While an estimated 75 million shoppers in Duluth, across the Northland and throughout the U.S. seize on Black Friday today, no one should overlook the importance of Small Business Saturday tomorrow. The annual event encourages shoppers to support local small businesses, giving the country’s small businesses a welcome boost in sales that doesn’t go unnoticed.
According to a recent national poll of small-business owners, over-regulation, over-taxation and a lack of access to credit are the main hurdles preventing small businesses from expanding. A recently completed 10,000-mile, 30-stop, national Bring Small Businesses Back bus tour taken by my Job Creators Network also found these as the major barriers small businesses face.
The consequences of these burdens are stark. According to Labor Department data released this month, job gains from new firms are at the lowest share of employment in over 20 years, and the rate of startup formation has halved in the last generation. These are just a couple of dozens of indicators signaling the declining role of small-business entrepreneurship in the U.S. economy.
Consider the tax burden for small businesses. Currently small businesses pay a 39 percent federal marginal tax rate on their earnings, meaning that when other taxes are included, they are shipping off more than half of what they earn to Washington rather than reinvesting it in their businesses and local communities. The complexity of the tax code also means that small-business owners spend an average of 40 hours filing their taxes each year, time that could be spent creating value for customers and employees.
Or take the minimum wage, which is increasing in most of the country. Four more states — Arizona, Colorado, Maine and Washington — voted on Election Day to dramatically increase their entry-level wage floors. Many of these wage mandates, including recently passed ones in New York and California, are increasing small businesses’ entry-level labor costs by approximately 50 percent. This is a devastating blow for those operating on low profit margins. Consider a typical Main Street shop like the one frequented on Small Business Saturday. It only earns a few cents on every dollar in revenue. A double-digit percent increase in the minimum wage means that annual entry-level labor costs increase by thousands of dollars per employee. For hundreds of low-margin small businesses across the country, these mandates are forcing them to close their doors or reduce job opportunities.
Finally, look at how the Dodd-Frank financial regulations dried up small businesses’ access to credit, which most need to invest in expansion and equipment. The reduction in credit access is due to Dodd-Frank’s compliance costs that have disproportionately hurt community banks. According to the Minneapolis Federal Reserve, adding just two compliance officers to process Dodd-Frank regulations makes a third of small banks unprofitable. These community banks are the lifeblood of local small businesses, providing the loans based on relationships and local know-how that big banks won’t.
Shoppers should spare a thought for the burdens facing small businesses on Small Business Saturday and support reforms to address them. Lasting change to truly bring small businesses back will not come from one day of boosted sales, however nice that may be. It will only come from addressing the policy barriers facing small businesses.
Alfredo Ortiz is president and CEO of the Atlanta-based Job Creators Network (jobcreatorsnetwork.com).