PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

7 Points from DNC Platform on the Economy, Regulation and Taxes

By at 29 July, 2016, 8:06 am

by Raymond J. Keating-Democrat platform

The Democratic Party’s platform, unfortunately, is not a constructive document when it comes to the general outlook on how the economy works, and on taxes and regulation. It is striking just how much this platform embraces government action, especially the idea of government regulating vast areas of business and everyday life.

The problem with such an agenda, of course, is that politics replaces private decision-making. So, rather than entrepreneurs and businesses competing to better serve consumers, it’s all about special-interests working to expand the reach of politics and government, draining resources from and raising costs for entrepreneurs, investors, businesses and workers. As we have seen in recent years, that leads to diminished economic, income, and employment growth.

That is not to say that there isn’t some positive statements about entrepreneurship and small business in the platform. In fact, at one point, the DNC platform is downright encouraging: “By supporting small business and entrepreneurship, we can grow jobs faster in America. We will cut the red tape that holds back small businesses and entrepreneurs. We will open up access to credit because we know that small businesses are some of the best job creators in our country. We will provide tax relief and tax simplification. And we will expand access to new markets because every American small business should be able to tap new markets — whether across their city, across their state, or around the world.”

Yes!

Unfortunately, on the many and varied policy specifics, the Democratic Party platform directly contradicts this broad pro-entrepreneurship declaration. As politics makes clear, it’s very easy to talk in sweeping, positive terms about small business, but the devil is in the details.

Consider the following 8 points, for example, on regulation and taxation that would undermine entrepreneurship, private investment, and economic and employment growth.

Expand the Power of Labor Unions and Raise Labor Costs through Government Regulation. The DNC platform states, “Democrats will make it easier for workers, public and private, to exercise their right to organize and join unions. We will fight to pass laws that direct the National Labor Relations Board to certify a union if a simple majority of eligible workers sign valid authorization cards, as well as laws that bring companies to the negotiating table. We support binding arbitration to help workers who have voted to join a union reach a first contract.” Also, noted is the following: “Democrats believe so-called ‘right to work’ laws are wrong for workers—such as teachers and other public employees who serve our communities every day—and wrong for America. We will continue to vigorously oppose those laws and other efforts that would eliminate dues check-off procedures, roll-back prevailing wage standards, abolish fair share requirements, restrict the use of voluntary membership payments for political purposes, attack seniority, restrict due process protections, and require annual recertification efforts. We oppose legislation and lawsuits that would strike down laws protecting the rights of teachers and other public employees. We will defend President Obama’s overtime rule, which protects of millions of workers by paying them fairly for their hard work.” For good measure, there’s this as well: “Democrats will make sure that the United States finally enacts national paid family and medical leave by passing a family and medical leave act that would provide all workers at least 12 weeks of paid leave to care for a new child or address a personal or family member’s serious health issue. We will fight to allow workers the right to earn at least seven days of paid sick leave. We will also encourage employers to provide paid vacation.”

The above is the agenda of labor unions. As labor union relevance has declined dramatically in the private sector – for example, labor union membership among employed private-sector workers has plummeted from 24.2 percent in 1972 to 6.7 percent in 2015 – labor unions have turned to government action to try to get what they desire. The agenda laid out in the DNC platform would, in the end, raise regulatory costs for businesses, diminish competitiveness, limit innovation and efficiency, and reduce job creation. Compensation and workplace operations should be determined in the private sector, under the guidance of private ownership, and competition to both serve consumers and attract and keep the best workers. Government dictates like these in the DNC platform attempt to delink job creation and employment compensation from such realities as productivity, investment, consumer sovereignty, and competitive markets, not to mention the market realities of individual small businesses.

Reduce Broadband Internet Investment and Innovation via Government Regulation. It is noted in the DNC platform: “Democrats support a free and open internet at home and abroad, and will oppose any effort by Republicans to roll back the historic net neutrality rules that the Federal Communications Commission enacted last year.” Unfortunately, net neutrality regulation, whereby government decides pricing, business models and other operational matters for broadband providers, inevitably leads to greater costs and uncertainty, and restrained investment and innovation. That’s bad news for small businesses as consumers of broadband services, and as key providers in the telecommunications industry, with 83 percent of employer firms in the telecommunications sector having fewer than 20 workers.

