Small businesses are waiting for Trump to lighten their regulatory load02/16/2017
Small business owners hope President Donald Trump will come through on his promise to slash Washington's red tape in a big way, allowing them to more freely invest in expansion and hiring.
Weighing on small businesses are complex regulations like the intimidating tax code, franchising liability and health insurance requirements.
Kristie Arslan's business Popped! Republic is coming up on its fifth anniversary, and the small business owner is ready to expand. Her gourmet popcorn company based in the D.C. metro area retails out of an Alexandria, Virginia–based store and food truck, as well as online.
"We've been looking at the different ways we can grow, and were looking at ways to expand through franchising," Arslan said. "We've had a lot of people ask us if this is a franchise."
But Arslan can't bring herself to take the leap just yet. On her radar is the joint-employer rule, which stems from a ruling made by the National Labor Relations Board in 2015.
The decision found that a sanitation company called Browning-Ferris Industries and its subcontractor are joint employers of workers, meaning they are both liable for things like labor violations at franchised locations. It has been a top concern for trade groups like the International Franchise Association ever since.
"It's hard for us — we don't have a lawyer on staff to help us figure it all out," Arslan said. "It would be great if [federal] agencies could take a bit more care in looking at the small business impact of regulations before they charge ahead … an overall effort to be more mindful of the small business impact would result in smarter regulation."
Mounting regulations and costs
Data show federal regulations are becoming increasingly costly. Research from the conservative nonprofit American Action Forum finds that in 2016, some 401 regulations were finalized, costing more than $164 billion to implement.
The year was the second most burdensome in terms of federal regulation costs since 2005 when AAF began tracking regulatory action with quantifiable cost and benefit figures, following behind only 2012, which cost $218 billion. In terms of cost, the Department of Labor was most active last year.
These regulations are often costly for smaller companies, which have lighter staffs and less time to spend on compliance.
Separate research from the National Small Business Association, a nonpartisan advocacy group, finds small businesses spend some $12,000 per year to comply with federal regulations. The most burdensome regulatory agencies for small companies were the Internal Revenue Service, followed by the Department of Labor and the Environmental Protection Agency.
Small businesses said their top issues with federal regulations stemmed from the complexity of rules and cost of compliance. Just getting started comprehensively costs a small business more than $83,000 to comply with regulations, the NBSA reported.
What Main Street wants
Main Street sentiment has been increasingly upbeat in the months postelection. The post-Trump outlook is underscored by the National Federation of Independent Business' monthly optimism index climbing to its highest levels in more than a decade on the hopes of deregulation and tax reform.
Trump took executive action on Jan. 30, putting in place a regulatory freeze and eliminating the budget for regulation in fiscal year 2017.
"We are overregulated, and there's a lot of confusion over the regulations that are currently on the books right now," said Karen Kerrigan, CEO of the nonpartisan advocacy group Small Business & Entrepreneurship Council.
Among the most confusing regulations for some small business owners is the tax code. Timothy Reynolds, owner of Tribute, a software company in Hudson, Ohio, estimates his business spends some 50 hours a year doing nothing but compliance on the federal level, and he has an accountant, which costs some $15,000 for the business each year to file.
He describes the code as immense, contradictory and unpredictable, since it changes from year to year. "But the greatest burden of federal taxes is around compliance and simply understanding what the tax code is requiring of us," Reynolds said. "It's our quarterly and monthly filings and payroll taxes around that — just the sheer quantity of work we have to put into the project to pay our taxes, which diverts our attention away from building our business."
Like many other small business owners, Reynolds is "enthusiastic" about the idea of comprehensive tax reform. Although a formal plan has not yet been released, Trump has promised cuts in both personal and business taxes. On Wednesday, in a meeting with retail CEOs at the White House, he said the "massive tax plan is coming along really well," adding it would be "submitted in the not-too-distant future."
One more regulation many small businesses are anxiously awaiting to see reformed is the Affordable Care Act.
Gian Carlo Alonso, CEO of Amerikooler, which manufactures walk-in coolers and freezers in Hialeah, Florida, says the cost of covering insurance for his 137-member workforce has gone up under the law by double digits. While he supported aspects of the ACA, including coverage for those with preexisting conditions, Alonso said both costs and pressure on small companies need to be reduced.
"One of the unintended consequences of the Affordable Care Act is that you try to avoid hiring people if you don't have to," he said. "In the past, we would say, 'Hey it might be nice to hire 10 more people to help capacity here.' Now, we are like, 'There is no way.' We need a pro-business climate here — what better way to help people than to give them a job?"