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Waking up the Hibernating Economy

The economy appears to be in hibernation for another yet another winter and apparently the government has gone to sleep along with it. The administration has turned a deaf ear to many small business groups who argue that more government is exacerbating, rather than fixing, the problem.

In its December report the National Federation of Independent Business (NFIB) outlined the myriad problems the government is causing, saying:

[A] major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy. The “turbulence” created when Congress is in session is often debilitating, this year being one of the worst. Themes including “tax more,” “tax the rich even more,” “VAT taxes,” higher energy costs due to Cap and Trade, mandates and taxes for health care, threats of “stimulus II,” incomprehensible deficits, and a huge pool of liquidity created by the Federal Reserve Bank that threatens price stability and higher interest rates. The list goes on and on. There is not much to look forward to here and good reason to “keep your powder dry.” Uncertainly is the enemy of the real economy as well as financial markets.

The concerns of the NFIB are borne out in polling data. When asked what the single most important problem facing small business owners today, the federal government had a direct hand in two of the top three.

Problem

Current

One Year Ago

Poor Sales 32 20
Taxes 24 32
Govt. Red Tape 11 8

Economic Problems

Obviously the government does not have a direct method, besides putting money directly into the pockets of taxpayers, of addressing poor sales. However, they have yet to respond to businesses concerns regarding lower taxes and minimalizing the regulatory burden. Although some degree of federal regulation is important to protect the consumer, the employee, and the environment, excessive regulation can be an enormous burden. As the Public Forum Institute, an independent, nonpartisan think tank, explains:

Federal regulations, studies say, produce a significantly higher burden on small enterprises and startup companies than large, well-established corporations. . . Much of this added burden is due to the fact that the costs of researching and complying with regulations tends to be fixed for all companies, meaning that it uses a larger proportion of small business revenues. . . The initial costs of compliance actually act as a barrier to entrepreneurship, with innovators being too afraid of accidental non-compliance or their impact on profitability.

We must make it easier and more appealing for small businesses and entrepreneurs who are the primary drivers for creating jobs. Congress should work in a bipartisan fashion to ease the regulatory environment and lower tax rates; instead they are planning on an additional stimulus package that will creates further uncertainty. Business understand that money being funneled to select parts of the economy will ultimately have to be paid back with higher taxes in the future. Many small businesses are willing to lay low until the uncertainty pans out. It has caused the economy to go into hibernation, it’s the government’s job to wake it up.

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