translates into a slowdown of the overall economy due to lower demand for goods beyond the barest of essentials.

The once highly touted trickle-down economic theory has largely changed due to the fact that the wealthy do not spend nearly as much as expected.  Those with higher paying jobs simply are not putting as much of their money into the economy, as a percentage based upon income as previously in order to make up the difference.  More of their money goes into investments, but as well, in the current economy, there are just fewer Americans who earn enough to be considered “wealthy.”

Are you in California and considering a business improvement district plan or a new economic development plan to strengthen your local economy? Contact Vision Economics today about creating a targeted and focused plan for your area.