Dear Politician: If Small Business Is So Important, How Do You Explain These Facts?

horse-public-domainIf wishes were horses, beggars would ride.

I’ve been reminded of that old English proverb in recent weeks as I’ve scanned the news for articles on the state of small business in the US. The proverb comes to mind because when I read the news I begin to think about the way I “wish” it were for small business owners.

Let me explain. You see, as we approach the major political season that comes around every four years, office seekers are constantly reminding us how important the small business sector is to the US economy.

Politicians from both parties promise to help small business, whether it’s through tax reform, trade agreements or regulatory reform. But the sad reality is that when we examine the record, economic policies are going in the opposite direction. In fact, reforms touted as being small business initiatives end up benefiting large, multi-national corporations instead.

Wall Street Journal writers Stacy Mitchell and Fred Clements recently wrote on this topic and they pulled out some damning statistics from the Census data.

  • Market share of firms with fewer than 100 employees has fallen from 33 percent to 28 percent since 1999.
  • There are almost 80,000 fewer small business retailers today than there were in 1999.
  • Between the 1970s and the 2000s, the number of startups launched per year has dropped by 20 percent.

So no matter what your personal politics are, small business “vital signs” are on a downward track. At the same time, youth unemployment and a clamoring for a hike in the minimum wage are up dramatically. Why can’t we see that these phenomena are related?

If the small business sector was as healthy today as it was 40 years ago, we would be facing far fewer problems in our society. Want to reduce urban blight? Increase private sector jobs. Want to reduce the number of people needing food stamps? Increase private sector jobs. Want to reduce ballooning entitlement spending? Increase private sector jobs. Want to reduce the budget deficit? Increase private sector jobs…and pass a Constitutional balanced budget amendment or some other legislation with teeth.

Not only does legislation supposedly written to help small business end up aiding big business, tax and regulatory policies take a much bigger bite out of small business. Some of this is because small business owners don’t have the teams of international accountants who are able to shelter money offshore and find other creative ways around tax law to ease the IRS bite.

Further, regulatory compliance hits small businesses harder because they are unable to spread these fixed costs over a large operation. And this is huge: the current US regulatory burden is $1.88 trillion per year – that’s almost $15,000 for every family. A study published in the Journal of Economic growth estimates that the growth of federal regulations over the last 60 years has cut US economic growth by 2 percentage points each year. Without this burden, the average American household income would be $330,000, instead of the paltry $53,000, where it stands now.

When you were a kid, did you ever try to cut your own bangs? It usually goes very badly and you keep trimming and trimming, and each time you wield the scissors, the situation gets worse. This is what our elected officials are doing with small business. Every time they try to do something to improve conditions, it seems to make the situation worse.

I bring this up now because we are entering the season when politicians are forced to listen to constituents. Here’s what I would tell mine: I wish they would begin to dismantle some of the regulatory and tax burdens and then just leave things alone.

If wishes were horses, beggars would ride.

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