Small Business at Critical Breaking Point with Government

The following post was excerpted from an address I delivered on June 16, 2010 to an audience of 150 people, consisting of business owners and local politicians, at the Hispanic Chamber of Commerce of Queens (HCCQ)

Until recently, I didn't pay much attention to government and politics as they relate to me being a business owner. My thinking has always been that I am too busy working on my business, managing my employees, and figuring out how to grow my company to get involved or even pay attention to the government.

Besides, what could I do to change things?

That said, between what I do, as the publisher and editor-in-chief of a media company that serves the New York tri-state market, and the fact I believe that we, as business owners, are at a breaking point; I had to start paying attention and helping fellow business owners understand what is going on.

Now, the government isn’t all bad.  I’m a fan of New York City’s Small Business Services (SBS) and NYC Business Express both are great examples of government helping small business.

Despite those efforts, I do think we are at a breaking point for many reasons; but I will only talk about a few. The issues, for the most part, boil down to money.

Simply put the government is spending a lot more than it has. That means they have essentially two choices: borrow more or raise taxes. As business owners, we know we can't borrow money that we have no way to pay back. If we do, it has drastic consequences on how we live, how we run our businesses, and how our kids will live.

So if the government doesn't borrow more, it has to raise taxes. This "option" has some very immediate and crushing impact on business owners. Our taxes in New York are already among the highest in the county and for some of us will likely be in excess of 50 percent next year. What many people don't realize is how intense the impact of high taxes is on small businesses. Many of us have flow through entities for tax purposes, which means we pay taxes on profits even if we keep them in the company. This means the money going to taxes can't be used on hiring more people, buying equipment or expanding marketing plans.

And that is just income taxes. There are many other ways the government is reaching into the pocket of the business owner to fund their uncontrollable (and unmonitored) spending.  My employment attorney friends tell me that New York state is hiring more auditors to target small businesses for overtime and employee misclassification audits. 

The essence of these moves by New York State is that they are auditing small businesses, often for no reason, to see if independent contactors are being incorrectly labeled or to see if employees should be getting overtime. Having gone through one of these audits, I can tell you it is a very time consuming experience. I hired an attorney to deal with the auditor – which cost several thousand dollars to “prove that we are in compliance” with the state law concerning small businesses. However, not everyone can afford to do that.  So even if there are no misclassifications, there is plenty of cost to the business owner. The IRS has also announced they will be auditing more small businesses as well. Unlike income tax rates, these items don’t get a lot of media attention, even though they are costing us plenty.

Another issue is the proposed city legislation that applies to private employers regarding mandatory paid sick days. Almost all of the business owners that I know care deeply about their employees. I have heard many stories, especially last year, of owners who took pay cuts in order not to layoff staff. And while no one wants a sick employee in the workplace, imposing mandatory sick days will certainly push many businesses that are just hanging on over the edge into failure. Leave the decision in the hands of management and the employees. This is just one piece of legislation at the city level that can seriously impact small businesses.  And there are many more at the state and federal levels, too.

How many times have you heard a government official talk about supporting small businesses and saying something like “small businesses are the growth engine of this country.” I don’t know whether to laugh or to cry.

So, what can we do about this?

First, what can the government do about this? About a year ago, I heard a speech by John Rathgeber of the Connecticut Business & Industry Association. When I saw him speak, he talked about that while business owners have been too busy to get involved in the political process, the unions have put themselves in the middle of the political process (at the state and local level) for decades. This has led to, among other things, extremely generous overtime rules, pensions that are unheard of anymore, and pay raises in bad times as well as good times. Funding pension obligations has become an enormous expense for the state and city. 

I overheard a conversation the other day between two parents who were debating telling their kids they should go to work in government. Not because they want to serve, but because that is where the money is.

I’m a big fan of many government agencies and of our firefighters, police officers, and teachers. However, what I don’t want to see is big reductions in those workforces because we simply can’t afford them.