Small Business Chokehold Impairs Economy

June 19, 2006
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It must be pointed out time and again that small businesses are the largest employers in West Michigan, across the state and across the country. The Local First third annual “Street Party,” drawing a few thousand people to the downtown June 24, provides the visual tapestry of the variety of small businesses defining the category. New entrepreneurs, key to the “new economy,” are very much small employers. George Erickcek, W.E. Upjohn Institute senior regional analyst, has made several public presentations regarding the structural changes now manipulating and evolving the state’s economy, and the fact that “smaller” is the new rule.

So it is with grave concern that the Business Journal notes this week the almost unprecedented number of assaults on small business by state and federal bureaucracies:

  • The Securities and Exchange Commission announced its intention to improve implementation of Section 404 of the Sarbanes Oxley Act, the Section mandating that public companies annually report on the effectiveness of internal controls over financial reporting, and that an external auditor certify the controls. A great deal of time has been spent with the SEC to allow small businesses to “opt out” of such duplicative and expensive mandates, to date to no avail. Some local businesses have cited SOX as the reason to deregister from stock exchanges and go private. Meritage Hospitality Group’s board is the most recent to consider such a step.

The Business Journal reported last week that Congress is reviewing the unintended consequences of the act, including the fact that many American companies have elected to list on foreign exchanges in lieu of listing on a U.S. exchange. U.S. Rep. Tom Feeney, R-Fla., (who is attempting to enact relief measures) noted, “The high burden of regulation and compliance is potentially outsourcing America’s lead in the world’s capital markets. More companies are increasingly turning to London or Luxembourg instead of New York.”

  • Business Journal Small Business Matters columnist Paul Hense noted in the June 5 issue of GRBJ that the Internal Revenue Service blames small businesses for underreporting income to the tune of $290 billion (using 20-year-old statistics) and is sending its new Small Business/Self-Employed Division chief and his legions to enforce compliance of a multitude of complex government regulations, assign undeserved penalties and prosecute, requiring the self-employed and small business owners to somehow fund the legal defense required to prove innocence.
  • The issues related to Michigan’s Small Business Tax are now well enough understood to have created gubernatorial campaign debate. Even the revenue-starved state legislature is working overtime to move the SBT kill date up — but replacing it (as this issue goes to print) appears equally onerous.
  • Michigan’s “hidden tax” on business last year included vastly lower Medicaid funding, the result of which has been hospital “cost shifting” of what is left unpaid by the state onto the shoulders of businesses. Employers large or small cannot continue to pick up such costs.

The “unintended consequence” of these assaults, especially taken all together, is that small businesses go out of business. Advocacy on behalf of small businesses must come from the entire business community.    

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