To hear the members of Congress tell it, small business – which exists in a mythical place in America along with mummy and apple pastries – has just two problems: marginal tax rates and government regulation.
For most small businesses, these aren't the problems at all. It's the complexity of taxes and regulations that is the problem.
To understand the predicament of small business today, one needs to get a grip on what it is. The Small Business Administration defines small businesses as those with 500 or less on the payroll. But to most small businesses, the bar is lower by a factor of about 10. Most owners think they have moved to a different place if they can number their payroll in the dozens.
Really small businesses, also more appropriately called microbusinesses, according to the National Association for the Self-Employed (NASE), are those with about 12 employees. These are the businesses that create jobs fast when the economy improves. This is where the rubber of entrepreneurism meets the road of reality.
These are Americas real entrepreneurs; these are the people who “go on their own,” preferring self-employment to job security. They aspire to make a living first; making a fortune is a distant second.
They may repair cars, make artisan bread, book travel, sell yarn, repair computers, print menus, stage events, publish newsletters, houseclean, landscape, stuff sandwiches, shop for others, manage other peoples’ eBay accounts, test for pollution, paint houses and bird dog the paperwork on import-export.
Their governmental enemy is not the rate of taxation, as we were told in the debate that led to the fiscal cliff agreement, but rather the complexity of the tax code. Likewise with regulation, licensing and permitting
Keith Hall, who advises the 150,000 member-strong NASE, on tax issues says that microbusinesses are overburdened by the complexity of the tax code and have to spend money they can't afford on accounting fees; or, if they enter into the tax labyrinth themselves, risk making mistakes that can lead to costly audits, and as often as not overlook legitimate deductions.
The tax code is a war zone for the single entrepreneur, Hall says. Worse, he says, it favors big business both in the way taxes are calculated and in the deductions allowed. Big companies routinely claim deductions that wouldn't be allowed for microbusinesses: “The playing field is not level,” Hall says.
One of the biggest problems centers on health care. The unincorporated entity — say, Jim Smith trading as Gold Limousine — cannot deduct his health insurance. The various forms of incorporation have their own penalties, and all involve time and the need for professional help to administer them.
Incorporation is not a panacea for the self-employed. Its primary purpose is to limit liability to the incorporated entity and to facilitate a possible sale of the company, or the taking of equity capital.
The distress over the tax code is equaled by employment regulations,environmental mandates and rules about working conditions.
But all this is nothing compared to the real enemy of small business: big business.
Big businesses, particularly chain retailers and restaurants crush small businesses. They crush them every day. The arrival of Walmart, Home Depot, Target or Staples spells death for dozens of small businesses in the neighborhood.
The redevelopment of old neighborhoods, where small businesses flourish, also can be fatal. The local mall is a sanctuary for big retail and a mass grave for small endeavors.
The lot of the new business, the small new business, is harder today than it has been historically, as there are fewer fields where the behemoths are not dominant. Also banks lend on formula not character, landlords favor the big and established over the new and enterprising.
Yet the urge to be in business continues; the lure is freedom, maybe success and the knowledge that you tried. If you want to see the entrepreneurial spirit at work, visit a decayed strip mall. There you'll find rents that are low and hopes that are high.
Of course, you could go to a business school and see the creation of another kind of entrepreneur: the corporate animal learning about business plans, return on equity, takeover strategy and how to get a window office.
I say the real entrepreneur is the guy with a fishing boat in Maine, or the single mother with a staffing agency in Oregon. — For the Hearst-New York Times Syndicate