Government Wage Setting in the Private Sector:  The DNC platform reads: “We should raise the federal minimum wage to $15 an hour over time and index it…”  As almost all economists understand, this policy would accomplish two things. First, it would reduce job opportunities for younger, inexperienced, low-skilled workers as the work they would have done is either eliminated, shifted to other workers, or automated. Second, this will raise costs for businesses in labor-intensive industries, thereby limiting job growth, benefits, investment and profits in those industries, with the costs falling hardest on small businesses.  On another front, the DNC platform declares that government should intrude to equalize wages: “We believe in at last guaranteeing equal pay for women.”  Buying into the myth of a market-imposed wage gap, and that government needs to intrude to equalize wages, would require that government bureaucrats – devoid of any knowledge of the actual workplace, changes in the workplace, differing skills, separate work ethics, and so on – dictate what is “equal” work and what people should get paid. The vast control over the private sector would raise costs dramatically, diminish job creation, and push business to other countries.

Reduce Investment via Price Controls on Medicines, Prescription Drugs and Insurance. The DNC platform is clear in its support for price controls in health care. In addressing health insurance, it is stated: “Democrats will keep costs down by making premiums more affordable, reducing out-of-pocket expenses, and capping prescription drug costs. And we will fight against insurers trying to impose excessive premium increases.” Price controls have never and will never work. The inevitable result is chasing away private investment, activity and innovation. The surest path to getting fewer life-saving and life-enhancing medicines is for government to limit the potential returns on such costly undertakings. For good measure, it should be kept in mind that among pharmaceutical and medicine manufacturing employer firms, 57 percent have less than 20 workers, 79 percent less than 100 employees, and 91 percent less than 500 workers.

Tax Increases on Successful Entrepreneurs. The DNC platform is rather heavy on tax increases. For example, it calls for increased taxes related to Social Security: “We will make sure Social Security’s guaranteed benefits continue for generations to come by asking those at the top to pay more, and will achieve this goal by taxing some of the income of people above $250,000.” Continuing along these class warfare lines, the platforms also states: “We will ensure those at the top contribute to our country’s future by establishing a multimillionaire surtax to ensure millionaires and billionaires pay their fair share.” While class warfare might score some political points, it makes for bad tax policy. After all, higher taxes on upper incomes only mean fewer resources and incentives for investing and entrepreneurship – the drivers of economic and employment growth – and more resources spent inefficiently by government.

Higher Taxes on Business. While there’s talk about tax reform, the specifics in the DNC platform focus on raising taxes on business. For example, “Democrats will claw back tax breaks for companies that ship jobs overseas, eliminate tax breaks for big oil and gas companies, and crack down on inversions and other methods companies use to dodge their tax responsibilities. We will make sure that our tax code rewards businesses that make investments and provide good-paying jobs here in the United States, not businesses that walk out on America. We will end deferrals so that American corporations pay United States taxes immediately on foreign profits and can no longer escape paying their fair share of U.S. taxes by stashing profits abroad. We will then use the revenue raised from fixing the corporate tax code to reinvest in rebuilding America and ensuring economic growth that will lead to millions of good-paying jobs.”

Again, while dressed up in populist-style political rhetoric, the bottom line here is clear: Hiking taxes on businesses – particularly those in the energy and international arenas – in order to gain more revenue for government spending. The economic reality of economic, income and employment growth coming from the private sector – specifically, from private investment, entrepreneurship, innovation and business – is simply ignored.

A New Financial Transactions Tax. The DNC platform calls for the imposition of a new financial transactions tax: “We support a financial transactions tax on Wall Street to curb excessive speculation and high-frequency trading, which has threatened financial markets. We acknowledge that there is room within our party for a diversity of views on a broader financial transactions tax.” Such a tax is not about Wall Street. It’s about tapping into the U.S. financial system with a new tax to drain huge amounts of resources away from the private sector and into government, and doing so in a way that would be largely hidden from the eyes of consumers and taxpayers. This is a very dangerous levy that, if imposed, would serve as more high-octane fuel for the growth of government.

A few nice rhetorical lines about the importance of entrepreneurship and small business amount to very little, especially when so many of the regulatory and tax details in the DNC platform would badly undermine entrepreneurship, business in general, worker opportunities and the overall economy.

Raymond J. Keating is Chief Economist of the Small Business & Entrepreneurship Council

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