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Experts: Gov’t Red Tape Has Small Businesses in a Bind

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Washington, February 16, 2017 | comments

WASHINGTON – Economic policy experts told a Small Business subcommittee today that overregulation is harming the health of the U.S. small business economy and stunting economic growth nationwide. Today’s hearing of the Small Business Subcommittee on Economic Growth, Tax and Capital Access comes as House Republicans are delivering on their commitment to provide regulatory relief for America’s 28 million small businesses as promised in A Better Way to Grow our Economy

“The economy grew at an anemic rate of 1.6 percent in 2016, and 1.5 percent over the last 8 years. This rate is half of the historical average,” said Subcommittee Chairman Dave Brat (R-VA) in his opening statement.   "Although it is important to label the problem, Congress is actively working to implement solutions.  We are starting the process to repeal and replace the Affordable Care Act. We are passing regulatory reform bills such as the Regulatory Accountability Act of 2017 and utilizing the Congressional Review Act to repeal burdensome Obama-era rules.”

“The Administration is also taking actions, such as their “two-out, one-in” regulatory approach to help cut red tape. The unified Republican government is committed to helping the nation’s economy escape slow growth, and we are backing up our words with action,” observed Rep. Brat, who was chairing his first hearing as the Subcommittee’s new Chairman.

Creating More Certainty for Small Businesses

“A number of the initiatives of the new Congress will be helpful in attaining this goal of creating more certainty about the business environment,” said Stan Veuger, a Resident Scholar at the American Enterprise Institute (AEI).

Veuger pointed to two key pieces of legislation that were authored by Small Business Committee Chairman Steve Chabot (R-OH) as examples of the type of regulatory relief policies that would help entrepreneurs. Both measures passed the House last month.

“The Small Business Regulatory Flexibility Improvements Act, for example, passed as a part of H.R. 5, the Regulatory Accountability Act, requires more careful consideration before new rules and regulations, demands that their impact on small business be considered more specifically, and mandates periodic of rules that significantly impact substantial numbers of small businesses,” Veuger testified.

“The HALOS Act, which also passed the House last month, is helpful on the other side of the ledger: by making it easier for startup firms to connect with angel investors and gain access to capital, the negative impact from heightened policy uncertainty will be somewhat dampened,” Veuger added.

The “Entrepreneurship Deficit”

“America is suffering from an Entrepreneurship Deficit,” stated Victor Hwang, the Vice President of Entrepreneurship at the Ewing Marion Kauffman Foundation. “It’s slowly but surely eroding our quality of life and our national competitiveness. I’ve personally experienced the challenges of starting and growing new businesses. My parents were entrepreneurs. For most of the past decade, I’ve been an entrepreneur and investor in Silicon Valley. And over the past year, I’ve gotten a “big picture” perspective as the head of entrepreneurship of the Kauffman Foundation, an institution that funds research on entrepreneurship, educates policymakers, and supports entrepreneurial success.”

“So what is causing this Entrepreneurship Deficit? Based on our work, we believe the deficit comes from a long-term decline in what economists call business dynamism, the pace at which firms start and grow. As a case in point, Americans are starting new businesses at roughly half the rate they were a generation ago,” Hwang explained.

“When barriers hinder Americans from pursuing their entrepreneurial dreams, our whole nation suffers. That’s no longer conjecture; there is accumulating research evidence for it. Together, let’s commit to lowering barriers to entrepreneurship so all Americans, regardless who they are or where they’re from, can turn their ideas into reality,” Hwang added.

Hwang’s testimony came as the Kauffman Foundation published its annual State of Entrepreneurship Report for 2017, titled “Zero Barriers: Three Mega Trends Shaping the Future of Entrepreneurship.”

Small Biz Still Struggling to Bounce Back

“Over the past 10 years, small-business owners have struggled to bounce back from the great recession,” said Holly Wade, the Director of Research and Policy Analysis for the National Federation of Independent Business (NFIB) Research Foundation. “The economic recovery has been painfully slow for many, at first due to poor sales, but quickly overtaken by issues related to taxes, regulations and the cost of health insurance.”

“NFIB hears from small-business owners year round about the various challenges they face operating their business,” Wade added. “The primary step in developing pro-growth policies is to first, ‘do no harm,’ especially when it comes to artificially increasing the cost of doing business whether in the form of higher taxes, health insurance costs or more regulations, to name a few. Small business owners are in a great position to invest in and grow their business given the right set of policies. Most attention must be paid to the benefits of regulation that use up valuable human and financial capital.”

Wade’s testimony comes as NFIB published a brand new survey showing that half of all small business owners say regulations are a “serious” problem for them, creating burdensome costs and unnecessary confusion. You can read the read the full report on NFIB’s Small Business Survey of Regulations HERE.

You can view full video of today’s hearing HERE and read full witness testimony HERE.

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