Richard Morrison, Marc Scribner and Josh Barro join forces to being you Episode 79 of the LibertyWeek podcast. We take on barriers to job creation, anti-capitalist murmurs in Davos, the iPad’s unapproved technology, laws against motorized texting and why it’s all or nothing in the healthcare debate.
small business
Memorial Day is an opportunity to thank our troops, and open our eyes to the disgraceful way they are treated by divorce courts. The bias that divorce courts in my home state of Virginia exhibit against males, people who start small businesses, and breadwinner spouses in general has been ably chronicled by Richard Crouch, a prominent family lawyer, in the Virginia state bar publication Family Law News.
But what ashames me most as a lawyer is how divorce courts routinely flout our troops’ rights under federal law. Crouch notes that Virginia courts ignore federal law by ordering members of the military to share their pensions with spouses who divorced them after even short marriages: “Something everybody learned early on is that a military wife had to have ten years of marriage to the service member overlapping ten years of military service to divide the pension. However, the Virginia Court of Appeals has adopted the rule that this statutory limitation in 10 USC 1408 limits only direct payment by the military of the former spouse’s half of the pension. Thus a service member can be required by a Virginia court to split his or her military retirement with the former spouse even if it was less than a ten year marriage. Cook v. Cook, 18 Va. App. 726, 446 SE2d 894 (1994).”
This contempt for the legal rights of divorced soldiers matters a lot, because soldiers have fairly high divorce rates, thanks to the stresses and strains of military life, such as unforeseen deployments overseas. Usually, it is the wife, not the husband, who initiates the divorce (two-thirds of divorces in America are initiated by the >wife, not the husband, although male spouses of female soldiers also initiate many divorces. Most divorces are no-fault divorces. By the way, I am not divorced).
Another way the state courts put soldiers at a disadvantage, and discourage them from serving their country, is to award their ex-spouses a share of their potential military pension starting at the earliest date they could possibly retire — even if they intend not to retire then but rather to keep on serving their country. That effectively forces them out of the military, depriving the armed forces of seasoned troops. This injustice is permitted, but not mandated, by federal law.
Lt. Col. Patricia Larrabee was effectively forced out of the military by “a court order directing that she pay her ex-husband a share of her retirement when she reaches 20 years of service in 2006, whether or not she retires.” “‘I can’t afford to write a check to my ex-husband every month out of my military pay,’ she told then-Defense Secretary Donald Rumsfeld. ‘By the way,’ Larrabee added, ‘he makes thousands and thousands of dollars more than I do.’”
Colleen M. Timpano, who served in the Navy, describes how she was royally ripped off by a state divorce court, which effectively “indentured” her “for life” to her “former husband,” who used drugs before and after his expulsion from the Navy, and “contributed absolutely nothing” to her career, even as she helped “finance his college education.” The court awarded her “ex-husband 30 percent of” her “retired pay for life, which will be paid to her “ex-husband and his third wife for the rest of his life.” Federal law did nothing to stop this.
State courts also jail returning reservists based on their inability to pay excessive child support levels that accumulated after they were called into service at pay levels far lower than what they received in civilian employment. The Bradley Amendment keeps their child support from being reduced retroactively when they return from the field of battle, even if they had no time to get their child support payments reduced before being suddenly called up and sent into battle. The Bradley Amendment has contributed to state courts jailing many hapless fathers, including “a veteran of the first Gulf War who was captured in Kuwait in 1990 and spent nearly five months as an Iraqi hostage before being arrested the night after his release for not paying child support while he was a hostage.” It also has resulted in “a Texas man wrongly accused in 1980 of murder” being billed “nearly $50,000 in child support that had not been paid while in prison” and a “Virginia man required to pay retroactive child support even though DNA tests proved that he could not have been the father.”
Even if a reservist manages to hire a lawyer to file a motion to reduce his child support payments to an affordable level while he is overseas, the child support agency often simply refuses to do so (sadly, this is not surprising given that child support agencies have a financial incentive to artificially inflate child support levels, since they receive federal funds based in part on how much child support they collect).
