Milwaukee Biz Blog

What makes a neighborhood, a community, a city, and a state vibrant, alive and a great place to live? What gives a place that special flavor, what makes it unique and a good place to work and raise a family?

In large part, local small businesses give a community its character, its sense of growth and its optimism.

This is especially true in Wisconsin. The most recent data shows just how important small business is to Wisconsin families. Here, small business continues to create new jobs. According to the recently released Small Business Profile for the States and Territories by the Office of Advocacy of the U.S. Small Business Administration, small businesses added 36,400 net new jobs in 2004, the latest period studied.

But as they say in the infomercials, “That's not all!" The updated profile also shows that in 2006, Wisconsin had an estimated 447,200 small businesses, of which 127,400 were employer firms. Those small businesses employed 53.9 percent of the state's non-farm private workforce (in 2004).

Further, diversity of business ownership is bringing more of the state's minorities and women into the economic mainstream. The data documents that Wisconsin has 5,000 Asian-owned firms, 6,700 African-American-owned firms, 3,800 Hispanic-owned firms, 2,500 Native American-owned firms and 100 Native Hawaiian and Pacific Islander-owned firms.

Moreover, women-owned firms total 104,200 and generate $17.6 billion in revenue (all in 2002, the latest year available).

The 13,371 new firms with employees in 2006 showed just how optimistic Wisconsin's entrepreneurs are about the future. More importantly, those firms are driving the economy. Office of Advocacy research has shown that new business creation is key to the state's ability to increase gross state product, state personal income, and total state employment.
Unfortunately, because the businesses are small and individually don't appear to be important, policy makers tend to overlook them when discussing and implementing regulatory, tax and economic proposals. Because they are overlooked, some do not understand how their programs, rules and regulations can harm small business.

The result is that small business faces an uneven playing field. According to Advocacy research, just complying with federal regulations costs the nation's smallest firms $7,647 per employee each year. That is 45 percent more than the per-employee costs of their larger counterparts.

As the years have gone by, the total annual federal regulatory burden on the economy has grown to enormous proportions. Complying with all federal regulations now costs our economy $1.1 trillion per year - that's more per household than the cost of health care.

It's time to help lighten that load by streamlining and updating outdated and ineffective regulations.

The Office of Advocacy's new Regulatory Review and Reform initiative (r3) does just that. The initiative encourages small business stakeholders to identify current rules that are outdated or ineffective and recommend targeted reforms.

The result will be an annual "Top 10" list of current regulations that are ripe for reform. Advocacy will work with the relevant federal agencies to make sure they understand the impact of those current regulations on small business. In addition, we will provide them with training in how to review and reform outdated and ineffective rules.

We are calling for nominations of federal rules and regulations in need of review and reform, and we need your help to make r3 a success. Nominations are due by Dec. 31, 2007.  You can make them by visiting the r3 website at www.sba.gov/advo/r3, sending an email to advocacy@sba.gov or by calling Keith Holman at (202) 205-6936.

Small business is what makes neighborhoods, communities and states strong. Small business creates jobs, develops innovative products and services, and brings diversity to our economy. By leveling the playing field and supporting small business with regulatory relief through the r3 initiative, we can keep our communities a great place to live for our children and grandchildren.

Ray Marchiori is the regional advocate for the U.S. Small Business Administration's Region V Office in Chicago. He can be reached at (312) 353-8614.
 
Editor's note: Be a blogger …
Is there an issue that you feel passionate about? Share your thoughts with the readers of Small Business Times by writing an entry in the Milwaukee Biz Blog. Just e-mail your blog entry, and a digital head-and-shoulder photo (if you have one) to SBT executive editor Steve Jagler at steve.jagler@biztimes.com.

Tax day is upon us, and millions of Americans will be concentrating on something they would prefer not to think about - the frustrations and complexities of the tax code. This is especially true for small business owners, as the burden to comply with the tax code hits them the hardest.

Research from the Office of Advocacy of the U.S. Small Business Administration spotlights just how uneven the tax compliance burden is for small businesses. Small businesses with fewer than 20 employees annually spend $1,304 per employee to comply with federal income tax regulations. That is almost twice as much as large firms spend.

One reason for the high per employee cost to the smallest firms is the complexity in the tax code. Compliance with the tax code places a substantial paperwork and recordkeeping burden on any firm with a payroll, even before the first paycheck is cut. Many of these costs are fixed. Bigger firms can spread the costs over a greater number of employees, thus reducing the cost per employee. For small firms these costs cannot be so easily absorbed.

