Many economists and pundits point to small businesses as a critical component of the U.S. economic revival. After all, the small business sector is the largest creator of jobs in the U.S. economy. However, Washington doesn’t seem to understand this.
Unemployment is a critical issue with our economy. While the official unemployment rate is 9.6 percent as of the end of October, the U-6 unemployment rate stands at a staggering 17 percent. This statistic covers those who work part time or who are currently neither working nor looking for work but indicate that they are available for a job. In other words, it includes that Americans who have given up looking for work. Yet Washington keeps producing legislation that gets in the way of small businesses owners and their efforts to create jobs.
Last week in Part 1, I discussed some of the uncertainties entrepreneurs and small business owners are faced with, such as the difficulty raising capital or planning for taxes, which has kept many of them from spending, investing and hiring. So what other hurdles lie in the path of job creation for small businesses?
Health care is a big one. Only now are we finding out what was in the health care reform bill and what will be required to fulfill its requirements. That adds to the uncertainty.
One thing is certain, health care costs are going up fast. Let’s examine the costs one North Texas company is actually facing. Four years ago, an employee paid $749 a month to cover a family of four. For 2011, that same employee must pay $1,143 a month for similar coverage – a 66 percent increase! Also, this cost to the employee is after the company’s contribution of nearly 50 percent of the actual monthly premium for employee health care. There is no reason to believe to that the health care reform legislation will do anything more than increase the cost of providing health care to small businesses and their employees.
That’s not the only arrow health care reform shoots at small businesses. The legislation brings a tax change requiring a Form 1099 to be completed for any purchase of $600 or more. How reporting to the IRS $600-plus expenditures relates to health care is anyone’s guess. However, this change will drown small business owners in paperwork. Although there is talk of rescinding this part of the legislation, it is a perfect example of government overreach.
To further illustrate the cost of federal regulation, the Wall Street Journal reported this fall that the average cost of regulatory compliance for American business is $10,500 per employee annually. Just think – what could be a significant portion of a new employee’s salary is instead spent on complying with Washington red tape.
This summer new legislation came out of Washington that requires companies with at least 50 employees that have more than half of their U.S.-based employees on H-1B or L-1 visas to pay thousands more in new fees for each worker. The annual fee for H-1B temporary skilled workers ballooned from $320 to $2,320. The additional L visas, which cover employees transferring within a company, jumped from $320 to $2,570. The intent is to help pay for increased security on the U.S.-Mexico border, yet Washington has done so on the backs of small businesses. Congress has already mandated a cap on H-1B visa petitions, with only 65,000 granted annually.
The result of health care reform and the escalating cost of federal compliance will be catastrophic. Too many entrepreneurs will give up in desperation, deciding not to even bother to start a business. When added to the difficulty raising capital and the unclear tax situation, the cost and burden of government interference will outweigh the rewards of being your own boss and providing a living for your employees. The result will be fewer small businesses and thus fewer jobs.
Since the election, some Congressional leaders have said that small businesses need relief from government inference. If the environment for small business continues to be marginal, there will be a long-term cost. The United States won’t be as competitive in the global marketplace and Americans won’t have the quality of life they’ve had in previous generations. Indeed, the American way of life will change for the worse. Is that what Washington intended?
THOMPSON is president of The InSource Group. He can be reached at JT@insourcegroup.com.
From the Fort Worth Business Press, November 26, 2010