06.15.2012 0

The Democrat’s War on Small Business

Barack Obama delivering the State of the Union

Photo Credit: White House

By David Nace — Small businesses owners are apparently one of the most misunderstood groups in America.  Despite overwhelming respect from the American public, Democrat administrations openly use envy and resentment of small business success to justify enacting legislation that threatens their prosperity.

Periodic polling by Rasmussen and other national polling groups shows that small business owners are the most respected profession in America, respected by more than 80 percent of the American public. This is even higher than pastors and religious leaders that have a 50 percent favorability rating.  At the bottom of the list are members of Congress with a 25 percent favorability rating.  Similar polling by The Tarrance Group conducted in 2010 for The Free Enterprise Alliance, which also includes government bureaucrats and union leaders, give those occupations only a 20 percent favorability rating.

Since we live in a representative democracy, small business owners have always relied on their elected legislators to create an environment where their hard work and personal investment will lead to prosperity for themselves and their employees.  For much of America’s history this was true.  However today, the legislative and regulatory process has been hijacked by those on the left that want to use it for their own intellectual and financial gain at the expense of small business owners and taxpayers.

As a rule, small business owners are risk adverse.  There is a very good reason for this.  Almost every small business owner is financially at risk for the success of their business.  In exchange for a bank line of credit, the business owner pledges their business and personal assets as collateral to the bank.  Unlike large corporations like GM and Chrysler, small business owners do not have the political influence to get preferential government treatment if they default on their loans.  If the small business owner fails, the bank will simply seize their personal assets and the owner will get to start over after many years of hard work.

Despite the risks, small business creates prosperity.  As globalization and increased regulation encourages large corporations to move production to other countries, most new jobs created in America have been in small businesses.  However, these small businesses require policies that allow prosperity to enable job creation to occur.  When risk adverse small business owners are concerned about the impact of legislation and regulation, as they have been since 2009, they will not hire more employees.

If the Federal government passes a law that makes it easy for their employees be coerced into joining a union and then allows a government bureaucrat to determine the wages and benefits they will be paid, why should small business increase the number of employees beyond their  existing loyal work force?  That is exactly what recent NLRB regulations are designed to do.

If the energy cost for a small business will dramatically increase to subsidize renewable energy projects, why expand energy intensive processes?  Given that uncertainty, it makes sense to move those processes to a manufacturer in another country to stay competitive.  That is what large corporations have already done.  This is why studies have shown that green energy policies in Spain have cost 2.2 jobs for every one they create.

If a small business already struggling with the cost of providing health care benefits, will face even higher insurance costs, why increase the number of employees or even provide coverage?  Businesses over 50 employees will be forced to comply with all the provisions of Obamacare.  Coverage mandates will force insurance companies to greatly increase the cost of coverage.  However the fines are low for not providing coverage, so it is far cheaper to stop providing coverage.  In addition, there are even fines for providing “unaffordable” coverage to employees that qualify for government insurance subsidies, so why hire less skilled workers.

In a free market economy, owners of small businesses cannot raise prices merely because their costs go up.  If the wages paid to minimum wage employees, which are mostly part-time high school and college workers, go up, the employer will not be able to automatically pass those costs on to the customer.  This is why after each minimum wage increase in the last ten years there has been a sharp increase in the unemployment rate for young workers.   Yet progressive socialists propose even greater increases in the minimum wage, while at the same time demanding more funding for programs to reduce unemployment among young and minority workers.

What progressive socialists apparently resent most about free enterprise and small business is that it works.  If a small business owner works hard, makes personal sacrifices, and does not demand instant gratification, a small business can be profitable during periods of economic prosperity.  Because many small businesses are not organized as corporations, the profits of the small business appear on the owner’s personal tax return.  That is why a significant portion of the people that report taxable earnings over $200,000 are small business owners.  Unlike the very wealthy that have their earnings in sophisticated investments that reduce their taxation, most small business owners are taxed at the highest personal tax rates.

While Obama and the left have singled out those making over $200,000 to subsidize their wealth redistribution schemes, the reality is that those people already pay far more than their share of taxes.  The top 5 percent of taxpayers in this country already pay 60 percent of all income taxes.  When you include the employees of small businesses, the tax burden is even more unfair.  Taxpayers earning above the median wage of $32,000 pay 97 percent of the tax burden in this country. Conversely, that means that the other 50 percent of taxpayers only pay 3 percent of income taxes. While the left tries to vilify those with high earnings during periods of prosperity, it is their earnings that pay for most of the cost of government.

The last time an administration demonized small business, created uncertainty, and raised taxes, it turned a recession into a depression.  Very similar policies to those promoted by the Obama administration were first enacted voluntarily by Herbert Hoover, then legislatively by FDR.  These policies were able to turn the Stock Market Crash of 1929 into the decade long Great Depression.  Although unemployment started to decline on its own after 1929, Progressive Socialist policies created ten (10) years of high unemployment and misery until Japan attacked Pearl Harbor and reduced employment through the induction of 12 million people into the military service.

Unfortunately for small business owners, just having the respect of the public does not ensure that legislators will enact policies that produce prosperity for small business owners, their employees and their communities.  Small business owners and their employees must become involved in the political process if they are going to prevent legislators from enacting policies that threaten free enterprise and the prosperity it provides.

David Nace, an Executive Vice President of a Pennsylvania construction and engineering company, is a Liberty Features Syndicated writer.

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