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Let's Get Political

Burdened by taxes, regulations and red tape, start-up entrepreneurs are screaming for relief. Is anyone in Washington listening?
January 1, 2000
URL: http://www.entrepreneur.com/article/23474

What's politics? Something our parents did in their wild, naive years of long hair, soft drugs and communal love. As for our generation, we're making it where it counts--not in creed or controversy, but in shares and silicon. Internet start-ups, daytrading, IRAs, 401(k)s--those are our buzzwords. The "Bill" we love is Gates, not Clinton, and when you say Washington, we think Seattle. As for our center of power, it isn't where Capitol Hill meets the White House but rather where Madison Avenue runs into Silicon Valley and Wall Street bumps into Hollywood. You want to change our world? Change our World Wide Web.

At least, that's how many young entrepreneurs feel--or should I say felt. Slowly but surely, our generation is overcoming our distaste for politics and understanding that what happens in Washington affects us and our businesses. A proliferation of associations, nonprofits and institutions are capitalizing on our need to understand government. Have these groups been successful? Are they carrying our message to Washington? What is our message?

Our message, perhaps, emanates from one of the most prominent aspects of our generation--the desire to be our own bosses. Young adults start more businesses than any other age group in America. People under age 35 are responsible for 70 percent of all new businesses in the United States, according to a study by the National Federation of Independent Business (NFIB) and Wells Fargo Bank. And more of us are self-employed, free agents or guns-for-hire rather than corporate employees--25 million of us, to be exact.

What does this new lifestyle have to do with our politics? Everything. It dictates the need for brand-new government policies in every field, from taxes to corporate regulation to health care.


Meredith Bagby is the author of Rational Exuberance: How Generation X Is Creating a New American Economy (Dutton, $24.95, 800-631-8571). She was the Gen X correspondent for CNN in New York City and has testified before Congress several times on issues affecting young adults. She is currently working on a young adult voter's guide for the 2000 presidential election.

Praying For The Wellness

Abby Schwarzwalder is the founder of FirstWinter Films in Los Angeles. Like many new entrepreneurs, Schwarzwalder, 29, had to cut corners when she launched her documentary business in 1995. "I couldn't afford health insurance. I thought 'I'm young, and I'm planning on being healthy.' Boy, was I wrong." Within a month of leaving her corporate job--and her insurance--behind, Schwarzwalder got into a severe car accident, racking up more than $5,000 in medical bills and four months of recovery. "It was a huge financial burden and almost sank my business. If I could change one thing about our government system, it would be health care."

Schwarzwalder is not alone. A joint survey by the Kaiser Family Foundation of California and New York's Commonwealth Fund found that more than 50 million working-age Americans are without health-care coverage or had recently suffered a gap in coverage. More than half of these are under age 35. No wonder health care is a major hot button for young entrepreneurs--especially for those faced with paying high premiums to insure their employees. "Every year, we take a survey of our members," says Angela Jones of the NFIB, "and every year, health care comes up as their number-one concern."

What's the solution? Traditionally, conservative groups such as the NFIB have supported greater privatization of health care and a "leveling of the playing field" for small business. Legislation they support would allow self-employed individuals to fully deduct the cost of their health insurance premiums--a benefit the employees of incorporated businesses currently enjoy. Other proposed changes include decreasing state regulation of small business and expanding the availability of medical savings accounts, which would encourage investing by providing a tax-free investment vehicle.

But many young entrepreneurs disagree with privatization, leaning more toward a government solution. "So [what if] we pay more taxes?" says Schwarzwalder. "It would be worth it for the assurance of care, no matter what stage of life we're in."

Taxing Matters

Start-up entrepreneurs are often overwhelmed by a tax code that is complex, confusing and disproportionately biased against small businesses. Not to mention, paying for the right tax advice can be costly; according to the NFIB, firms with fewer than 50 employees spend close to 5 percent of their annual revenues on tax compliance.

The prices can be even greater if you factor in costs at the state and local level. "We do business in California, where taxes are disproportionately high," says Erica Wertheim-Zohar, 28, founder and CEO of American Groove, a women's and children's sportswear business in Los Angeles. "We're competing with companies in all parts of the country, and it's really hard to make the same margins they do."

In addition to taxes, there's the cost of compliance with state and federal regulations, which can be particularly onerous for small companies. According to the NFIB, the regulatory cost per employee to small firms is approximately 50 percent more than the cost to large firms.

Never Too Young

Worried about retirement? You bet young entrepreneurs are. With Social Security scheduled to go bust in the midst of the baby boomers' retirement years, young adults are planning to go gray without help from government cushions.

