The Watchdog Report

By Comptroller General Richard Eckstrom

 

 

Small business is the bedrock of South Carolina’s economy.  Small business owners –including women, minorities, and moms and pops– produce most of the state’s economic performance.  Sadly, rather than encourage and assist the estimated 300,000 small businesses in our state, government often ends up strangling small businesses by tinkering with them.

 

State and local governments can routinely lose their focus.  Government should encourage business growth and prosperity.  Instead, over-regulation and inequitable tax policy is beginning to take their toll.  Our state’s unemployment rates continue to rise while unemployment is falling in other states. What’s more, businesses all across South Carolina are being forced to reconsider where they operate.  This is particularly true of smaller high-tech firms that are often unfairly impacted by exorbitant taxes, business license costs, and over-regulation.

 

Smaller high-tech firms are uniquely vulnerable to such over-taxation due in part to thin profit margins.  Because the cost to produce advanced technology goods and services are often disproportionately high, so are resulting selling prices to consumers.  Yet net profits for small high-tech firms are often disproportionately low.  Unfortunately, business license costs are typically based on gross sales rather than on gross profits.  This results in high-tech firms being assessed proportionately higher license costs than their counterparts in more traditional industries.

 

June Lennon, a prominent CPA and small business advocate in Greenville, is concerned that government over-regulation and the state’s complicated tax code force small business owners to make unfortunate choices.  According to her data, the heavy burden placed on South Carolina small business owners by taxes and fees drives some owners to relocate to more business-friendly areas either in other states or in unincorporated areas of this state far removed from their natural customer bases.  And she is not alone in her concerns.  The National Federation of Independent Business reveals that tax fairness is a burning issue among its members in South Carolina.

 

In addition to inequitable license costs, small business owners in South Carolina also pay a disproportionate share of state income taxes.   While large corporations pay state income taxes at a rate of 5 percent, small business owners pay at a much higher rate of up to 7 percent. 

 

As bad as it is, it could get even worse.  If some well-intentioned lawmakers have their way with a current piece of proposed legislation (H.3659), small business owners wanting to do future business with state government will have to pay wages above the federal minimum wage and provide government-approved insurance coverage for their employees.  Rather than allowing free market forces to determine how a company pays its employees and provides benefits, overly aggressive government would step in and drive up its own cost of buying goods and services.

 

If a private enterprise hopes to win a contract, the enterprise will have to let state government control its payroll operations.  Another layer of bureaucracy and control will be established to provide this “oversight” of independent businesses.  More government regulations will be imposed, independent businesses will become less independent, and in the long run jobs will be lost.

 

Common sense is being discarded on this idea.  If this law is passed, the base cost of state contracts will increase simply to cover higher wages and mandatory insurance coverage.  Because state government is the “consumer” in this case, taxpayers will be made to foot the bill.

 

As a state we must commit to helping small businesses prosper.  While government might provide some limited guidance, the single best thing it can do is to reduce obstacles and stay out of the way.  Over-regulation and unfair taxes, fees, and assessments hurt small businesses. 

 

With your help the engine that drives our economy- and creates jobs- can run more smoothly.  Tell your elected officials to loosen their grip on small business.  These government officials already have their jobs. Tell them to step back and let small businesses continue to create the jobs that are so critically needed today by able-bodied citizens all across this state.