Nor can soldiers called off to battle just pay the child support in advance, if they have the money, to avoid complications of paying on a monthly basis while abroad. Virginia Delegate Jeff Frederick introduced a bill to allow child support to be paid in advance, but it was killed by the Virginia State Senate’s Courts of Justice committee. Dave Briggman of Prince William County, Virginia, was held in contempt for paying his child support early. When he could not afford to pay the penalty, he was then denied the opportunity to appeal the penalty based on his argument that he was unable to pay, based on the absurd Catch-22 ground that he had not put up an appeal bond in the amount of the penalty — something he by definition could not afford to do, precisely because he lacked the money to pay the penalty. Under the Virginia Court of Appeals’ decision in Mahoney v. Mahoney, if you want to appeal an excessive child support obligation or sanction based on the fact that it is beyond your means, you must first put up an appeal bond in the full amount you can’t afford.
Virginia has the weirdest case law on alimony in the entire southern United States. In Bristow v. Bristow (1980), the Virginia Supreme Court overturned a lower court’s refusal to award lifetime alimony to a wife who separated from her husband less than a year into their marriage, ruling that the trial judge could not deny alimony without making extensive findings, even after such a brief marriage, even though state law explicitly lists the duration of a marriage as a factor in whether to award alimony. (By contrast, in many states, like California, there is a judicial rule-of-thumb that alimony should not last longer in years than half the length of the marriage).
The Virginia Supreme Court’s “generosity” with other people’s money was selective and discriminatory. That same year, in Counts v. Counts (1980), the state supreme court barred a man from suing his ex-wife for deliberately maiming him, applying the now-defunct doctrine of “interspousal tort immunity,” even though Virginia circuit judges previously allowed ex-wives to sue their husbands for domestic violence under an “intentional tort” exception to that immunity. The state supreme court barred the ex-husband’s suit even though it had earlier (rightly) allowed an ex-wife’s estate to sue the ex-husband who murdered her in Korman v. Carpenter (1975). (In response to public outcry, the legislature eventually abolished marital tort immunity).
Divorce law is of enormous economic importance. Divorce cases outnumber any other category of civil case in state courts (nearly half of the docket of the Virginia Court of Appeals is made up of family-law cases), and redistribute far more money from any other category of case. And decisions by divorce courts on how to set alimony and child support payments can be potent disincentives to setting up a small business.
Virginia courts routinely do things that are economically inefficient and unfair, like allowing awards of permanent alimony even after very short marriages (Bristow v. Bristow, 1980), then allowing child support or alimony levels to be reset based on upward changes on the paying spouse’s income (Conway v. Conway, 1990), but not downward changes (Antonelli v. Antonelli, 1991), and allowing child and spousal support levels to be set based not on what the paying spouse actually makes (which would be an easy mechanical calculation that would not require any lawyer time or attorneys’ fees to compute), but rather based on higher, hypothetical (and sometimes arbitrary) estimates of what the paying spouse could make (“imputed income”), as in the cases of Cochran v. Cochran (1992), Antonelli v. Antonelli (1991), and Auman v. Auman (1995).
Setting support levels based on hypothetical rather than actual income results in lots of argument between opposing lawyers about what the hypothetical income should be, generating work for lawyers at the expense of the paying spouse. Similarly, allowing permanent alimony based on very short marriages results in lots of demands for such alimony by wives, and lots of arguments by their lawyers, even though such demands are often rejected anyway by the courts (see, e.g., Bruemmer v. Bruemmer).
Virginia’s divorce laws are an impediment to small business creation by divorced people, who comprise more than a million Virginia residents. As prominent family lawyer Richard Crouch once noted, Virginia courts employ a “heads-I-win, tails-you-lose” approach to people who try to start small businesses.
If you leave a steady salaried job in order to try to set up a small business, and it succeeds, increasing your income, you will have your child support payments increased over their prior levels (and perhaps your alimony payments as well). (Conway v. Conway, 1990).
But if the business fails (as most small businesses do), resulting in your income falling below its prior levels, the courts will force you to pay alimony and child support as if you were still making the higher income you made at your prior job, rather than at the income you currently make (Antonelli v. Antonelli, 1991).
As Crouch notes, “So much for encouraging small business. The wage-slave working stiff is shackled forever to salaried employment with big business, which he leaves at his peril.” (Virginia gets a undeservedly generous rating from some business groups for how its court treat businesses, but those ratings really only take into account how big business fares in tort lawsuits, and in reality, it’s Virginia’s fair-minded juries — not state judges — who make Virginia relatively “pro-business” in such cases).
