Small Businesses Need Small Government: Lessening Tax and Regulatory Burdens

People often support high taxes and extensive regulations intended to make the market “fair” for small businesses to be able to compete with mega corporations. But what is often ignored is that those high taxes and extensive regulations make very little difference to giant companies, but they are always a strain on small businesses. Huge corporations have teams of accountants and attorneys to find loopholes, or make sure they don’t miss anything that may cause trouble for them in the future, but most small businesses do not have these luxuries.

Taxes and Regulations Stifle Development

Franchise tax, ENI tax, business and investment capital tax, minimum taxable income, fixed dollar minimum tax, subsidiary capital tax, MTA tax, state filing fee, personal income tax—these are just some of the taxes New York state imposes upon local businesses. The tax rate in the state for businesses ranges from about 6.5%-7.1%. Because of the state’s high personal income tax, sales tax, and property tax rates, New York is considered “one of the least favorable states for new and small businesses.”

In terms of regulations, the list of things required to start and run a business in New York City is extensive. It includes certificates, inspection requirements, permits, licenses (individual and business), registrations, rules and regulations, signage requirements, and much more. These cost time and money to obtain and follow, which mega corporations have to spare. Small businesses, on the other hand, like mom-and-pop, brick-and-mortar shops don’t necessarily have the money to adhere to these requirements. They hinder business development and growth.

The IRS considers any company with 500 or fewer employees a small business. But New York has lowered that standard to any company with fewer than 100 employees. Imagine having only a few hundred employees in your business, but being regulated as if you employed over a thousand. New York should make it easier for small businesses by at least categorizing them the same way they are recognized federally.

Lowering Taxes Helps Businesses Grow

Which taxes should be lowered to make it easier for businesses to flourish in the state? One example is the capital gains tax. According to the Cato Institute, “reduced capital gains taxes can generate greater financing of young companies by angel investors and venture capitalists.” As we’ve all seen on ABC’s Shark Tank, small businesses and start-ups rely on those investors to get the push they need to make it big. If the capital those investors receive is taxed too much, the investors are less likely to invest, and entrepreneurs are less likely to even try to start their business in the first place.

The individual income tax in the state should also be lowered, since small businesses file as individuals. Big corporations only pay about a half percentage higher tax rate than small businesses. That’s not to say that we should increase the corporate tax rate in the state, since “state corporate taxes are borne mostly by workers, not shareholders, because it’s easier to pay local labor less than it is to attract global investors at lower rates of return.” So if the corporate tax rate were also reduced, we’d start to see wages increase. And if the individual income tax rate were reduced, there would be much less of a burden on small businesses.

Regulations and taxes make it much more difficult for small business owners to make a worthwhile profit. These taxes and regulations inhibit business growth and hinder start-ups. This results in less competition in the market and fewer choices for consumers and wage workers (which regulations are intended to help). Legislating minimum wage, occupational licenses, zoning and parking requirements, etc. do nothing to help small businesses. Most of these laws are written by big corporate lobbyists who know that it will only subdue any challengers that the Wal-Marts and Targets of the state may have to compete against. Pizza Hut can afford a higher tax rate and can pay their employees $15/hr. Salvatore’s Pizzeria cannot.

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