Small Business, Taxes, and Healthcare*

July 22, 2009 · 0 comments

in Political rants for entrepreneurs

Our political leaders—from President Obama and Speaker Pelosi on down through Congressman Waxman to all the state governments—say wonderful things about small business:
— Small business is the engine of job creation
— It’s the embodiment of our entrepreneurial spirit
— It’s a major source of innovation
— It’s the way up for immigrants
— It’s the new chance for people laid off by declining industries
— It’s the way to keep work at home that would otherwise go to India or China
— It provides the local products and services we all cherish over the big-box mega-chains
— It provides flexible, part-time, low-skilled, and entry-level jobs for people who often have trouble finding a niche in the workforce.
— It perpetuates a class of responsible, involved, financially aware citizens who pass these values along to the next generation.

But contrast what our leaders say with what they do. Governments at all levels view small business (I’m talking about owner-run businesses) as the piggybank from which to shake a few coins every time more revenue is needed. We are the designated “tax paying class.”

It’s not just Waxman’s income tax surcharge, nor this penalty on those who don’t offer healthcare insurance. But overall, the cost of taxes and fees, mandates, and compliance is ten times higher as a proportion of revenue for small businesses than for large corporations. Not only the dollar amounts, but also the time that the owner or a key employee must devote to these requirements.

And we face a continuing barrage of increases in these from local, state, and federal levels.

So the message from our leaders is: “You are really important to economic dynamism, but even so, we’re erecting numerous hurdles to your success.”

At my four-person company, if our tax/compliance costs were lower, there’s no doubt that I would add a couple of employees that we cannot now afford. There are millions of companies my size in the U.S. Suppose a million of these would add a single employee if their government burden were lightened. Would a million new jobs created have a positive impact on the economy? All these new employees would then be paying taxes and spending more on goods and services. My company—and all the others—would grow, get more profitable, pay more taxes—and provide more products and services valued by our communities. What’s the chance that the economic boost this created would actually generate more tax revenue than trying to squeeze more from already-hurting small companies?

For some reason I cannot grasp, this dynamic is impenetrable to our government leaders.

A few comments on small business healthcare:

• Note that the small business penalty described in this bill does not go toward the healthcare costs of our employees. It just goes to the government; it does not benefit the employees at all.

• Most small businesses want to provide healthcare coverage for their employees. It gives them a competitive advantage in attracting better people. Owners also care for their employees—sometimes almost like family.  Owners hate to cut these employee benefits. They agonize over it. But sometimes it’s the only option to big layoffs or closing the doors.

• Companies with a handful of employees don’t have the ability to offer a menu of healthcare options, as do large corporations. This means our 25- and 55-year-old employees must be crammed into the same program, even though they have very different desires and needs. So nobody is happy.

• If companies were removed from the role of health insurance middleman, and more varied and competitive healthcare plans were available on the market, then people could choose exactly what they wanted, from high-deductible catastrophic to gold plated coverage. The tax benefit would be transferred from the employer (to pass on via non-taxed  insurance premium payments) to the individual, who would retain the same benefit, but based on personal choice. And they would have complete portability!

As I look at top government leaders, I seek in vain for any who have ever run a small company, who’ve had to short their own pay to make payroll. In the abstract, they want us to succeed, but they have no gut feel for how to boost small business to catalyze economic dynamism.

I welcome your comments.

* Written in response to “What U.S. Small Businesses Need in Healthcare” by Anita Campbell

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