No. 28
September 3, 1999
By Naomi Lopez*

"If I can make it there, I can make it anywhere," sang the late crooner, Frank Sinatra. Making it through hard work and entrepreneurship has been part of the American dream. But big government now threatens that dream.

The 1990s were ushered in with the promise that the era of big government was over. But as we near the end of the decade and await the dawn of a new millennium, it is clear that big government has not only survived but prospered.

Today, the unchecked proliferation of federal, state, and local tax and regulatory requirements is impeding new business formation and expansion across the nation. The majority of American businesses employs fewer than 20 workers; these firms account for more than one-third of all American jobs, including 49 percent of new jobs created between 1990 and 1995.

According to labor economist David Birch, three out of four new jobs are created in five percent of small business expansions and almost nine out of ten occur in ten percent of those expansions. When the government imposes new rules and taxes on this segment of business, the repercussions permeate many levels of the economy, particularly the inner cities.

Federal, state, and local tax and regulatory requirements are impeding new business formation and expansion across the nation. For example, in 1992, the per-employee annual cost for complying with all federal regulations for a firm with fewer than 20 employees was more than $5,500. The total economic burden for regulatory compliance on the federal level alone is now $700 billion annually, or $7,000 per household. Absent any meaningful reform, that figure will continue to rise.

A new book, Mom & Pop vs. the Dreambusters: The Small Business Revolt Against Big Government (McGraw-Hill, 1999) by Ralph Reiland and Sarah McCarthy, puts a human face on some entrepreneurs and their real-life horror stories, including their own experiences running Amel’s restaurant in Pittsburgh. They do more than offer a few anecdotes; they fight against intrusive government by reminding America of the economic and political power of small business and the need for reversing the trends of small business regulation, red tape, taxes, and lawsuits.

Lawmakers must understand the impact regulation has on both small business and the economy. A substantial regulatory rollback could provide a down payment on limiting the size and scope of government, while allowing America to unleash its entrepreneurial potential.

It is easy to overlook the detrimental effects of government regulation and taxation on our nation’s entrepreneurs, especially during this period of sustained economic growth. But the success of small firms and entrepreneurs is critical for continued economic prosperity. Policymakers should realize that there is always a need for positive policy change and that money directed to taxation, for example, is not available for private investment which is critical to business formation and job creation.

Today, lawmakers have a unique opportunity. The current strong economy, coupled with a large budget surplus, provides lawmakers with many options, including cutting taxes and government spending, rolling back corporate welfare, and reducing the regulatory burden on entrepreneurs by sunsetting regulations (with automatic termination unless legislators determine a regulation is still necessary).

Unlike the optimistic, star-struck lyrics of "New York, New York," the success or failure of a small business is up to the heavy hand of government. Some lawmakers fail to understand that only the nation’s strong entrepreneurial tradition, not more government intervention, will generate continued economic development in the future.

If America is to remain competitive, innovative, and vibrant over the next century, we must be willing to foster small business formation and expansion. This means reducing stifling taxes and regulations, and allowing entrepreneurs to succeed or fail by their own labor and merits.

* Naomi Lopez is director for the Center for Enterprise and Opportunity at the California-based Pacific Research Institute and author of the recent study, Barriers to Entrepreneurship: How Government Undermines Economic Opportunity (Institute for Policy Innovation: July 1999).

For additional information, contact Naomi Lopez at (415) 989-0833.