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Small Business to Get Short Shrift from Obama Administration

Entrepreneurs will face a slew of new taxes, a stifling regulatory environment, and politicians who bail out the well-connected.

by
Tristan Yates

Bio

January 24, 2009 - 12:00 am

As the Ford Motor Company prepares to cash its first multi-billion dollar corporate welfare check and hand part of it over to the union, it’s easy to forget that almost exactly a century ago, this multi-billion dollar behemoth with 240,000 employees was just another young small business with big dreams about to launch its next product.

While many small businesses fail, including Henry Ford’s first two attempts, a precious few survive, thrive, and then change the world, creating hundreds of thousands of jobs in the process. Just about all of the great American companies were once mere dreams in the mind of an entrepreneur. Microsoft, Apple, Intel, McDonald’s, and WalMart are but a few examples.

The ability to start a small business and grow it into a much larger enterprise is the greatest wealth creation opportunity in America. Studies have shown that 2/3 of all millionaires are small business owners.  Entrepreneurs and their children and grandchildren make up almost the entire Forbes 400 list of richest Americans.

If small businesses are the economic engine that creates jobs, builds wealth, and makes the American dream possible, then naturally our new president plans to support and rely upon them and give them everything they need to pull us out of the economic slump, right?  Well, no.

Small businesses are facing the most hostile climate in a generation, and it is not just the slumping economy and credit crunch.  With the quiet scrapping of the $3,000 job creation tax credit — which was “never set in stone” according to a senior Obama adviser –  there is no more small business tax relief on the horizon.  (Clearly, campaign pledges are only valid if chiseled into tablets, Ten Commandments-style.)

Instead, American small businesses face not only tax increases on individual income, dividend income, and capital gains as the 2003 tax cuts expire, but new environmental fees and regulations, health care “pay or play” mandates, and a significant expansion of new “rights” for workers that may well include compulsory unionization.  The entrepreneurs we are counting on for future economic growth have only higher expenses and reduced flexibility and opportunities to look forward to.

Still, that’s no problem because small businesses can just send their CEOs and lobbyists to Washington D.C., by private plane to pick up their bailout checks, right?  No, instead they can only watch on C-SPAN as their bloated and well-connected competitors cash in their political favors.

That’s because unlike the rogues gallery of special interest groups such as SEIU, La Raza, ACORN, etc., that helped lead the Democrats to victory, small businesses have no favor bank or political clout with the new administration but only the hostility from the infamous Joe the Plumber exchange. In fact, small business begins the new administration in the dog house, with their objection to the American-dream killing tax hikes already derided as “making a virtue of selfishness”.

And small businesses hoping to pick up the slack by selling goods and services to a swelling government sector may be in for a rude surprise. Decades of well-meaning regulation and social engineering have turned government procurement into a technocratic social justice program in which race, gender, and inside knowledge and connections can play as large a role in contract awards as the price or quality of the services rendered.

This means that small businesses that focus on the government market have every incentive to become experts at lobbying, litigating, and banking political favors rather than to build great products and companies.  When businesses like that grow up they don’t become Google or Apple, they become CDR or Rezmar.  (CDR Financial is the firm linked to Gov. Bill Richardson’s pay-for-play scandal, and Tony Rezko’s Rezmar needs no introduction.)

What should be done to help small business fuel an economic recovery?  Clearly, we need Barney Frank to lead a House oversight committee, a $700B rescue program to buy failing small businesses, a progressive Small Business Czar — maybe Naomi Klein or Andrew Sullivan — and, of course, new carbon taxes to ensure that entrepreneurs living in polar regions don’t drown as the arctic ice melts.

But if you’re a little skeptical of that approach, may I present another. Stop the planned tax hikes that disproportionately hit small businesses and their owners. Stop turning small businesses into tax collectors and social workers.  And stop the bailouts — after all, new businesses can never succeed if their competitors are subsidized indefinitely.

And how much does it cost for government to do nothing and stay out of the way? Trillions, according to the bureaucrats who are counting on the higher taxes to fund new wealth-spreading initiatives.  Still, I’m sure we can come up with a solution to solve that problem too.

Tristan Yates is a management and investment analyst and the author of Enhanced Indexing Strategies. His articles and research have appeared in the Wall Street Journal, Yahoo! Finance, and many other publications.
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