I have often used gender-specific words such as “father” and “husband” to describe those who pay alimony and child support in my above discussion, even though state laws do not prevent judges from giving a father custody of the children or awarding support to the father. I do that because, in practice, it is usually the husband and father who pays them, and the law is not applied in a gender-neutral fashion, as Virginia attorney Richard Crouch observed in a 1992 article in Family Law News. (For example, the Virginia Court of Appeals denied alimony to a father even though his ex-wife made five times what he did, and he was the caregiver for the couple’s children, and instead ordered him to pay his ex-wife 40 percent of his meager disability pension, in Asgari v. Asgari [2000]. It is hard to imagine a similarly-situated ex-wife not receiving alimony for at least a few years). As Crouch notes, in Virginia family law, “sex is the difference that makes a difference.”
Defenders of these rulings sometimes claim that they are needed to offset imaginary financial advantages enjoyed by non-custodial parents or men. Those claims are based on ignorance. Arizona State University’s Sanford Braver conducted his own study in the late 1980s, using better methodology, and found that ex-husbands do no better than ex-wives following a divorce, as he recounts in Divorced Dads (1998). Indeed, his study probably understates divorced husbands’ losses as a result of a divorce nationally, since it was conducted in Arizona, which has lower than average child-support collections (as the U.S. Supreme Court observed in Blessing v. Freestone (1998)) , and since it was conducted before increases in child support resulting from Congress’s passage of the 1988 Family Support Act, which prompted state legislatures to substantially increase state child support guidelines, awards, and enforcement.
Similarly, in 2000, a Virginia study (the JLARC study) erroneously claimed Virginia’s child support guidelines were too low only because it compared apples and oranges. It compared just one part of the state’s child support guidelines (the “basic” schedule, excluding statutory add-ons for health insurance and day care expenses) to ALL child-rearing costs, making the guidelines appear artificially low. It also treated as child-care expenses housing and other expenses shared by the custodial parent, for which the custodial parent could seek alimony — potentially resulting in the custodial parent getting paid twice for the same expenses, first in alimony, then in child support. If these errors had been remedied, the study would have found Virginia’s child support levels to be too high.
Perhaps as a result of the unfounded belief that men generally suffer less than women after a divorce, states periodically rewrite their divorce laws to make life harder for breadwinner spouses. For example, Texas, which once forbade alimony as against public policy, now permits it under certain circumstances. North Carolina, which required a showing of fault by the breadwinner spouse to impose spousal support until the mid-1990s, no longer does. And as Richard Crouch notes, courts apply child and spousal support laws in a gender-biased fashion.
Many of the federal regulatory and tax laws include a “small business exemption” – politicians displaying an aversion to crippling a politically powerful constituency. Often this is done by a cap – “This law will not apply to businesses having net annual sales less than some amount.” Years ago, I saw one consequence of this law in the organization of the US scrap industry. A prospering scrap firm would approach the cap ceiling and re-organize into two smaller businesses — sometimes one brother would head one firm, another the other. Nothing wrong with this, save the transaction costs of creating two organizations rather than one. But these costs may indeed be large – duplicate job slots in the firms, separate marketing and production departments and so forth.
The value of small businesses is that some do not stay small. Those that grow – for example, the Microsofts of tomorrow – are not benefited by laws that artificially penalize growth. Like caps on welfare and other redistribution programs, they can encourage firms to avoid the risks — and the benefits — of growth.
After running into the owners of a Colorado Brewery this weekend, I stumbled on a battle going on in the state between, as the Brewers see it, liquor stores and grocery stores. Really, it is a battle between liquor stores and consumers. While it is predictable that liquor stores would try and block legislation that would allow any other store to carry beer I was extremely surprised to find that many craft brewers are adamantly taking the side of liquor stores and actively lobbying Colorado legislators to keep beer off grocery store shelves.
It is a very sad thing when businesses ask government to shield them from competition. It is even more depressing to see small businesses, which survive by their flexibility and loyal customer base, exhibit such anti-competitive and anti-consumer behavior.
The situation: In the state of Colorado, grocery stores and convenience stores are allowed to sell beer, but only if it is under 3.2% ABV which is lower than the average brew. They argue that they should be allowed to compete with liquor stores and serve their consumers better by lifting the percentage barrier on beer.
