This article, by Stacy Mitchell and Fred Clements, was first published as an op-ed in the Wall Street Journal.
Small business looms large in American political rhetoric. From the campaign trail to the floor of the U.S. House and Senate, members of Congress love to evoke the diner and dry cleaner, the neighborhood grocer and local hardware store. Ensuring the well-being of Main Street, we might easily assume, is one of their central policy aims.
The legislative track record tells another story. It is one in which the interests of big corporations are dominant, and many laws and regulations seem designed to bend the marketplace in their favor and put small, independent businesses at a competitive disadvantage.
Since the late 1990s, the overall market share of firms with fewer than 100 employees has fallen from 33% to 28%, according to U.S. Census data. There are nearly 80,000 fewer small retailers today than in 1999. Starting a new business also appears to have become harder. Despite their prominence in our tech-fueled imagination, the number of startups created annually fell by about 20% between the 1970s and the 2000s, Census data shows.
Dismissing these trends as merely the product of market forces misses the powerful way that government policy has tilted the playing field.
A report last month by the research organization Good Jobs First, for example, found that two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years went to big corporations. State and local economic development incentives are similarly skewed. While the members of our business associations—mostly independent retailers—must finance their own growth, one of their biggest competitors, Amazon, has received $330 million in tax breaks and other subsidies to fund its new warehouses. Indiana, for example, gave the company a $5 million tax credit to open a distribution center in 2009.
Multinational companies also benefit from a host of tax loopholes. A local pharmacy or bike shop cannot stash profits in a Bermuda shell company or undertake a foreign “inversion.” The result is that small businesses pay an effective federal tax rate that is several points higher on average than that paid by big companies, according to a Small Business Administration study from 2009.
At a time when price competition is fierce and margins razor thin, these cost differences have a real impact on the ability of small businesses to survive. Yet efforts to reform corporate subsidies and close tax loopholes have gone nowhere.
Congress’s tacit support for further consolidation in the banking system is also undermining small independent businesses. From our perspective, local community banks are the most important part of the financial system, because they supply the lion’s share of small business loans. Yet Congress hasn’t lifted a finger as more than 500 have collapsed since 2008, according to federal data, swept away by the aftermath of a financial crisis they didn’t create. Continue reading