Targeting small businesses has become this summer’s economic trend. Small businesses have led this country out of its last seven post-World War II recessions. But as government intervention mounts against entrepreneurship, things will get worse before they get better.
Pork-stuffed bail-outs benefiting only big industry are the least of the problems facing entrepreneurs this quarter. Besides the second bail-out—third, if you count Bush’s 2008 stimulus—Congress will continue to charge small businesses with tax hikes and surcharges on capital gains. Indeed, with a corporate federal-state tax rate at about 39%, the U.S. levies tax rates almost 40% higher than the OECD business tax rate. A recent Wall Street Journal editorial called the U.S. rates “close to the most punitive taxes on small business income anywhere on the globe.”
These punitive taxes do not even represent the most insidious front in the government’s war on small business. Congress announced that next week the minimum wage will rise to $7.25, significantly higher than the 2007 hike to $5.85 and a huge leap from the $5.15 rate that prevailed for a decade. Despite a May to June unemployment jump from 9.4 to 9.5 percent, Congress believes that workers will retain their jobs when wages increase. History suggests otherwise. Combined with benefits like unemployment insurance and workers’ compensation taxes, businesses must pay employees a new real-value minimum wage of nearly $8.
With the wage hike, employers will only hire—or continue to employ—workers who can produce $8 an hour worth of goods or services. Historically heightened standards result in even higher unemployment. Denying work opportunities to those whose skills or assignments don’t add up to $8 an hour is far from compassionate. In this economy, for the government to preclude unskilled workers from even entering the work force dooms them to the depths of more permanent unemployment. That is not the way to “create or save” jobs.
We have long been a country eager to create. If the government wants economic recovery, Congress should stop meddling with small businesses and leave entrepreneurs to do what they do best.