The big problem for small business

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Article Highlights

  • % of small businesses citing gov. as biggest concern rose form 11 to 24 under Obama

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  • Gov. regulation & red tape now biggest concern for small businesses

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  • If you're looking for a reason jobs are still limping along, look to regulation

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This article appears in the November 11, 2013, issue of National Review.

The jobs report for September suggests that the economy is still limping forward, creating jobs at an unusually low rate for an economy in recovery.

Slow job creation can likely be explained by many factors. Those cognizant of the impact of taxes on hiring practices might remind the president that a large fraction of American business income is in the top individual-income tax bracket, and has thus seen a large tax increase this year. Another factor has been the massive expansion of the regulatory state under President Obama. If you want to start a good fight at a dinner party attended by business executives, ask them what is the biggest drag on the economy— Obamacare, Dodd-Frank, or the Obama EPA.

While the president seems to think that all economic weakness is the fault of either George W. Bush or the Republican House, the expansion of the regulatory state on Obama’s watch has been extreme, and the explosion of straitjacket-wielding regulators is becoming visible in the data.

A key source of job creation is, of course, small business, and a key glimpse of the major concerns in this sector at any given moment comes when the National Federation of Independent Business releases its monthly poll of business owners. The nearby chart shows the most commonly cited answers in the poll since February 2008, the year before President Obama took office.

Those familiar with these polls can tell you that, for the most part, businesses tend to downplay the importance of Washington in their decision-making, and this is visible at the beginning of the chart. As the Great Recession kicked into high gear, poor sales were the biggest concern of about 33 percent of firms. But as the economy has slowly recovered, concerns about government have skyrocketed.

Most notably, the percentage of small businesses citing government regulation and red tape as their biggest concern has risen over the course of the Obama presidency from about 11 percent to 24 percent, the highest level this measure has reached since the period between 1994 and 1995, when it peaked at 27 percent. For almost a decade between 2000 and 2008, the level remained steady around 10 percent.

Taxes, the green line, have not skyrocketed as a major concern for firms, perhaps in part because small-business owners were in the crosshairs of this president even at the beginning. Their tax hikes were delayed until this year, but they surely were inevitable.

Perhaps the easiest way to put this extraordinary chart in perspective is to note that the percentage of firms that list either taxes or regulation as their No. 1 concern has risen to 42 percent. That Washington could be a bigger concern than this weak economy for so many businesses is quite an accomplishment. Congratulations, Mr. President.

-Kevin Hassett is the John G. Searle Senior Fellow and Director of Economic Policy Studies at AEI

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