Academic journal article Journal of Business and Entrepreneurship

Federally Mandated Programs: A Catch 22 for Small Businesses?

Academic journal article Journal of Business and Entrepreneurship

Federally Mandated Programs: A Catch 22 for Small Businesses?

Article excerpt


The tendency to transfer funding responsibilities to the private sector in the form of mandated benefits is explored with particular emphasis on the effects of pension and health care program costs for small firms should pending legislation be enacted. Alternative courses of action are explored.


Congress is in the process of trying to transfer the high costs of some of the country's most expensive social programs to the business sector. The deliberations of Congress reflect the growing public concern over the adequacy of employee benefits provided to American workers, especially provisions for future retirement income and current and future health insurance coverage. These are major social problems which must be addressed. However, at the same time that Congress is attempting to resolve these issues, it is also struggling with the federal budget deficit. Politically, neither party wants to advocate tax increases but both want to be responsive to public needs. The proposed increase in the use of mandated benefits has been the result.

Congress improves worker entitlements through legislation and then requires employers to provide the new programs in their minimum benefits package. The result is public recognition for increasing social welfare without the problem of government financing for the new programs. The bulk of additional costs under the new laws will be paid by businesses, with a disproportionate share of those costs borne by small businesses. As a result, the trend toward mandated benefits represents a potentially devastating threat to the viability of small business and to the United States economy as a whole.


The concept of mandated benefits is of fairly recent origin. Earlier legislative changes in social programs were usually supported by federal expenditures, but the current budget deficit makes new government spending programs politically unattractive. Nevertheless, there currently is an increasing popular demand for Congress to address problems in two major social welfare areas: retirement plans and health insurance coverage. Mandated benefits have been devised as a solution to the dilemma (8).

The idea of requiring employers to provide certain minimum employee benefits packages is built upon the concept of the social responsibility of business, or business as a social as well as an economic institution (3). Business schools have traditionally emphasized the theory of corporate responsibility to maximize company profits. Recently, a broader interpretation of social responsibility has been introduced by Donaldson, who argues that managers have an obligation to both maximize profits and to use the economic power and resources of the company to promote the common good (2). Since companies operate with the permission of society, Donaldson argues that the firms must meet public needs or change will be forced upon them. Congress has implicitly accepted the idea that forced change is justifiable from a public policy viewpoint. This outlook is reflected in several bills recently passed by legislators.


Congress has been especially attentive to pensions. Public concern over pension benefits has been fueled in the last few years by recurring questions regarding the projected funding shortages of the Social Security system. With an increasing number of retirees and a decreasing pool of workers, the adequacy of payroll tax receipts for funding benefit programs is being seriously questioned. The Institute for Research in the Economics of Taxation estimates that, if current benefit levels for Medicare, old age, survivors, disability and hospital insurance are maintained, then payroll taxes to support these programs will have to rise to sixteen percent by the year 2000 and more than twenty-six percent by 2030 (16). As a result, public confidence in the system is eroding. Young employees are particularly skeptical about the adequacy or even the existence of Social Security payments at the time of their own retirement. …

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