A new small business starts with an idea, but in between that first dream and the first sale there are lots of obstacles. Still, millions of Americans open their own business every year. This creativity and persistence of small business owners fuels our economy.
According to the Census Bureau, 99.7 percent of U.S. businesses are small employers and these small businesses employ about half of all private sector employees. Small businesses are responsible for more than 60 percent of net new jobs in the last two decades.
Yet in recent years small employers have faced a host of new hurdles to overcome before they can open their doors or make their website go live. They add up quickly, blocking attempts to start up or forcing some longtime owners to close their doors. Among the hardest for small businesses to clear are federal regulations, federal taxes and the rising cost of health insurance.
No one goes into business because they like filling out government paperwork, yet Washington has been engaged in a great effort to pile up new regulations. In fact there are currently thousands of proposed rules awaiting approval and many will affect small business directly.
One such proposal would drastically expand the Clean Water Act, for the first time giving the federal government jurisdiction over private ponds, seasonal streams, usually dry creek beds and other bodies of water. If the White House approves the rule, farmers and local business owners will have to apply to the EPA to do anything on their own land that might affect a nearby water source. It’ll add tens of thousands of dollars to small projects and lead invariably to potentially devastating lawsuits brought by activists.
The complexity of the tax code, which now exceeds 70,000 pages, is another major barrier to growth. NFIB research calculates that tax paperwork costs small businesses $74 an hour. That’s 67 percent higher than what the average cost of compliance is for big businesses. And according to the IRS the typical small business now devotes 24 hours per year just on tax preparation.
Of course, high tax rates inhibit growth, too, by siphoning away money that small businesses would otherwise invest. President Obama and some members of Congress have proposed a cut in the corporate income tax rate. But that would exclude three quarters of small businesses who file as individuals. Those small businesses, many of which pay the top rate of 39.6 percent, create more jobs than corporations and they pay a larger share of federal taxes. Cutting small business income tax rates would free up capital, stimulate demand and strongly encourage job creation. It would also simplify the process for small business owners and give them time to focus on growth.
Among the barriers for small business perhaps the most worrisome is the spiraling cost of health care. In the last decade, average health insurance premiums for small firms have increased 63 percent. Small business owners hoped that health care reform would reduce the cost of insurance. Instead, Obamacare made it more expensive. Sixty-two percent of small businesses we surveyed claimed that per employee premium costs were higher in mid-2014 than in mid-2013. Statistics for the previous year were similar too. In 2014, only 40 percent of small employers offer employer-sponsored health insurance, down six points from the previous year.
Obamacare created 21 new taxes, new mandatory coverages and new red tape that has reduced the choices available to small business owners. One of the worst of these new taxes is the Health Insurance Tax. This tax falls on the fully insured market, where 88 percent of small businesses purchase their coverage. While the tax is on the insurers, the non-partisan Congressional Budget Office has stated that this increase will get passed on to customers in the form of higher premiums. Our own research shows that private sector employment could by more than 262,000 jobs in the next seven years. Nearly two-thirds of these losses would be at small businesses.
Despite all these obstacles, there is still much to celebrate during Small Business Week. Millions of small business owners are working hard to provide for themselves and their families. They are contributing to their communities by doing things like sponsoring sports leagues, keeping their neighborhood clean, and so much more. There is incredible fulfillment in watching something that you started grow and thrive. As long as this country lets individuals profit from their creativity and industry, there will be people who sacrifice to make their dreams come true. We are all better off because of them.
Dan Danner is president and CEO of the National Federation of Independent Business (NFIB).