President Obama has said, "Small businesses are the heart of the American economy," and that "Our recovery in the present, and our prosperity in the future depend upon the success of America's small businesses and entrepreneurs." I agree. But despite this flowery rhetoric, our government is hobbling small businesses through regulations, taxes and other policies that are hindering our economic recovery.
Small businesses, entrepreneurs and innovators are bearing an unfair burden as the government saddles them with mounting regulations and their concomitant compliance costs, which have only grown in the aftermath of the financial crisis.
Don't believe me? My source is the Obama Administration. A 2010 study by President Obama's U.S. Small Business Administration's Office of Advocacy, authored by Lafayette College economists Nicole Crain and Mark Crain, describes the plight of small business. According to the research, small businesses with fewer than 20 employees incur regulatory costs 42 percent greater than firms with between 20 and 499 employees. Furthermore, small businesses pay costs 36 percent greater costs per employee than firms with more than 500 employees. SBA found that the "regulatory cost per employee for small businesses was $10,585, compared to $7,454 for medium firms and $7,755 for large firms."
The SBA further reports that "complying with environmental regulations costs small businesses 364 percent more than it costs larger businesses. The cost of tax compliance is 206 percent higher for small business than larger businesses." These findings should anger us all. Over the past decade small businesses created 70 percent of jobs in this country, and we are looking to them again to help lead us out of the current economic downturn.
Sadly, it is about to get even worse. The administration is on a regulatory tear. All sorts of well-meaning activists populate the highest jobs throughout Washington, and new regulations are coming out at a fast and furious rate. Most are aimed at regulating business, and all sorts of legal battles are about to be unleashed challenging very interventionist regulations. Yes, they are for well-meaning and important purposes like clean air, workplace safety, shipping products and energy efficiency. But the fact is that complying with the rules, especially for the smallest companies, is disproportionately expensive, and the legal costs of battling them are beyond the means of any individual small business. Understand that Washington has one lawyer for every 11 residents, and the DC area is the only area of the country with strong growth by every measure!
Last week, President Obama signed the Small Business Jobs Act, legislation that aims to provide further tax breaks and better access to credit. Although the bill has noble intentions, it makes little mention of measures to help small businesses cope with the cost of regulation. Although it includes a provision to limit penalties exercised on small businesses that show errors in tax reporting, it doesn't take the opportunity to go further.
But this modest tax relief for certain small business investment is meaningless compared to skyrocketing regulatory costs, rising payroll and corporate taxes and a weakened economy. Our businesses, large and small, are in trouble and the anti-business environment, talk about corporate greed and the political left wing demonization of business is chilling investment. The refusal to lower corporate taxes (already the second highest in the developed world) and plan to raise taxes in 2011 has chilled hiring, hurt investment and is directly responsible for a sullen economy and dismal prospects for cutting unemployment.
Those in power point to the stimulus legislation and its large government spending, which theoretically would help small businesses. But this new funding for stimulus requires those selling to the government to pay "the prevailing wage." This is legal speak for mandating use of unionized workers -- thus, small businesses, who rarely are unionized (and justifiably so given the costs and constraints on flexibility), are frozen out of many government contracts.
American businesses of all sizes face challenges, mostly due to well-intentioned government action. While tough economic times should provide the opportunity for new business creation and entrepreneurship (as laid-off workers start new enterprises), this recession is unusual in that the hurdles to begin businesses are so high and our government is so unfriendly to investment.
Legislators cannot view entrepreneurs as the economy's saving grace while shackling them with regulations, and discouraging capital formation and investment. The harsh climate for start-ups and the increasing cost to comply with regulations will only inhibit small businesses ability to help revive America's economy. It's time for the Obama administration and Congress to shift course and approach policy from the view of those looking to start or expand a company.
Gary Shapiro is the president and CEO of the Consumer Electronics Association, which represents more than 2,000 U.S. technology companies, 80 percent of which are small businesses.
Follow Gary Shapiro on Twitter: www.twitter.com/GaryShapiro
"For nearly the last decade, I've paid income taxes at the lowest rates of my professional career. Before that, I paid at higher rates. And if you want the simple, honest truth, from my perspective as an entrepreneur, the fluctuation didn't affect what I did with my money. None of my investments has ever been motivated by the rate at which I would have to pay personal income tax.
As history demonstrates, modest changes in the tax rate for wealthy taxpayers don't make much of a difference if the goal is to build new companies, drive technological development and stimulate new industries. Almost a decade ago, President George W. Bush and his Republican colleagues in Congress pushed through a massive reduction in marginal tax rates, a reduction that benefitted the wealthy far more than other taxpayers.
We were told the cuts would accelerate business growth and create jobs. Instead, we got nearly a decade of anemic job growth, stagnating wages, declining incomes and high inequality.
The supply-side, trickle-down economic policies of the last decade benefitted people like me, but the wealth didn't trickle down. So while we did quite well, people who live from paycheck to paycheck didn't.
What American businesspeople know, and have known since Henry Ford insisted that his employees be able to afford to buy the cars they made, is that a thriving economy doesn't just need investors; it needs people who can buy the goods and services businesses create. For the overall economy to do well, everyday Americans have to do well. "
http://www.angrybearblog.com/2010/09/lets-be-real-folksmarginal-tax-cuts.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29
Absolutely, though legislative issues can cause or enable problems for business. Taxes, as a general rule, are not detrimental to them or the economy.
I am going to speak of this very thing this Friday at the trilevel jobs task force in NYC 10-12am.
- Scott Baker, President of common Ground-NYC
Nicole Crain
This idiocy is a recipe for disaster - and it is happening throughout the Country. Government is destroying the middle class and the basic free enterprise system that this Country was founded on. The anger throughout the land is at a tipping point. This administration is a disaster.
http://www.ritholtz.com/blog/2010/08/tax-base-as-of-gdp/
It's your big corporate buddies in the U.S. Chamber of Commerce that are destroying small business. The create bigger and bigger oligopolies, which dominate the market. Not only does it destroy jobs at big companies, but opportunites at small companies as well.
"Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously.
At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.
Consolidation is certainly not the only factor at play. But any policymaker who is really serious about creating new jobs in America would be unwise to continue to ignore our new monopolies."
http://www.washingtonmonthly.com//features/2010/1003.lynn-longman.html
I like small businesses. They have been my employers and are my clients. Their top expenses are payroll, healthcare, rent, and the costs of capital. Taxes are a large expense for owners, but taxes is the problem that arises only if the problems of capitalization, customers, and collections have been solved.
Economies of scale means small business owners have higher relative costs, work way harder and have more personal risk than their big business CEO cousins. That's not going to change.
In the meantime, there's the treachery of statistics. X% of the employment, but I suspect a far lower percentage of revenues and profits. How often do we hear of a policy suggestion to help small businesses, and in actuality small businesses get 5% of the benefit while big business get 95%?