The arguments: Grocery stores, faced with increasing food prices and falling profits demand the ability to offer their consumers the products they want—including full-strength beer. Independent liquor stores as well as *some* craft brewers claim that grocery stores will carry only the top selling brands of beer and that changing the law will put independent and small liquor stores out of business resulting in reduced availability of craft beers.
The liquor store-craft brew argument is pure bunk. And it isn’t even a new argument. It’s the same old Wal-Mart myth repackaged in a beer cask. The oft heard claim is that a large store (like a Wal-Mart) moves into an area squeezing out smaller Mom-and-Pop competition. The truth is that any business moving into a new market will increase competition within the market. As in the case of Wal-Mart, if grocery stores enter the malt beverage market some independent stores probably will go out of business—but don’t blame the grocery stores. Blame the liquor stores for being uncompetitive; for not finding some way (either product variety, more convenience hours or location, better advertising) meet the demands of consumers—they should go out of business if they can’t provide what consumers want. The question then is, will craft brewers go out of business as a result of all this change? The answer is the same for the liquor stores: not if they are good craft brewers.
While the brewers that I spoke with touted the importance of the craft brew movement in Colorado (no argument here) and the variety that exists in the state (again- that’s a fact) he didn’t seem to want to listen to the argument that grocery stores selling beer might open a whole new market for distribution. In fact, he downright admitted that “maybe” and “might” isn’t comforting when the system they currently have “works right now”.
So, there you have it, small businesses preserving the status quo. These brewers, who already have distribution contracts set in place with these small liquor stores, simply don’t want to think about how they could work to convince grocers to carry their beers or incense their fans to demand stores carry their brand, and liquor stores don’t want to have to think about how to carve a niche in a market where competition can enter freely.
In fact, the respective arguments of liquor stores and craft brewers are self-defeating when put together. If grocery stores will refuse to carry craft beer (as the brewers believe) and the liquor stores will lose customers to grocery store beer…liquor stores can devote more inventory to the craft beers that consumers obviously want and keep making a profit. As Philadelphia beer reporter “Joe Sixpack” said “If supermarkets squeeze out craft beer, it’ll only create alternative specialty beer retailers. Look at gourmet cheese. You can’t buy it at the Acme, but you still find it easily, in specialty shops, farmer markets and upscale places like Whole Foods.”
When I brought up the fact that Whole Foods grocery stores carry many craft beers and are often right next to liquor stores, the craft brewer I spoke with had to admit that Whole Foods was the exception to his vision of generic grocery store selection. But if selection in CO grocery stores really would be that bad, it would simply create more opportunity for stores like Whole Foods that recognize the demand for craft beers.
As I blogged about earlier many states in the US, facing budget shortcomings of their own making are looking at beer and wine tax increases as a way to make some cash. One of my assertions, beside the fundamental stupidity of penalizing production and wealth creation, is that such tax increases will hurt employees and pubs hardest. To back that up we can take the UK as an 
example—they are experiencing the roosting chickens of Chancellor Darling’s 2008 beer tax in the form of 20,000 lost jobs and 2000 pubs closing. That’s just in 2008.
American lawmakers should think very carefully before following the same principal as the Brits who, let’s face it, have a much stronger relationship with their pubs. As a result of taxing this industry, England is loosing its small pubs, many family-owned and many that have been part of communities for decades.
And these British barflys are not happy…well, they are even more surly than before.
Compared with the history of brewing
in the UK, America is barely in its infancy and already we are beginning to make a name—our small craft brewers and brew-pub concoctions compared alongside the masters of Belgium. Regulators need to understand that bloodletting businesses is not only wrong, it won’t help them keep businesses in their state, it won’t increase their tax revenue, it won’t help them stay in office.
February 1st 2009 is the day that California Governor Arnold Schwarzenegger’s per-drink tax increase will go into effect throughout the state. The tax hike will be a seemingly small 5 cent increase on beer, wine, and spirits in an attempt to in an attempt to shrink the state’s budget deficit of $40 billion.
Is this a wise idea? Well, “sin taxes” like those applied to drinking and smoking are, generally, intended as deterrents against an activity some government agent believes is harmful to “the public”. But discouraging people from drinking in California is like Vegas charging gamblers extra money each time they place a bet in a casino–it could have very negative consequences for economic well-being of an industry that the state relies on for a thriving economy.