In addition to starting their own nest eggs, many twentysomething entrepreneurs want the government to encourage savings through expansion of investment vehicles like a Roth IRA or 401(k). Many also argue for privatizing Social Security and creating personal retirement accounts.

Deroy Murdock, founder of media and marketing consulting firm Loud & Clear Communications in New York City, is an ardent supporter of privatization. "Between 1926 and 1996, the stock market offered 7.6 percent in real average annual returns-nearly 10 times better than what Social Security pays," says Murdock, 35. "Add to that the fact that personal retirement accounts can't be taken away or reduced by politicians."

According to Richard Thau, president of political advocacy group Third Millennium, most young people favor the creation of personal retirement plans. "Young adults are fed up with Washington mismanaging their money. They know they can do it better," says Thau, whose organization seeks to represent young adults' economic interests in Washington. One survey Third Millennium conducted showed that more young adults believe in UFOs than believe they'll ever see a dollar of Social Security.

Is Anybody Out There?

No question, young entrepreneurs have issues. But is anyone out there representing them?

The biggest and loudest lobbying group for small businesses, with a membership of 600,000, is the NFIB. The NFIB calls itself a "melting pot of commercial enterprise, high-tech manufacturers and family farmers, neighborhood retailers and service companies." Collectively, the group's members employ more than 7 million people and report annual gross sales of approximately $747 billion.

The problem with the NFIB is that it represents mostly people over age 35, with 10 years or more of business experience. The NFIB doesn't actively recruit young folks, and younger entrepreneurs know little about the NFIB. "Never heard of them," says Wertheim-Zohar. "And I don't know if my issues are their issues."

For some entrepreneurs, the problem with the NFIB is precisely that--the group's issues may not be in tune with this new breed of entrepreneurs. "Sure, I don't want to pay high taxes," says Schwarzwalder, "but I also care about other issues, like poverty and health care for the poor, and the NFIB's traditionally conservative stance turns me off."

So what's the alternative? Doug Mellinger, chair of the newly formed National Commission on Entrepreneurship in Washington, DC, has some answers. After 10 years as a successful entrepreneur and venture capitalist, Mellinger was contacted by the Ewing Marion Kauffman Foundation to study how government can help entrepreneurs grow their businesses faster and more effectively. "Despite the flourishing of new business, entrepreneurs remain the least represented [special interest group] in Washington," Mellinger says. "Our commission hopes to educate policy-makers on how to create the infrastructure necessary for entrepreneurship."

For those looking for a membership organization (which Mellinger's Commission is not), there are groups like the Young Entrepreneurs' Organization (YEO) in Alexandria, Virginia, or The Young Entrepreneurs Network Inc. (YEN) in Los Angeles. But these groups focus on networking and education--not politics. "Washington is not our concern," says Karen Seidman, director of communications and marketing for the YEO. "We exist as a forum for young entrepreneurs to meet and talk confidentially about their business problems. We don't give advice on politics."

Perhaps the best alternative for young entrepreneurs seeking to make their voices heard is in the high-tech industry, where organizations like Technet, Open Net and, most recently, NetCoalition.com are forging the way. According to the nonpartisan Center for Responsive Politics in Washington, DC, telecommunications and tech companies spent about $186 million on lobbying last year. The lobbying effort comes at the same time as candidates are gearing up for the 2000 election.

Unfortunately, these high-tech lobbying groups are largely controlled and founded by the big guys. NetCoalition.com, for instance, which launched on Capitol Hill in July 1999, is made up of some of the largest Internet businesses around, including Amazon.com, America Online, DoubleClick, eBay and Yahoo! The same is true of Technet and Open Net. Not exactly a place for a start-up.

Still, some of the issues these organizations are fighting for would benefit smaller tech start-ups, too. Among the groups' goals: protecting accounting rules that make financing easier, creating more visas for high-tech workers, blocking new taxes and regulations on the Internet, and renewing the tax credit for research and development.

What's more, the tech lobbies don't have the "conservative stigma" of the NFIB. They aren't aligned with the Republicans or Democrats--at least, not yet--which may make some young entrepreneurs less skittish about getting involved.

A Start-Up Waiting To Happen?

Most young entrepreneurs we talked to say they don't belong to any lobbying group but would sign up if an association fought for their issues. Says Wertheim-Zohar, "There are a lot of issues that aren't being addressed for this generation. We have the stigma of youth, and [in order] for people to listen, I think we have to rally together."

Maybe for someone reading out there, this could be a new business start-up?