This Is Small Business in America: Burdened, Crushed, Doomed

If you make it increasingly costly and risky to open a small enterprise, then no wonder unemployment remains high.

You hear a lot about Kafkaesque stifling bureaucracy in Greece and other struggling European nations, but America's Status Quo is trying its best to destroy small enterprise with taxes and crushing bureaucracy. I am self-employed, and have been for most of my life. When I did take a paid position, it was in other small enterprises or local non-profit organizations.

I mention this because there is an unbridgeable divide in any discussion of small business between those who have no experience in entrepreneural enterprise (i.e. they've worked for the government, NGOs/non-profits or Corporate America their entire careers) and those who have.

There are all sorts of similar chasms that cannot be crossed and which quickly reveal a surreal disconnect from actual lived reality: for example, the difference between actually playing football--yes, with pads, a muddy field and guys trying to slam you to the ground--and being an armchair quarterback who's never been hit even once, never caught a pass or ever struggled to bring down a faster, bigger player. (And yes, I did play football in high school as a poor dumb skinny kid who mostly warmed the bench for good reason, but I lettered.)

At the extreme of this disconnect, we have armchair generals screaming for war who have no experience of combat or war as it is actually experienced.

You get the point: it's very easy for well-paid pundits who have never started a single real enterprise or met a single payroll to pontificate about "opportunity" and small business as the engine of growth, blah blah blah. It's also easy for those with no actual experience to reach all sorts of absurd conclusions about how easy it is to turn a small business into great wealth. (No, Bain Capital or other Wall Street outposts of financialization are not "small business.")

In real life, it's only easy to run a small business into the ground, especially when there's a thousand tons of junk fees, taxes and useless bureaucratic requirements on your back. Lest you think this an exaggeration, consider that it took two years and $200,000 to open an ice cream parlor in a vacant retail space:

"Ms. Pries said it took two years to open the ice cream parlor, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”
Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water."

There is nothing mysterious about the cause of this Kafkaesque Status Quo:each city, county, state and Federal fiefdom must justify its existence and payroll, and everyone in each fiefdom will fight with every fiber of their being to protect their turf. Politically, it's a fight to the death to trim even the thinnest slice of bureaucracy, and so little if any ever gets trimmed.

Nobody will care until the city, county and state's revenues collapse as people opt out of supporting the bloated dead-weight of the Status Quo with their own sweat and blood.

The only way to survive is to not have a "real" business, i.e. you write code in your living room or parents' basement, or you do enough business in the informal sector (cash) to support your high-cost formal business.

Taxes and bureaucracy are not just urban phenomena, as this insightful report from Eric in Texas shows. Eric draws a critically important causal line between the stifling of small enterprise and high structural unemployment: if you make it so costly, risky and burdensome to start a business and hire people, then no wonder unemployment is high and will stay high.

One of your recent posts made me think of how difficult reinventing communities and coming up with creative solutions for the problems of unemployment and displaced people in our society is. I think it has to do mainly with the way in which lower middle class / middle class people are overburdened with taxation. As you stated in your post, the amount of taxation is staggering. Especially for the self employed, like myself. 

My wife and I pay much the same percentage taxes as you listed in your post. I live in a rural area of Texas and from time to time small acreage properties go up for sale around our home. If we wanted to buy some adjacent acreage for the purpose of inviting a few of our friends, who are teetering on the edge of unemployment and facing the prospect of real poverty, to live next to us and help each other grow food, take care of livestock and find creative self employment opportunities in our area together, the resultant burden of taxation would prevent it. 

For example, as I see it, my wife and I would now be paying property taxes on two properties, one would not have the homestead exemption. Any "improvement" on the new property, e.g. a small house built for our friends, would only increase the property taxes. We would also have to consider, if we planned to live together in this way long term with the major contribution of our "unemployed" friends being their labor and time invested in our communal living experiment, what kinds of taxes we might be subject to in the future based on the way we are using each others time and energy to achieve solutions for food production, child rearing, shelter, etc. I don't know if we would be subjected to any taxation in doing these things only assuming we might be. 

To attempt to sum up my reaction to your post, I will make a list of what I think would impede a lower middle class person who has some discretionary income and could provide a small house and small acreage for the benefit of a few friends on the brink of poverty, with the view to the arrangement being ultimately beneficial to all involved. 

1. Increased property taxes
2. The possibility of providing mandatory health insurance through "Obama care"
3. Taxes and or restrictions on what produce we can sell through farmer's markets or through the Internet, e.g. the recent crackdown on raw milk sells, and "cottage foods" like goat cheese, homemade pies, homemade canned goods, etc. In other words, if our whole way of life is to produce locally grown food for ourselves and our extended "family" and this is threatened through excessive regulation and or taxation, I wonder if it's really realistic to pursue.
4. In Texas taxes are rising, even in this recession school taxes, property taxes, fees, etc. are all going up.
5. Federal taxes look like they are poised to increase. 

If I didn't have to worry about taking on the burden of all these forms of taxation, property taxes being the most onerous to me, I might could use what capital I have to invest in a communal living arrangement that I would hope to be of benefit to my family and some of our friends. 

It's the idea, ultimately, that I want to reinvent my community (for me that means bringing friends in close relationship in mutual work for mutual benefit) and provide opportunities to contribute. But if that means having to tangle with bureaucrats over how much more I now owe because of my desire to do these things, I think I will be doing better to try to take care of myself, my wife, and our children, and leave the rest of my loved ones to prayer and occasional modest charity. 

In short, if we were not taxed every time we tried to do something, we just might damn well do something! 

Let's focus on getting rid of property taxes, and other forms of ridiculous taxation so that we can free up our energy and time to do the very things you advocated so well in your post. 

I realize the benefit to myself and so many of some forms of government assistance, for example food stamps, child tax credit, energy efficiency rebates.... I think good government programs could be sustained if we did things like close our military bases around the world, brought the troops back to the states, and made education and real estate much less expensive, and allowed people to grow and market local foods without encumberance.

You wrote:
Here is the ugly truth about the Savior State, welfare state, social welfare state, or whatever you choose to call the Central State: The Savior State displaces and destroys community and social capital. By making individuals dependent on the Central State for free money, free food, free housing, etc., then the State has taken over the natural function of community. 

In my opinion, it is also that the Savior State displaces and destroys even the potential for ( my main point) community and social capital. By placing oppressive, punitive, discouraging, and unreasonable forms of taxation on individuals who may otherwise extend resources of capital towards helping their neighbors, friends, and even family. In this way, then, the State has decided to oppress and retard the development of communities.

Well said, Eric, thank you. Before you jump in to "correct" this view of small enterprise in America, first list how many enterprises you have started, owned or run, and how many people were/are on your payroll.

If you think it's so easy to get rich in small business, then here's the keys, and payday's on Friday. 

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Thank you, Roy M. ($5/mo), for your wonderfully generous subscription to this site -- I am greatly honored by your support and readership.