The health care bill introduces large taxes on firm growth
The health care bill passes by the Democrats includes a lot of provisions that depend on firm size, and which do not apply to firms smaller than some (arbitrary) limit. Most people like small firms and entreprenuereship. However both the left and the right often misunderstand sensible small buissnes policy:
1. First of all, just because something is good, it does not mean the government should subsidize it. There are benefits (closer management controll, fewer transactions costs, more flexibility) to small buissness, but there are also costs (less economies of scale, lower productivity). In a functioning economy some firms will be small and some firms large, depending on their relative advantages.
You need strong arguments, some form of important externality for example, for the government to tip the balance in favour of small firms.
Small firms cannot are more expensive to insure, because of administrative costs, economies of scale and because large firms have the advantage of offering a large and diverse workforce that the insurance companies can pool.
Sure, this is “unfair” for small companies, but it also reflects real costs of the economy. In terms of efficiencies there should be fewer small firms because small firms have higher costs. It is “unfair” for Saab me that Toyota has economies of scale and can offer the same quality cars cheaper. But that reflects real costs of the economy, there should be fewer and larger car companies because of the economeis of scale.
2. More important here: The main advantage of entreprenureship is not that these firms are small, it is that they are growing. There is empirical evidence for this. Fast growing firms (“gazelles”) introduce new innovations into the economy, create new and better jobs and increase competition. We want small firms to growh if possible, not to stay small.
Here are some examples:
* The bill offer tax credits to small businesses who have fewer than 25 employees.
*The bill imposes a $2000 per employee tax penalty on employers with over 50 employees who do not offer health insurance to their full-time workers.
* The bill states that for firms with more than 50 employees, a year after giving birth, nursing mothers must be allowed breaks on the job to express breast milk as often as necessary, and a private place to do so that’s not a bathroom.
* The bill states that Chain restaurants and food vendors with 20 or more locations are required to display the caloric content of their foods on menus, drive-through menus, and vending machines.
As bad as regulations are, they may have even worse effects if some firms are exemted, because in order to receive the exemptions firms behaviour is distorted even more.
What the Democrat bill does is create an incentive for small firms to stay exactly below the limit (25 employess, 50 employyes, 20 locations etc). This is unproductive Italian system, with lots and lots of small firms who escape regulations, but few Googles and Wall-Marts.
Italy, Greece, Turkey and Mexico have a much higher share of self-employed and more small firms than the U.S. But these if a reflection of low productivity, regulatory burdens, high taxes and large transaction costs, not entreprenureship. The U.S has much more innovative entreprenureship than these countries.
Helping small buissness stay small is not entreprenureship policy, it is the exact opposite.
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