Small Businesses Vs Big Government

Better In Rwanda

By IBD Editorial

Commerce: The U.S. has slipped again in world rankings that assess the ease of starting a new business. If we're to bring down our stubbornly high unemployment rate, this trend has to be reversed.

According to the World Bank's "Doing Business 2012" report, America is 13th among 183 countries ranked in the "Starting a Business" category. In the 2011 report, the U.S. ranked 11th. The year before, it was No. 8.

In 2009, the U.S. was ranked No. 6. It was fourth in 2008 and third in 2007.

In the 2012 ranking, the U.S trailed such job creators as Macedonia, Georgia, Rwanda, Belarus, Saudi Arabia, Armenia and Puerto Rico, which are ranked No. 6 through No. 12.

Big companies aren't usually founded as multinational corporations. Most begin as small businesses. And it's small businesses — which employ more than half of the domestic nongovernment workforce — that generate the bulk of new employment opportunities.

Our own research shows that small businesses create more than 80% of the new jobs in this country. This isn't some fantasy we've cooked up. It's been confirmed in the New York Times by reporter Steve Lohr, who wrote in September that it's an "irrefutable conclusion" that small businesses are this country's job creators.

"Two-thirds of net new jobs are created by companies with fewer than 500 employees," Lohr wrote, "which is the government's definition of a small business."

But job creation is more than a function of size. Lohr cites a National Bureau of Economic Research report that says the age of a business is the biggest factor.

"Start-ups," says John C. Haltiwanger, a co-author of the study and an economist at the University of Maryland, "are where the job-creation action really occurs."

Yet it's the small and new businesses that are being choked by government policy. The capital gains tax rate on investments held more than a year, Lohr wrote, directly impacts angel investors' role in providing seed capital for startups. This is a rate that the administration wants to hike from 15% to 20% on households earning more than $250,000 a year.

That's just a single instance of poor public policy. There are many more in the 160,000 pages of federal regulation and in the web of state and local rules that squeeze small businesses and start-ups so tightly that they simply cannot hire. Until this burden is lifted, America's jobs problem isn't going to get any better.