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New Democratic House majority is looming specter for small business

Greg Nash

The Democrats have taken control of the House for the first time in eight years. Small business owners across the nation watch with concern, as their legislative agenda threatens the best economic climate in decades. Take one of the top priorities of House Democrats, which is mandating a national $15 minimum wage. Speaker Nancy Pelosi last year vowed to pass this in the first 100 hours of the new Congress. A $15 minimum wage would dramatically increase labor costs for many small businesses and threaten to swamp the tiny profit margins on which most of them run.

Consider that the average profit margin in the restaurant industry, which employs more than half of all minimum wage workers, is just 3 percent to 5 percent. With labor making up about a third of operating costs, raising labor costs with a $15 minimum wage would make many restaurants unprofitable. Already, in states like New York and California, which have passed the $15 minimum wage, countless small businesses have been forced to lay off staff, cut back hours, or close entirely as a direct result. Think of the damage in poorer states like West Virginia and Mississippi, where a $15 minimum wage is roughly the same as the median wage.

{mosads}A dramatic minimum wage increase is just one part of the agenda that threatens small businesses. Another priority for House Democrats is vastly expanding the wage threshold under which salaried workers have access to time and a half overtime pay. Such a move would suddenly make millions of junior manager positions much more expensive for employers, and therefore limit these sought after springboards to the middle class. According to data from the National Retail Federation, such an overtime expansion would cost restaurants and retailers $9.5 billion each year, and force them to demote salaried workers to hourly workers.

House Democrats pose other threats to small businesses. Pelosi had promised to repeal the tax cuts passed more than a year ago that offered small businesses long overdue relief. A major facet of the legislation was a 20 percent small business tax deduction that allows for entrepreneurs to protect earnings that can be used for expansion, renovation, and hiring. Most small business owners have called this provision a “game changer,” according to a Bank of America survey. Eliminating it would be a major blow for small businesses, their employees, and their communities.

Perhaps the biggest threat that House Democrats pose to is to the economy. While nearly all businesses depend on a strong and vibrant economy to succeed, this is especially true for small businesses that often do not have the savings of their better capitalized peers to withstand slower growth. Small businesses have flourished in the current economy that is set to grow by more than 3 percent for the first time since 2005. In creating a majority of all new jobs, small businesses can also be largely credited for the lowest national unemployment rate in a half century.

The specter of socialized health care, known as Medicare for all, which a majority of House Democrats supported in the last Congress, is also one of the biggest threats to this prosperity. The incomprehensible expense of Medicare for all, and the corresponding tax increases necessary to pay for it, would amount to a massive fiscal contraction that would significantly slow down or stop growth in the economy. According to a study by the Mercatus Center, Medicare for all would cost $32.6 trillion over 10 years, which even the doubling of corporate and income taxes could not pay for.

Even liberal states like Vermont and California abandoned state socialized health care initiatives after recognizing that the tab for these programs would blow up their budgets and ruin their growth. With Republicans firmly in control of the Senate, it is unlikely that these proposals that would harm small businesses will become law. Still, Republicans should make it their resolution to avoid compromising on any of these issues.

Alfredo Ortiz is president and chief executive of the Job Creators Network.

Tags Business Congress Democrats Government Health Labor Nancy Pelosi Policy

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