Friday, July 24, 2009

The Small Business Screw Job

Commenters on my previous post have brought up the unique problems taxation and big government cause for small businesses. One commenter writes that small business profits are required to be reported as personal income tax for the owner. Others have commented that, as small business owners, complying with all the tax laws and regulations simply isn't worth the hassle when taxes are at their current rate.

I'll agree to some extent - current government policy does give a pretty solid screw job to small businesses. I do, however, think that liberal thought provides a way to help small businesses out - or at least not screw them over as much.

Small businesses, who don't have access to the same giant pots of money that large corporations have, are already at a competitive disadvantage; big companies can use economies of scale, national branding, and more effective marketing whereas small businesses can't. These are things that government policy can't change. But there are other things that government can change...

Tax law: Currently, the corporate tax rate is at 35%. But most big companies don't have to pay that - they have lots of accountants moving money into subsidiary companies based in tax havens offshore so they don't have to pay American taxes. Presumably, your average small business isn't putting its profits into some shell corporation in Bermuda, so they're exposed to the full tax burden in a way that big companies aren't. The solution to this - limit offshoring of profits and slash the hell out of the corporate tax rate. (And allow small business owners to file their business' profits as a corporate tax, which, according to commenter Steve, currently isn't the case.)

Another problem that came up in the comments - tax law is just too damn complicated. This puts small businesses at a disadvantage too - while large corporations can hire armadas of accountants who can navigate the tax forms while taking advantage of loopholes, small businesses often can't. So simplify the tax code. That way, small businesses can quit wasting time on filling out a Byzantine tax form and use that time more productively. The problem here is that too many legislators are addicted to the idea of using the tax code as a means of social engineering (a frequent bugaboo of my father's). That's gotta stop.

Health care: The bizarre coupling of health care benefits to employment is one of the biggest potential drags on small business, far as I can tell. Any meaningful health care reform would decouple employment and health insurance. That's not to say that companies couldn't provide benefits if they wanted to - indeed, it might be good business practice - but there wouldn't be a mandate or an advantage to doing so.

Regulations: There are so many articles chronicling how compliance with regulation places a disproportionate burden on small business that it's difficult to give you a catalog of them all. Jacob does a good job with food-based regulation. Recently, he's been railing against laws that mandate calorie counts for restaurants, and so I'll use that as an example. The argument against such regulations are simple - while big chain restaurants with access to giant corporate pots of money can afford to get their food tested at a calorie-counting lab, little independent restaurants often can't. Throw in the effect such regulations have on innovation, and you have a pretty convincing argument.

I find such regulations ridiculous, so maybe it's better to use a different example: the toy safety act passed last year after the Chinese lead toy scare. Again, the argument against such regulations is the same - small manufacturers can't afford the testing while large manufacturers can. But there's a more compelling argument for the regulation in this case - the regulation is necessary to keep kids from getting lead poisoning.

The way out, to me, is simple: if government believes that a regulation is integral to maintaining public health, then it ought to pay for businesses to comply with the regulation. Government wants toys tested? Pay for the testing. Government wants calorie counts? Pay for the calorie counts. That way, a minimum of burden is placed on small businesses. Compliance with regulations shouldn't be that much of a strain on a business' resources. (Obviously, we also ought to think before we regulate. Are calorie counts really going to do enough good to offset the annoyance factor for businesses, even if government pays for the testing? Requiring government to pay for regulatory compliance seems like a way to limit regulation proliferation - if government suddenly has to foot the bill for every regulation they pass, the ridiculous regulations will start to fall by the wayside.)

Anyway, those are a few ideas of how the left would deal with the issue of leveling the playing field for small businesses.

1 comment:

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