Goodbye Small Business?

Small businesses in the United States have it bad. This is true because of too much regulation, high taxes, and now an increase in minimum wage.

So many rules and regulations exist its hard to keep up with the sheer volume of it all. With over 160,000 pages of rules, small businesses are having a hard time making sense of what is right and wrong. Alison Fraser, Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, says this is “a regulatory assault on our system of free enterprise and on our job creators” and I have to agree (1). The only people who will be able to withstand and flourish alongside more regulation are big businesses. This is because they have the capital, resources, and power to manage operations according to any new rule the government spits out. In comparison, small businesses will be scrambling to make ends meet.

What’s worse is that the United States also has one of the highest corporate tax rates in the world. At a rate of 35%, corporations of all sizes are suffering. Corporate taxes consume the part of revenue that  could otherwise be spent on research and development, more efficient technology, and on job creation. In direct relation to operations management, Laura Tyson, a contributer to Business Insider, says that “corporate-tax expenditures narrow the base, raise the cost of tax compliance, and distort decisions about investment projects, how to finance them, what form of business organization to adopt, and where to produce” (2). And when project costs go up, the burden indirectly falls on consumers and shareholders: “American workers, consumers and shareholders bear the greatest part of the cost of higher corporate rates and a complex tax system because it ultimately can raise product prices and lower investment and growth in the United States” (3).

Finally, on February 12, 2013, President Obama asked Congress to increase minimum wage to $9. This proposal sparked negative outcries from all across the country because at a time when people are asking, ‘Where are the jobs?’ why would you want to make it harder for small employers to hire people? (4). Raising the minimum wage simply reduces the availability of entry-level positions across all industries. “The minimum wage is a learning wage, the first rung on many workers’ career ladders. A higher minimum wage saws off this rung” (4). By raising the minimum wage, high school students, college students, and disadvantaged adults will suffer not only monetarily, but also they will have less chances of learning valuable disciplines like getting to work on time and  interacting with customers. This can only negatively impact future business environments.

All in all, we can conclude that our current government is slow at trying to build a better foundation for small businesses. If they cannot act more quickly, the economy’s recovery will stall and there will be increasingly less work and productivity in America.

 

Works Cited

(1) http://www.foxnews.com/opinion/2012/03/28/too-many-rules-are-killing-america/

(2) http://articles.businessinsider.com/2012-05-04/markets/31567901_1_corporate-tax-rate-tax-code-special-tax-provisions#ixzz2QVMBZqrl

(3) http://money.cnn.com/2007/07/26/pf/taxes/business_tax_conference/

(4) http://www.huffingtonpost.com/2013/02/14/obama-minimum-wage-republicans_n_2680397.html

9 thoughts on “Goodbye Small Business?

  1. I thoroughly agree with the basis of your argument regarding the U.S. government’s failure to create a good business climate. However, what you need to keep in mind is that the 35% tax rate applies only to C corps; where as most small businesses are structured as partnerships and pay taxes under the IRS partnership rules (See IRS code section 704(c)). The way partnership taxation works is that the income earned by the business (partnership) is disturbed to the partners; who claim that income on their individual returns. In effect, due to the partnership tax structure the small business’ income ends up being taxed at the partner’s individual tax rates; which varies depending upon which bracket one falls into. Furthermore, a partnership only pays tax on what is distributed back to the partners. This creates a huge advantage to being a partnership, because income can be re-invested back into the business (partnership) tax free. I work at a tax accounting firm, and it is widely held that the partnership tax structure is the usually the most favorable. Thus, when it comes to taxes small business (partnerships) have it a lot better than C Corps so I would turn my attention to complaining about how the government is unfair to C corps.

  2. After reading I find that I am on both sides of the fence regarding regarding raising the minimum wage to $9. On one side, yes I do agree that raising the minimum wage at a time when so many people are out of work therefore making it harder for the companies to hire and compensate their existing employees, is very unfortunate. People really need jobs and this can be a great setback for them.
    On the other hand, what about those who already have these positions and will really benefit from this wage increase? I am so sure that they are elated about this new mandate made by the president. I make $9 an hour in my student position and while this may be just enough for me what about those who have make $9 an hour and have to support their families? They probably need more. So I guess I am more on the side of those who got the wage increase and effort should be made to open new positions despite this increase in wage.
    I also dont believe that the wage increase will have a negative effect on the values and discipline of the workers. If anything they will be grateful and perform better as a result.

  3. I think you made a great point about the small businesses. I don’t agree to the fact of that the government raising the minimum wage lead to job lost. Of course there might be a negative impact on raising the money and small businesses might not be able to provide that. Someone earning minimum wage still is in poverty in some states. Just providing jobs is not enough but having the stability to have better income for basic necessities is what the government is trying to provide. If someone is doing well enough to provide job for others i think the employee deserves enough to not be in poverty.

  4. The increase in minimum wage to $9 can provide people with some financial freedom and improve the standard of living; however, it could also result in small businesses and the economy to suffer as it could cause businesses to increase prices on their products or lay off employees. Also, bigger businesses, compared to small ones, can afford to outsource or relocate their companies to developing nations where they would have to pay less wages.

  5. This is very bad because small and medium businesses provide most of the jobs in America. It is essential for both of these sectors to be thriving. The money generated by these businesses are used to buy from large companies. So if small businesses go down, there will be job losses which will be bad for the economy. There will also be less government revenue because less income taxes. So it is important to keep the small businesses up and running. It When the minimum wage is higher it will make it harder to create jobs. The rise is labor is another reason why many companies are outsourcing because labor is too expensive in America. Also companies cannot afford healthcare so it is too expensive. The government needs to create an enabling environment so small businesses can do well.

  6. Although you make a very good point about minimum wage taking away profits from small businesses, I personally think raising minimum wage is needed in todays world. Those who have ever had a $8.25/hr job know that it doesn’t get you very far. Now, imagine earning $8.25/hr and supporting a family. My family has a small business and although we pay a lot of fees and taxes I still know that there are people really need that extra 0.75 cents/hr.

  7. Not even America, other countries like Hong Kong, he set the minimum wage to HK$30. U.S. Government make this rule is to protect employees to have minimum indemnification of their wages. From my view to look at small business in U.S., most of them are located in neighborhood or on streets with no parking lot and they are not convenient for people to stop by. Government set minimum wage to employees may be hard to afford by employers, but i think there is another issues for small business to stand out is location and convenient to customers so that we should not put false to government.

  8. I agree with your part of the argument towards how small businesses have suffered in recent years. I can personally relate to this because we have our own family business and we can clearly see the how much of a loss we have incurred in recent years. It has become really hard for small businesses to obtain a credit, because banks are not willing to take a high level of risk, because banks are becoming more conservative with their money. The rise of minimum wage also becomes an issue because it would become even more difficult for small businesses to survive because if they are not making enough money to run their company how would they afford to pay a higher pay rate to their employees.

  9. For the part about a higher minimum wage, could a higher minimum wage really hurt the “high school students, college students, and disadvantage adults”? We live in a world where gas and food prices have gone up, not to mention housing. If we have a lower minimum wage, we work much harder for our money and it won’t go as far. We could be stressed and losing sleep on how to pay for mortgages, food or gas. Also, other people would be hurting because, with a lower minimum wage, the main workers are taking more shifts away from other workers and more people are out of work. Those are the people trying to support a family and they are unable to because they have less money and they are out of work because some teenagers are working all the shifts in order to pay for gas or food or even college. This decision might hurt small businesses, who would have to pay more towards their employees, but everyone else will be hurting if a lower minimum wage was in place.

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