In 2005 the wine industry provided California with $3.2 billion in taxes, licenses and fees. California wineries, both as agriculture and tourism are profit-powerhouses within the American economy (California wine production has a $51.8 billion impact on California and $125.3 billion on the U.S. economy at large and provides 800,000 people with jobs), but like just about all other industries wine production is suffering through the current financial crisis. Worldwide, sales are down for wine, especially at the higher price points (though you wouldn’t know it if you happened to be an economist at the white house) and things are likely to get worse as the global economy falters.
Called a “per-drink” tax, the raise is meant to hit consumers of alcoholic drinks, an arguably an unwise consumer to target, the tax actually hits bar and restaurant owners harder than consumers and potentially will affect wineries and vineyards that make a lot of their profit from distribution to those bars and restaurants.
Increased prices and reduced foot-traffic are forcing restaurant and bar owners to either raise prices and purchase smaller quantities of alcohol or to buy less. Tumbling profits and rising prices are forcing producers and distributors to make some tough choices such as cutting back the workforce or cutting production.
All of it trickles down to the bar and restaurant owner already dealing with fewer customers, increasing cost for food ingredients, and smaller profits–for them it is more than a nickel; it could be the difference between staying in business or shutting their doors and letting all of their workers go.
Californians should push back hard on this idea and the Governor should be careful that in this latest round of blood-letting, he doesn’t bleed California businesses dry.
Tomorrow, electric utilities and green groups team up at the National Press Club to ask for billions of new spending on what they term energy efficiency. New versions of such stimulus and bailout proposals appear almost daily.
We spend a lot of time at CEI now proposing wealth-enhancing alternatives to these massive wealth transfers to government contractors and corporations. The right “stimulus” instead liberalizes wealth creation, it doesn’t spread around the dwindling wealth that already exists, like a self-appointed Benevolent Vulture; I submit one important approach–especially in today’s crisis situation–is to inventory all the regulations that impact a small business as it grows, and look hard at rollbacks. Below is the rough inventory I’ve compiled over time, but I’m sure it’s out of date and some things have changed. And this doesn’t even addess industry-specific rules (see endnote), which are probably the ones most in need of reform. I heartily welcome any additions and subtractions. We can’t manage something if we can’t measure it.
FEDERAL WORKPLACE REGULATION IMPOSED ON GROWING BUSINESSES* (Draft—Wayne Crews)
ONE EMPLOYEE
-Fair Labor Standards Act (overtime and minimum wage [27% min. wage increase since 1990])
-Social Security matching and deposits
-Medicare, FICA
-Military Selective Service Act (90 days leave for reservists; rehire discharged veterans)
-Equal Pay Act (no sex discrimination in wages)
-Immigration Reform Act (eligibility must be documented)
-Federal Unemployment Tax Act (unemployment compensation)
-Employee Retirement Income Security Act (standards for pension and benefit plans)
-Occupational Safety and Health Act
-Polygraph Protection Act4 EMPLOYEES: ALL THE ABOVE, PLUS
-Immigration Reform Act (no discrimination with regard to national origin, citizenship, or intention to obtain citizenship)
15 EMPLOYEES: ALL THE ABOVE, PLUS
-Civil Rights Act Title VII (no discrimination with regard to race, color, origin, religion, or sex; pregnancy-related protections; recordkeeping)
-Americans with Disabilities Act (no discrimination, “reasonable accommodations”)20 EMPLOYEES: ALL THE ABOVE, PLUS
-Age Discrimination Act (no discrimination on the basis of age against those 40 and older)
-Older Worker Benefit Protection Act (benefits for older workers must be commensurate with younger workers)
-COBRA (continuation of medical benefits for up to 18 months upon termination)25 EMPLOYEES: ALL THE ABOVE, PLUS
-Health Maintenance Organization Act (HMO Option required)
-Veterans’ Reemployment Act (reemployment for persons returning from active duty, reserve, or Nat’l Guard)50 EMPLOYEES: ALL THE ABOVE, PLUS
-Family and Medical Leave Act (12 weeks unpaid leave or care for newborn or ill family member)
100 EMPLOYEES: ALL THE ABOVE, PLUS
-WARN Act (60-days written plant closing notice)
-Civil Rights Act (annual EEO-1 form)*Assumes non-union, non-government contractor, with interstate operations and a basic employee benefits package. Includes general workforce-related regulation only. Omitted are categories such as environmental and consumer product safety regulations, and regulations applying to specific types of businesses such as mining, farming, trucking or financial firms.
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