Newspaper article St Louis Post-Dispatch (MO)

A Brake on Small Business Costly Struggle against High Tax Rates and Burdensome Regulations

Newspaper article St Louis Post-Dispatch (MO)

A Brake on Small Business Costly Struggle against High Tax Rates and Burdensome Regulations

Article excerpt

Federal government policy for financing small business reminds me of the motorist who simultaneously puts one foot on the gas pedal and the other foot on the brake. I'll explain the situation briefly and then show a way out of this dilemma. Background

First of all, the sad fact is that new and small businesses are the marginal borrowers in the U.S. economy. They are always hurting for financing. In contrast, General Electric gets the funds it needs. Sometimes it has to pay more. But especially during times of tight credit, little Specific Electric gets rationed out.

Unfortunately, current government policy makes this situation more difficult for small business. For example, Treasury financing of huge budget deficits drains away a large portion of the funds in capital markets, making even tougher the competition for the remaining funds.

High tax rates reduce the amount of retained earnings that can be reinvested, reinforcing the dependence on borrowed money. High capital gains taxes discourage potential investors in risky new and small companies.

In addition, a wide array of regulation and mandates makes it less likely that the small enterprise will make a go of it in the first place.

There are economies of scale in complying with government directives. Giant General Motors Corp. pretty much fills out the same forms and meets the same requirements as small Specific Motors. The result is that the cost of regulation is a much higher percentage of sales for a small company than for its larger competitors.

While regulatory flexibility was supposed to provide small business some relief in this area, little relief has actually taken place. In some instances, small firms are exempted from reporting requirements, but these are the exception and not the rule. Ironically, even this relief can work against small firms, placing a "glass ceiling" over their employment growth to avoid the high regulatory costs that kick in with the 50th employee.

There is good reason for focusing on taxation and regulation. A recently released survey by the National Federation of Independent Business shows that small companies believe that, by far, taxes and regulation are the two most important problems facing them. …

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