Select Page

Stifling NYC Business Policies Claim Another Victim

The hostile New York City business environment has claimed a new victim: the legendary China Fun restaurant, which has been in operation for 25 years. A letter on left on the door of the restaurant on January 3, 2017, outlined the reasons:

“The climate for small businesses like ours in New York have become such that it’s difficult to justify taking risks and running — nevermind starting — a legitimate mom-and-pop business,” read a letter posted by the owners in the restaurant’s front door.

“The state and municipal governments, with their punishing rules and regulations, seems to believe that we should be their cash machine to pay for all that ails us in society.”

For 25 years, China Fun was renowned for its peerless soup dumplings and piquant General Tso’s chicken.

According to the NY Daily News, “the endless paperwork and constant regulation that forced the shutdown accumulated over the years.”  Other reasons included: the requirement to provide an on-site break room, minimum wage increases, health insurance, business insurance, and onerous Health Department rules and regulations.

The government essentially acknowledges the burdens it places on small businesses; “free compliance advisors are available for on-sight consultation aimed at helping small businesses comply with regulations” are a part of the Small Business First initiative.

 

So instead of making it easier for a business to start, operate, and grow a business, NYC makes it easier to comply with overbearing regulation, rules, and taxes. Businesses go into business to make a product or provide a service — not to respond to government red tape. The loss of China Fun is a microcosm of the entirely hostile, anti-business environment that plagues the NYC government.

 

CEI: 2015 Was A Record Year for Regulations

regulations
In 2015, the federal government’s published 82,036 pages of rules, proposed rules and notices. It surpassed last year’s 77,687 pages broke the previous record of 81,405 pages in 2010. Competitive Enterprise Institute issued their yearly survey of the federal regulatory state. Among them are some of their findings:

*3,378 final rules and regulations were created
*2,334 proposed rules were issued in 2015 and are at various stages of consideration.
*29 executive orders and 31 executive memorandums were issued

Regulation functions as a hidden tax. Last year’s report calculated that, “based on the best available federal government data, past reports, and contemporary studies, regulatory compliance costs $1.88 trillion annually.”

Recommendations for reigning in regulation include repealing “certain statutes, require congressional approval for big rules and enforce maximum requirements set forth in the Administrative Procedure Act.” 2015 saw major final rules from the EPA — the Clean Power Plan and its Waters of the Unites States rule — as well as the FCC’s net neutrality order.

You can follow updates on federal regulation on CEI’s “Ten Thousand Commandments” page here

Obama’s Taxes and Regulation Are Keeping Us Stagnant

I’ve written several times over the years about Obama’s economic policies and anti-business climate as factors that have hampered this country’s growth and recovery. Phil Gramm has a good piece in the WSJ recently that gave a succinct overview of all that is still wrong with the economy. Obama continues to insist that either a) the economy is good or b) any problems are someone else’s fault. Do yourself a favor and read this piece which is sobering, but accurate, about the state of our economy today.

What’s Wrong With the Golden Goose?

Since the Obama recovery began in the second quarter of 2009, public and private projections of economic growth have consistently overestimated actual performance. Six years later, projections of prosperity being just around the corner have given way to a debate over whether the U.S. has fallen into “secular stagnation,” a fancy phrase for the chronic low growth seen in much of Europe.

This is just another in a long line of excuses. America’s historic ability to outperform Europe is well documented; we call it American exceptionalism. It has always been based on the fact that the U.S has had better, more market-driven economic policies and our economy therefore worked better. But, as the U.S. economy is Europeanized through higher taxes and greater regulatory burdens, American exceptionalism is fading away, taking economic growth with it.

How bad is the Obama recovery? Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country. Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries.

When the recession ended, the Federal Reserve projected future real GDP growth would average between 3.8% and 5% in 2011-14. Based on America’s past economic resilience, these projections were well within the norm for a postwar recovery. Even though the economy never came close to those projections in 2011-13, the Fed continued to predict a strong recovery, projecting a 2014 growth rate in excess of 4%. Yet the economy underperformed for the sixth year in a row, growing at only 2.4%.

Implicit in these projections and in the headlines of most economic news stories—which to this day blame cold winters, wet springs, strikes, hiccups and blips for America’s failed recovery—is the belief that there has been no fundamental change in the U.S. economy. Underlying this belief is the assumption that either the economic policies of the Obama administration are not fundamentally different from the policies America has followed in the postwar period or that economic policy doesn’t really matter.

