October 27 2010

Stiletto Nation: Government's Not Helping Female Entrepreneurs

Nicole Kurokawa Neily

In March 2009, President Obama signed an Executive Order creating the White House Council on Women and Girls. At the signing ceremony, he stated that the purpose of the Council was to "ensure that American women and girls are treated fairly in all matters of public policy." Nineteen months later, his goal has been achieved - women entrepreneurs are just as impacted by his economic policies as male entrepreneurs are.

It's widely acknowledged that the economy is floundering. Lending is sluggish, consumer confidence is low, and the unemployment rate remains at 9.6 percent. At an event in Maryland on October 8th, President Obama stated, "it is small businesses that will power our growth and put our people back to work." But unfortunately, government policies have made it increasingly difficult for those businesses to do so. Laws and regulations passed by Democrats in Congress have led to higher costs and created rampant uncertainty in markets - which has spooked investors, discouraged entrepreneurs, and placed a crushing burden upon the nation's 30 million small businesses.

For employers of all stripes, costs are going up. Many inputs have become more expensive as an indirect result of government policies - from food products (farm subsidies and tariffs) to gasoline (drilling bans) - which chip away at businesses' bottom lines. According to "Women-Owned Businesses in the 21st Century," a report released this month by the Department of Commerce, women-owned businesses are often smaller than men-owned businesses, and "average sales/receipts for women-owned businesses are only 25% of average sales/receipts for men-owned businesses." With a narrower margin, piling on additional costs can mean the difference between staying open or shutting the doors.

There's another cost that's risen as a result of government policies: workers. Of the country's 7.8 million women-owned businesses, 911,285 retained staff - employing 7.6 million paid workers. Hiring and retaining employees isn't as simple as it may seem; employers bear a number of additional costs in addition to wages paid, which drives up the cost of each additional employee significantly. Firms that provide health insurance for their workers continue to struggle with the rising cost of policies, despite the many promises that health care reform would hold such increases in check. Some companies have begun to shift costs to employees, while other companies (including McDonald's!) are considering dropping their coverage and paying the penalty rather than shouldering the increasing financial burden of employer-based health care. Sure, reform might have included "credits" for small business owners - but when owners face crushing cost increases from across the spectrum, getting a few thousand dollars back in April is cold comfort, indeed.

Bear in mind that increased health care costs are in addition to the standard costs that employers must already bear for each worker: nearly all firms must withhold a portion of their employees' paychecks for Social Security and Medicare taxes (also increasing for some employees), as well as match their employees' contributions up to a certain point. In addition, employers must pay state and federal unemployment taxes on the first $7,000 of each employee's gross earnings. As state and federal unemployment rolls swell and benefits are extended, these taxes are likely to increase in the near future.

Those aren't the only tax rates that will be going up on small businesses, though. Should the 2001/2003 tax cuts expire across the board (a very real possibility, given the stalemate likely to occur after November 2), rates will go up across the board on all income levels. Given that many small businesses are not structured as corporations and their owners file as individual taxpayers, small businesses will be devastated.

If rates only go up on top income earners - the president's preferred policy - the results will still be horrific, as the top rate is the rate at which two-thirds of small business profits are taxed at, according to Americans for Tax Reform. Those profitable businesses are the very enterprises whose hiring and spending should be fueling the nation's economic recovery; instead, the president plans to penalize them for their success. Pillaging these businesses' profits will mean less expansion, fewer jobs, and diminished output - certainly not the way to get the economy back on track.

Another tax that's likely to increase is the capital gains tax, which will also hurt small businesses - and women businesses, in particular. The Department of Commerce report states "there are substantial differences in the financing utilized by women-owned versus men-owned businesses. Women start with less capital than men and are less likely to take on additional debt to expand their businesses." Raising the capital gains tax means that the little capital that women have will be subject to higher tax rates if any profits are realized - reducing incentives both to take risks and invest in the first place.

Piling on, another burdensome policy comes from the health care reform bill, in a little-discussed provision that requires all businesses to fill out a 1099 reporting form for all vendors from whom they purchase more than $600 of goods or services during the year. To collect a negligible amount of revenue, the provision significantly increases the amount of paperwork that business owners must complete - and reduces the time they have to run and grow their operations.

The costs, regulations, and taxes heaped upon business owners to date have been onerous - yet unfortunately, it remains to be seen whether the worst is yet to come. Congress has made it abundantly obvious that "do no harm" is not a policy worth pursing, and the uncertainty that this has created in the business community - what taxes, fees, and regulations will be imposed upon us next? - has frightened anyone with a spare dollar in their pocket. Minority Leader John Boehner put the problem best in a September 14 letter to Speaker Nancy Pelosi, arguing "The two biggest obstacles to private-sector job creation in America are excessive spending by government and the job-killing uncertainty being faced by small businesses as they face the looming threat of a major tax hike on January 1, 2011."

The nation's female entrepreneurs will play a key role in restoring the nation's economy. But to do so, the government needs to put in place policies that will help them succeed, and not deliberately hobble their chances. Permanent, low tax rates and credits for small businesses will provide fiscal certainty, while lighter regulatory burdens will allow entrepreneurs to concentrate on the thing they do best - running their businesses and making money - and reduce the time they spend on compliance and paperwork. As Representative Thad Cotter (R-MI) said recently, "One cannot raise a recessed economy from its knees by putting more government on its back."

Government policies can help or hurt women business owners - so isn't it time the government started doing more of the former, and less of the latter?

Nicole Kurokawa is a Senior Fellow at the Independent Women's Forum. This is the latest in our fall series focusing on women's issues, "Stiletto Nation."

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