Economic Recovery Starts with Small Business [Commentary]

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Economic Recovery Starts with Small Business [Commentary]

Jan 26, 2011
Posted by Kristie Arslan - Getting our economy back on track depends on the success of our nation’s small businesses. Critical measures enacted last year like the Small Business Jobs and Credit Act and the extension of the Bush-era tax cuts delivered much needed tax relief to small businesses, especially the self-employed and micro-businesses, helping business owners keep their doors open and even expand their operations.

The latest messaging from the White House signals that President Obama is serious about continuing to support the small business community. During his State of the Union address, the President stated that he is open to fixing an element of the health care reform law that unwittingly created a significant regulatory burden for small business owners:

"Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

The President is referring to a small, but incredibly onerous provision buried in the health care reform bill requiring small business owners to submit IRS Form 1099 for every purchase of goods and services over $600, which will increase the time and money spent on tax preparation for three out of four business owners. This is the type of burdensome regulation that prevents small businesses from thriving.

It is also the type of burden that the President seems eager to eliminate with his vision for a 21st century regulatory system. This goal was recently promoted by the President in the pages of the Wall Street Journal. In the lead up to the State of the Union, the President issued an executive order addressing the overwhelming regulatory burden on small businesses, especially our nation's smallest businesses - the self-employed. A key component directs federal agencies to consider the cost/benefit analysis of proposed regulations and choose the least burdensome path for small business. While the executive order is a step in the right direction as agencies have all too often issued regulations without considering their impact on small business, creating onerous compliance costs and difficulties.

There is, however, a glaring problem with the E.O. and the Regulatory Flexibility Act: the agency with the single largest impact on small business – the IRS – is exempt from this law. The IRS is not required to perform any sort of analysis regarding the impact of their regulations on small business. Without addressing the elephant in the room, there is only so much benefit this E.O. will deliver to the majority of small businesses.

Enhancing competitiveness and expanding employment are solid economic goals. But policies to get us there have to take into account the demographics of our nation’s businesses. Policymakers need to continue legislating to the majority of small businesses, not just to the corporate giants.
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