And yet we know that the Obama program represents the most dramatic change in U.S. economic policy in over three-quarters of a century. We also know from the experience of our individual states and the historic performance of other nations that policy choices have profound effects on economic outcomes.

The literature on economic development shows that U.S. states and nations tend to prosper when tax rates are low, regulatory burden is restrained by the rule of law, government debt is limited, labor markets are flexible and capital markets are dominated by private decision making. While many other factors are important, economists generally agree on these fundamental conditions.

As measured by virtually every economic policy known historically to promote growth, the structure of the U.S. economy is less conducive to growth today than it was when Mr. Obama became president in 2009.

Marginal tax rates on ordinary income are up 24%, a burden that falls directly on small businesses. Tax rates on capital gains and dividends are up 59%, and the estate-tax rate is up 14%. While tax reform has languished in the U.S., other nations have cut corporate tax rates. The U.S. now has the highest corporate rate in the world and the most punitive treatment of foreign earnings.

Meanwhile, federal debt held by the public has doubled, so a return of interest rates to their postwar norms, roughly 5% on a five-year Treasury note, will send the cost of servicing the debt up by $439 billion, almost doubling the current deficit.

Large banks, under aggressive interpretation of the 2010 Dodd-Frank financial law, are regulated as if they were public utilities. Federal bureaucrats are embedded in their executive offices like political officers in the old Soviet Union. Across the financial sector the rule of law is in tatters as tens of billions of dollars are extorted from large banks in legal settlements; insurance companies and money managers are subject to regulations set by international bodies; and the Consumer Financial Protection Bureau, formed in 2011, faces few checks, balances or restraints.

With ObamaCare the government now effectively controls the health-care market—one seventh of the economy. The administration’s anti-carbon policies hamstring the energy market, distort investment and lower efficiency. Despite the extraordinary bounty that has flowed to America from an unfettered Internet, Mr. Obama has dictated that the Web be regulated as a 1930s monopoly, bringing the cold dead hand of government down on what was once called the “new economy.”

During Mr. Obama’s presidency, the number of Americans receiving food stamps has risen by two-thirds and the number of people drawing disability insurance is up more than 20%. Not surprisingly, labor-force participation has plummeted. Crony capitalism and artificially low interest rates have distorted the capital markets, misallocating capital, overpricing assets and underpricing debt.

Despite the largest fiscal stimulus program in history and the most expansive monetary policy in more than 150 years, the U.S. economy is underperforming today because we have bad economic policies. America succeeded in the Reagan and post-Reagan era because of good economic policies. Economic policies have consequences.

With better economic policies America was like the fabled farmer with the goose that laid golden eggs. He kept the pond clean and full, he erected a nice coop, threw out corn for the goose and every day the goose laid a golden egg. Mr. Obama has drained the pond, burned down the coop and let the dogs loose to chase the goose around the barnyard. Now that the goose has stopped laying golden eggs, the administration’s apologists—arguing that we are now in “secular stagnation”—add insult to injury by suggesting that something is wrong with the goose.

Fiorina on Small Business

I have no particular favorite right now in the GOP nomination fight. As a CPA, I pay close attention to the economic policies of the various candidates.

Carly Fiorina spoke to New Hampshire Republican Party’s First in the Nation leadership summit in Nashua, N.H on the subject of small business. Being the former CEO of Former Hewlett-Packard, Fiorina offered a decent perspective, which hasn’t really been discussed at length so far by many of the other candidates.

“The heroes of the American economy are small businesses and family-owned businesses”

“For the first time in U.S. history, we are destroying more businesses than we are creating”

“All of the things they are doing up there are landing on us down here. The weight of the government is literally crushing the potential of the people of this nation”

I don’t particularly think that Fiorina has the ability to be much of a viable candidate, especially considering her failed Senate campaign against Barbara Boxer in California. I do appreciate her calling out the government’s anti-business policies, something about which I have written extensively.

Whoever becomes the Republican nominee needs to be able to speak clearly and definitively about economic issues and call out the failed government policies of higher taxes, increased regulation, and minimum wage nonsense. Small businesses have borne the brunt of Obama’s heavy-handedness, and our economy has failed to recover adequately because of it.

Why the Proposed 501c4 Regulation Change is Such a Big Deal

The IRS recently proposed major changes to the way not-for-profit 501c4 organizations operate, which would effectively and severely limit their ability to engage in advocacy. These are your social welfare organizations, for which advocacy for “the common good and general welfare” is their primary purpose. They differ from 501c3, which are your charitable organizations; 501c5s, your labor unions; and 501c6s, your trade organizations. The one thing all of these organizations do have in common is that they are all tax-exempt organizations.

