Small Business Tax and Regulatory Rubicon

Our local press is beginning to catch on to what we have been harping on for the past few years-small neighborhood business has been hammered by a combination of the severe recession and government tax and regulatory policies that treat these enterprises just like a piñata. Here's a City Room glimpse at the problem, shuttered store fronts all over the city: "When James and Karla Murray started photographing storefronts in 2001 for their book “Storefront: The Disappearing Face of New York” (Ginkgo Press) they noticed that some shops were closing as quickly as they could gather their shots. The trend did not stop after the book went to press. In the 15 months since it was published, more than half of the roughly 225 storefronts that were photographed have shuttered."

The Bloomberg economic policy of mega development certainly hasn't helped the neighborhood stores-substituting car dependent retailing for the walk to shop local commercial strip: "Many shop owners say that they are closing now because in the recession, New Yorkers are heading to larger discount chains for bargains that they suspect they cannot find at smaller stores. “People aren’t spending money, and a lot of people perceive that things are going to be more expensive at a more mom-and-pop shop,” Ms. Murray said. “The ones that seem to be hanging in there own the building.”

The NY Times examines this phenomenon through a local Bronx lens-focusing on John Scanlon's home center store: "In the past year, Mr. Scanlon, 49, has laid off two workers and canceled the health insurance of a third, whose hours also were cut. He has scaled back his own family’s health plan, deputized his wife, Sherry M. Speirs Scanlon, 51, as an ambassador to scare up more business and enlisted their 27-year-old daughter, Tashel, to work as the office manager."

As an aside, one can see just how President Obama's concern with people not having health care may be a bit misplaced. Yes, we need to help folks to get health care, but not at the expense of the economy that should be the linchpin of any health care discussion-and the local impetus for paid sick days plays perfectly into this business destroying, government mandating mindset.

To put additional government mandated expenses on businesses that are reeling is just wacky and counterproductive-but with what's cooking in Washington, we ain't seen nothing yet. As the NY Post reported yesterday: "America's jobs growth engine is being choked to death. A record 25 percent increase in the taxes against US small businesses -- from costs associated with new health care law, to an increased Medicare tax, increased capital gains taxes and higher state and city taxes -- is repealing any ability of these entrepreneurs to add jobs to their payroll. And the numbers for New York's small- to medium-sized business are just as harrowing. By one estimate, the effective tax rate on the 26 million small businesses across the country -- which in the past have accounted for more than half of the job growth in the US -- has jumped to 50 percent from 40 percent, sucking valuable cash from the businesses."

The end result? Stifled job growth: "These dollars could have been used to add to payrolls or make capital improvements -- but instead will be siphoned off by Uncle Sam, state and municipal governments."

And of course the situation in NYC and State is that much worse because of the even more onerous tax and regulatory environment that we have had foisted on us here-as the shuttered store front so aptly dramatize. But what about the responsibility of local governments? It's time to highlight their role as well; unfortunately, local coverage of the role of a high tax and over regulated local economy in our current plight is virtually nonexistent.

The reason lies in the mobilization of bias locally-one that fails to understand the extent to which an enlarged government is itself the problem. We can glean this in the point missing, inside baseball discussions of Bloomberg's third term. Anni Karni does the honors in yesterday's Post: “Over the time Bloomberg’s been in office it’s become less about big ideas than about competent management and moderate ideas at the agency level,” said Andrew White, who runs the Center for New York City Affairs at The New School. “He’ll be looking for someone with expertise in managing the budget [to replace Skyler]. That has to be the core of their agenda, given the financial situation.”

Competent management assumes that the overall direction of government-its size and scope-is a settled issue, a given. But the good professor's comments elides the basic flaw in the entire Bloomberg opus-an understanding of how government itself-its expansion through a bigger work force and higher taxes-has exacerbated the national economic down turn. It also avoids confronting just how mediocre the Bloomberg tenure has been-big ideas like smoking cessation and congestion taxing that misdirect the public attention from the need for reforming the structure of government, and the concomitant therapeutic impact such an effort would have on the local economy.

Instead we get the intrusive nanny initiatives that look to stigmatize neighborhood restaurants with scarlet letters, and local bodegas with gruesome anti-smoking signs; not to mention menu labeling, trans fat banning, and peddler proliferation. Message to Bloomberg and the sightless professoriat: the local economic ship be sinking, going under from the lack of any competent vision at the top.

And the sinking ship is being captained by Iceberg Bloomberg. Adam Lisberg captures a bit of the captain cluelessness: "It's a far different mood than during Bloomberg's reelection campaign, when he barnstormed the city with sunny messages and bold promises. Remember his pledge last year to fix the MTA? Today he's reduced to telling New Yorkers to complain to Albany about service cuts and the potential loss of student MetroCards. Remember how he trumpeted the NYPD's crime reductions? Today he acknowledges the shrinking number of cops has factored into the rising murder rate. Remember how he bragged about keeping "streets and parks cleaner and safer"? His own statistics now show parks getting dirtier and more dangerous - while the time to fill a pothole has practically doubled."

Lisberg errs, however, when he observes the following: "Things are tough in New York. Bloomberg has kept the city's budget balanced with seven rounds of brutal spending cuts, but he is beginning to acknowledge the toll it takes on the services New Yorkers expect." We disagree.

What is brutal is the tax burden on all New Yorkers-and the idea that cutting government means eviscerating vital services when you still have a $400 million a year program to house homeless pregnant women-not to mention a department of health that sticks its expensive nose where it doesn't belong-is simply buying into a conventional wisdom that needs to be challenged.

When Rudy Giuliani came into office he challenged the conventional wisdom on welfare and crime-and suffered the slings and arrows from the bien pensants. But, in spite of all the carping, the city was better off-at least after his reforming first term. With Bloomberg, we not only get conventional wisdom on steroids, but we get it leavened with a nanny mentality that is suffocating to local business as well as to the liberty of all of us.

The city and the state needs leaders who are not only above reproach from a public corruption standpoint, but who also understand that we need to begin to trim the government sails so that we can insure that our once robust economy is not dragged under by mediocre meddlers and their bureaucratic accomplices. Until we do, there will be more empty store fronts-with accompanying press reports that can't seem to figure out just why it is thus.