Top 3 Small Business Struggles

Small businesses are getting a lot of focus from politicians, because they are a key engine of job creation—which has stalled in the U.S. economy. A Republican National Convention theme of "We Built It" continued the political debate over the economy yesterday.

A survey by the National Federation of Independent Business (NFIB) in July revealed that small businesses' top three concerns were taxes, regulations, and poor sales. A quick look at these top three small business struggles shows they have every reason to be demoralized.

1. Taxes

Small businesses are under enormous threats from looming tax hikes. President Obama is advocating a tax hike on the country's job creators—the at least 1.2 million small businesses that employ workers and make more than $200,000.  Known as flow-through businesses, these entrepreneurs pay their taxes through the individual income tax. A study by Ernst & Young estimates that this tax hike would kill about 710,000 jobs and cause real wages to drop.

This tax hike, however, is just a portion of the Taxmageddon crisis scheduled to hit the country on January 1. The Congressional Budget Office has left little doubt that unless Congress and the President prevent Taxmageddon, the country is headed toward a fresh recession next year.

And Taxmageddon includes only some of Obamacare's 18 new tax hikes, several of which don't kick in until 2014 or later. The tax landscape is truly bleak.

2. Regulations

Heritage's James Gattuso and Diane Katz have documented the sea of new regulations that continue to drown America's businesses. In their detailed report, "Red Tape Rising," they note: "During the first three years of the Obama Administration, 106 new major federal regulations added more than $46 billion per year in new costs for Americans. Hundreds more regulations are winding through the rulemaking pipeline as a consequence of the Dodd–Frank financial-regulation law, the Patient Protection and Affordable Care Act, and the Environmental Protection Agency's global warming crusade, threatening to further weaken an anemic economy and job creation."

The cost of these regulations strangles economic growth and job creation.



3. Poor Sales

In an economy with 8.3 percent unemployment, consumers have to cut back. Struggling sales are no mystery. Higher fuel prices are also hurting small businesses, which must make the no-win decision of passing these costs on to consumers or absorbing the costs themselves.

Heritage's Nick Loris explains the impact of fuel costs on the economy : "In a recent poll by the Small Business & Entrepreneurship Council, 40 percent of small businesses responding said they have had to increase their prices. But that approach has a distinct downside. When consumer demand is already down, passing higher costs on to consumers suppresses demand even further, causing lower output, lower income and higher unemployment."

To all of this, President Obama has said, "We tried our plan—and it worked."

It's not working for small business owners or for nearly 13 million jobless Americans.

Congress and the President need to stop Taxmageddon, open access to our energy resources, and reduce regulations that cost more than the benefits they deliver. America needs jobs, and small businesses need relief.

morningbell@heritage.org