501c4s are not tax-deductible precisely because they are not political organizations. They serve to educate by being issue-based. This is protected under free speech; so long as the 501c4 sticks to an issue and not advocate for a particular candidate, it is not considered political speech and therefore it cannot be curbed. They can talk about policies and positions, not people.

These social welfare groups can therefore participate in the political arena as long as they maintain education as their primary purpose. Some examples of 501c4s would be the National Rifle Association (NRA), American Association of Retired Persons (AARP), Americans for Tax Reform (ATR), and the Sierra Club. 501(c)4s have been around for nearly 100 years, and the regulations that currently govern them have been in place since 1959.

So why has the Obama administration and the IRS taken a sudden interest in clarifying the rules for social welfare organizations that have been in place for more than 50 years? And why only the social welfare organizations, not the unions or trade organizations?

It is well known that on issue-based advocacy, the Republicans have made much better use of 501c4s than the Democrats. So of course, the Democrats want to find a way to disrupt this. You can find a flood of recent articles documenting how this conservative group and that conservative group spent money on political ads, more than the liberal groups–as if that is somehow unfair. It’s perfectly fair and perfectly legal — except when the Democrats are on the losing/receiving end.

This situation is reminiscent of the attempt to implement the “Fairness Doctrine” for talk radio, pushing to give conservative and liberal talk radio shows “equal air time” — because the conservatives dominate that market as well.

The 2014 Democrats are vulnerable, and they know it. What better way to stifle the ability for conservatives to message (foremost on the fledgling Obamacare law) than by attacking the methodology? The Obama Administration is retaliating by using the IRS to propose changes to the way social welfare organizations function and introducing very specific and onerous rules. These rules that have not been necessary at all for the entirety of the time (nearly a century) 501c4s have been in existence — until suddenly now.

What the new policy does is make definitions of political activity, specifically creating a huge number of things to now be considered “political”. The regs “would explicitly define which kind of activities are political and fall outside of the social welfare category, forcing such groups to be more careful about how they spend their funds. Under the proposed regulation, “candidate-related political activities” would include running ads that mention candidates close to Election Day, preparing voter guides or holding voter registration drives”.

By defining such activities as “political” instead of advocacy, they would be opened to being limited or even banned — activities which serve to provide education for the common good, as they always have.

Critics of the way 501c4s operate, which allow their donors to remain protected, suggest that the 501c4s are somehow gaming the system — using phrases like “secret donors” and “secret activity” to inflame the public against 501c4s. But this is patently untrue.

Political donors are required to be disclosed under campaign finance, but since 501c4s are specifically not political organizations, the donor names do not need to be made public. Their anonymity is protected under the Right of Free Association. Those who are on the receiving end of 501c4 activities to educate the populace during the election cycle, however, are now pushing for this to change in order to reveal citizens identities.

Therefore turning a simple and known definition of a 501c4 into a new and incomprehensible one, has the effect of stifling speech. Even the mere presence of such a proposal has had detrimental repercussions.

The regulation triggered more public commentary– tens of thousands of responses — during the open comment timeframe that recently ended, than any other regulation in history. Because of the outcry, there is a strong likelihood that it the proposed changes will be rescinded. How it even was allowed to come to fruition is mind-boggling.

It is possible that the persons who drafted the legislation didn’t even care about its clarity or effects. Every day that the proposal is even out there is another day that these 501c4s either a) can’t get started or b) can’t engage in advocacy. Why? The possibility of these regulations becoming permanent rules has 501c4s worried about potential infractions. After the recent revelations about the IRS targeting last year, it is not unlikely to think that the IRS purposely crafted muddled regulations.

From the vantage point of the 2014 midterm elections, the effect of curbing or scaring the activity of 501c4s during this election cycle undoubtedly benefits the Democrats.

What organization would risk the potential for increased scrutiny and possible violation from the IRS, knowing that the IRS has been operating in an unjust and partisan matter? They wouldn’t of course. So the 501c4s are currently holding back.

The IRS continues to act in an incompetent manner. That they are targeting 501c4s, and not c5s and c6s, show that there is an inherent bias internally within the IRS. No one can look at the situation and not think that this wasn’t done to have an affect on the current political cycle. This is not how the IRS is supposed to function in our country.