Small Business Engine Stalled

BY MICHAEL S. JOHNSON        

Reprinted in part from washingtonexaminer.com

            “I don’t know what to do anymore.”

            In the 20 years I’ve known him, Jeff has never uttered words like that about the wholesale-distributor business he built from scratch over the past 25 years in Maryland, D.C. and Delaware. He’s had ups and downs like every small business, but he’s always seemed to know instinctively what to do, either to sustain existing business, or, in good times, expand into new areas and new brands.

            We were talking about the frustrations of small business, his and others like it all across the country, that can’t hire, invest and expand because there is so much uncertainty about what the future holds.

            Jeff ticked off just a few of his concerns: health care mandates; new and higher taxes and fees; the cost to the consumer of new financial services regulations; new workplace rules, and new rules and regulations that may come from environment and energy reform. The list goes on.

            There is always uncertainty in times of recession, but this time it’s different.  The uncertainty is rooted in politics as well as economics.

           

      The Obama Administration entered office in 2009, and soon after passing a stimulus bill, it embarked on a historic transformation of American government and society, right in the middle of the recession. The pivot to the liberal agenda just drained the energy out of the focus on economic recover.

            It was as though President Barack Obama walked into the Oval Office after the inauguration and was transfixed on the glare of the window of opportunity.  It was an opportunity to rekindle the activism and empowerment of government borne and nurtured in the Roosevelt and Johnson presidencies. But by making wrenching changes in government policy in a short period of time, he would risk injuring the very entities needed to spur economic recovery—financial institutions and small businesses.

            The Obama Administration didn’t cause the recession. The Obama Administration isn’t singularly or even mostly responsible for stagnation now.  Those seeds were planted a decade ago.  But the President can be charged with negligence.  He wasted a year on a political agenda while the economic agenda was treated with only rhetoric.

 

            What is the result of this mixture of politics and economics? 

            Republican Leader John Boehner and Congressmen Peter Roskam and Aaron Schock recently held a small business summit with the U.S. Chamber, the International Franchise Association, National Federation of Independent Business, the Home Builders and the National Association of Manufacturers, among others. 

            The Congressmen were told:

•    New climate legislation could produce 1,500 new costly and confusing  regulations.
•    The new financial services reform law calls for 533 new rules, 60 studies and 93 reports. They may all impose more costs on consumers and businesses.
•    The health care program requires 100 new rulemakings.  The cost estimates keep climbing.
•    The government has enacted $700 billion in new tax increases in just 18 months. New taxes already enacted or pending include higher capital gains, higher individual income taxes, higher estate taxes, and new taxes on enterprise value.
•    Small Business Administration guarantees of loans are down by half.
•    74 percent of banks are reporting a tightening of credit.
•    Small businesses are facing new regulations governing everything from their hours of operation to workplace conditions.  They are facing more paperwork.  Every small business will now have to file more 1099 forms (independent contractor purchases) with the IRS. Paperwork costs could be high.
•    There is approximately $2 trillion (estimates very widely) sitting in banks that could be loaned for business expansion, but isn’t, in part, because of uncertainty about new rules and regulations.
•    It is now 18 percent more expensive to do business here than in our 12 other industrial partners and that percent does not include higher labor costs here.
•    In a Chamber survey 46% of small business people said the Administration’s policies are making the economy worse.  Only 30 & said better.

            Small businesses are the bedrock on which our economy rests. They create anywhere from 60-80 percent of new jobs.  They employ about half the workforce, according to the Tax Foundation. They drive innovation and serve as the incubator for creative, often risk-intensive and sometimes crazy entrepreneurship.  

            Economic recovery cannot occur without them.  

            Jeff zeroed in just on health care.  “If one employee goes into the exchange, the employer can be hit with penalties.  If you have more than 50 employees as opposed to 49, under Obamacare it puts you into a whole new group with more regulation and higher costs.”

            Another small business executive I talked with, Maureen Schantz, president of Alternative Health Associates in Alexandria, VA., said her biggest concerns are insurance and taxes.  “Every time I turn around, there are more taxes,” she said.  The taxes and expenses are going up, “but you can’t raise your prices in a recession.”  
    
            There are two sides to every story, and when it comes to small businesses, there are many.  Not everyone agrees that the government is a problem.       

            “Government policies are a Trojan Horse used by business people as an excuse for their own inability to grow,” says Luke Chung, president of FMS, a computer software and services company in Tyson’s Corner.  “The cost of health care is a fraction of the total cost of services, so are accounting expenses. As a small business with under 50 employees, I’m very pleased with the new health care reform policies.”

            Say what you will about the President’s liberal mission, this was no time to pursue it.  While trying to propel the country farther into the 21st Century, he may be trapping us in an extended period of economic stagnation and a rocky future for the people who can get us out of it.

Editors’s Note: Mike Johnson is a former journalist, who worked on the Ford White House staff and served as press secretary and chief of staff to House Republican Leader Bob Michel, prior to entering the private sector. He is co-author of a book, Surviving Congress, a guide for congressional staff.   He is currently a principal with the OB-C Group.