This week is National Small Business Week, described as a time to celebrate the special impact made by
outstanding American entrepreneurs and small business owners, according to the event's sponsor, the Small Business Administration. So it's a good time to ask the question, What's the biggest barrier that small business owners face that prevents them from expanding, investing, hiring more workers, and becoming more successful? Taxes?
Well, it turns out that small-business owners place relatively
little weight on tax issues when surveyed, according to Matt Yglesias in his recent Slate article "Licensed to Decorate
." Here's an excerpt:
"Small-business owners are much more concerned with
something Washington rarely talks about: the country’s spreading thicket
of licensing rules.
To be charged a high tax rate on your small-business profits, you need
to be turning a tidy profit in the first place. Anyone in that position
would surely prefer lower taxes but is fundamentally ahead of the game.
The main barrier to entrepreneurship is not that you’ll pay taxes if you
succeed—it’s that you might not make any money at all.
Over time, occupational licensing has become much more common.
Morris Kleiner of the University of Minnesota and Alan Krueger of
Princeton have found that in the early 1950s, less than 5 percent of the
population worked in occupations covered by state licensing rules. Today
it’s well over 20 percent.
Some of this is surely justified. But
a wide range of these rules could be done away with entirely at
basically no risk. Regulation is needed when it would make sense for a
firm to deliberately engage in malfeasance. Dumping harmful toxins into
the air is highly profitable unless it’s prohibited. Financiers can draw
huge bonuses by taking on too much risk, only to wreck the economy
later. In other occupations, though, shoddy work brings its own
punishments. An interior decorator who can’t get recommendations from
satisfied customers probably won’t remain an interior decorator for
In these cases, licensing rules
raise the prices the rest of us pay, make it difficult for successful
entrepreneurs to expand their businesses, and are often a major barrier
to employment for the most vulnerable populations. New Jersey’s ban on
high-school dropouts fixing locks sounds silly, but given the generally
bleak prospects facing workers with little education, barring them from
whole occupations is a big deal. States should take a good, hard look at
their existing codes and ask whether mass unemployment isn’t generally a
bigger threat to the public than rogue barbers [MP: Or rogue hairbraiders
or eyebrow threaders
: Today's WSJ article "The Red Tape Diaries
" highlights one small business owner's struggle against bureaucracy.