Why Americans Don't Want to Start New Businesses
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What's worse than a country that doesn't support job growth?
One that discourages the creation of new businesses.
For the first time in recent memory, the number of businesses failing is outpacing the number of businesses being created, according to data from the Brookings Institution. The trend started in the first year of the Obama Administration and has continued ever since.
A deeper dive into the data shows even more frightening news for the American entrepreneurial economy. It isn't that businesses are failing at a higher rate. After all, companies come and go all the time, so a higher number of failures could be seen as a good sign: Optimism to give entrepreneurship a try no doubt leads to some companies that simply don't take off.
Rather, the trend is driven by a slowdown in the number of businesses created in the country since 2008. In short, people don't want to take the chance and start a company.
That is scary because we already know that there are signs that American worker is too discouraged to get a job, with the labor force participation rate at the lowest level since the Carter Administration. But there was always a feeling that the business owner had a bit more optimism than the average worker.
Not so, according to the data. Brookings doesn't cite reasons for the decline in business creation -- in fact, the group notes such reasons are "unknown." But it shouldn't be hard to figure out.
Regulation. The unprecedented rise in regulation over the past six years has made it more burdensome to start a business. Many have focused on Obamacare and Dodd-Frank as some of the most onerous, but it is actually the nickel-and-diming of small-scale regulations that have had the most onerous effect on companies. Every day, we see a struggle between innovation and the regulatory framework in this country. Car-sharing services like Uber and Lyft have had to fight against laws protecting cab drivers. Google Glass has run afoul of motor-vehicle laws. Autonomous cars have been held back by state insurance requirements. The list goes on.
A new regulation is promulgated in America roughly every two-and-a-half hours. In fact, the cost of regulation in the U.S. is bigger than the economies of all but nine countries in the world. As a result, businesses of all sizes have had to face higher compliance costs.
Taxation. Death and taxes have always been inevitable, but the tax policies of recent years have taken a direct aim at American entrepreneurs. Take the "tax the rich" approach. Since so many small businesses are set up in a way where company profits are taxed as individual income, many hard-working people fell into tax hikes meant to target the country's wealthy "elite."
Even now, there is so much chatter about how the wealthy are not paying their fair share, even when just a cursory look at the data shows that small-business owners are hurt worse than anyone when tax hikes only target the richest.
Large companies aren't immune. A failure to address the double taxation that comes from repatriating income earned overseas means that $206 billion in profits can't be brought back into the U.S. Think what kind of stimulus the country would enjoy -- and what kind of business creation could occur -- if companies were allowed to bring that money back to our borders.
The Blame Game. Time was, part of the American dream was trying to create a business. Entrepreneurs were heroes in our American story. Now they are villains. We hear socialist economists attacking the entrepreneurial economy. Business owners are blamed for keeping down workers by putting profits over people.
Worst of all, the sentiment against business owners comes from the top. Immediately after his State of the Union speech, President Obama embarked on a shame tour, giving speeches about how American workers are paid too little. Put aside that these companies employ people at a time of disturbingly high joblessness. Rather, the president and his union allies targeted businesses by promoting policies like higher minimum wages, even though there is no correlation that higher wages lead to job growth. One can make an easy argument that the opposite is true.
But business owners have become the easy target. They must be wealthy, and therefore must be hurting our fellow citizens.
Hogwash. Look at the misguided protests over higher wages for fast-food restaurant workers. Many of the owners of these franchises struggle themselves to make ends meet. In some cases, they could make more as a general manager at a restaurant somewhere than as a franchisee on their own. But union-backed protests have targeted them. Why would anyone take the risk of opening a business in that kind of hostile environment?
Here is why all of this is important: If you truly believe in more jobs, in better wages and broader prosperity, you need Americans to innovate, to take risks, and put their capital at work to create new businesses. You should be rooting for their success, since the more money they make, the more profits they have to reinvest in their businesses. That reinvestment invariably creates jobs, which creates wealth for others.
It shouldn't be a hard concept to understand. Yet, our policy response continues to go in the wrong direction. Rather than allowing for reinvestment, the government continues to increase the take it demands from taxes and regulations. It is fashionable to punish success and badmouth the business owner, to boot. That attitude doesn't create jobs. That doesn't create wealth. That only creates resentment, and it erodes the very entrepreneurial spirit on which this nation was founded. Unless it is reversed, our economic problems will persist, and, worse, what it means to be an American entrepreneur will no longer resonate.