Moreover, tax rebates, credits, deductions, investments, offsets and more require an intimate knowledge of legalese in the tax code. The recordkeeping required to take advantage of these "tax expenditures" (Washington, D.C., speak for letting taxpayers keep more of their own money) can be time consuming and hyper-meticulous. The number of restrictions on the various tax expenditure programs, as well as the recordkeeping burdens, contributes to the tax code's complexity.

A second factor exacerbates issues of complexity, namely uncertainty over future tax obligations. Yearly tinkering with the tax code, ever-changing deadlines, and expiring provisions make extended planning risky and oft times futile. In this environment, entrepreneurs have increased difficulty with both setting and executing business plans.  The uncertainty affects their planning horizons, and reduces both the expected benefits and feasibility of well thought out plans.

Small-business taxpayers face uncertainty from two directions: tax complexity and tax rates. As complexity increases, compliance costs rise and taxpayers become uncertain as to their total future tax burden. Moreover, complexity adds to the hurdles that small businesses must overcome. Rather than focusing on production and sales, small-business owners now must allocate much of their time toward bureaucratic record keeping and regulatory compliance.

Changes in rates from year to year add to the uncertainty, creating a deterrent effect on small firm hiring and investment. Clearly, complexity and uncertainty in the tax code are important issues for small businesses in particular.

Policy makers have traditionally concentrated on the tradeoff between efficiency and equity in constructing tax policy. The efficiency of a particular tax policy proposal is judged by whether it lets resources be put to their best possible use. Equity considerations strive to spread the tax burden as evenly as possible over the intended population.  However, complexity (or its opposite, simplicity) is an equally important third leg of the tax policy framework, and it is often overlooked.

The cost of compliance-the number of hours spent on recordkeeping and form filling-is a measure of complexity. The lack of emphasis on simplicity in recent times has led to a bloated tax code where compliance costs have become a significant portion of many taxpayers' overall tax burden, especially for small-business owners. The health of the small business sector, and the economy at large, will be improved by well-understood policies that promote simplicity and reduce complexity.

The Office of Advocacy is committed to tearing down hurdles that inhibit small business growth and entrepreneurship. Our office strives to make sure that America's entrepreneurs can operate and prosper in an environment in which they fully understand their tax obligations and willingly comply, rather than having to concentrate on arcane rules and procedures. Such understanding, however, will not occur until tax simplification becomes a priority for policy makers at all levels of government.

Ray Marchiori is a regional advocate for the Office of Advocacy at the U.S. Small Business Administration.  The Office of Advocacy is an independent voice for small business within the federal government.  His service territory includes southeastern Wisconsin. For more information, visit www.sba.gov/advo.

Editor’s note: Be a blogger …

Is there an issue that you feel passionate about? Share your thoughts with the readers of Small Business Times by writing an entry in the Milwaukee Biz Blog. Just e-mail your blog entry, and a digital head-and-shoulder photo (if you have one) to SBT executive editor Steve Jagler at steve.jagler@biztimes.com.

Small businesses are the heart of Wisconsin's economy, and the Office of Advocacy of the U.S. Small Business Administration recently sent them this Valentine with the reasons to love them.

Ten Reasons To Love Wisconsin Small Business

10. Small businesses make up 98 percent of all Wisconsin employers.

9. Small businesses create more than 50 percent of the American non-farm private gross domestic product (GDP).

8. Small patenting firms produce 13 to 14 times more patents per employee than large patenting firms. 

7. The 435,900 small businesses in Wisconsin are located in every community and neighborhood.

6. Small businesses employ 53.9 percent of Wisconsin's non-farm private sector workers.

5. Home-based businesses account for 53 percent of all small businesses.

4. Small businesses are 97 percent of America's exporters and produce 26 percent of all export value.

3. Wisconsin saw an estimated 13,656 new small firms with employees start-up in the last year measured.

2. There are approximately 17,900 minority-owned businesses and 104,170 women-owned businesses in Wisconsin, and almost all of them are small businesses.

1. The latest figures show that small business creates 65 percent or more of America's net new jobs.
 
The Office of Advocacy, the "small business watchdog" of the government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress and the President. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues.

For more information, visit the Office of Advocacy Web site at www.sba.gov/advo.

Ray Marchiori is the regional advocate for the U.S. Small Business Administration's Region V Office in Chicago. He can be reached at (312) 353-8614.

Editor's note: Be a blogger …
Is there an issue that you feel passionate about? Share your thoughts with the readers of Small Business Times by writing an entry in the Milwaukee Biz Blog. Just e-mail your blog entry, and a digital head-and-shoulder photo (if you have one) to SBT executive editor Steve Jagler at steve.jagler@biztimes.com.