The Incredibly Scary Cost of Creeping Bureaucracy and Regulatory Uncertainty
Sounds like the title for a geeky horror movie, doesn’t it? Unfortunately, this isn’t fiction.
As I write this on the first day of February in 2012, I know what the withholding rate will be on my payroll taxes for about 4 more weeks. It’s a minor issue for me, since the tax comes out of the employee side of the paycheck anyway. But I’m certain will be a real pain in the neck for my payroll company. Hopefully the politicians can reach consensus on a longer term solution before the press turns it into another three ring circus.
According to an article from Forbes (found here http://onforb.es/ys531e), dozens of tax credits along with other tax breaks expired at the stroke of midnight this past New Year’s. Some experts think Congress will act to reinstate many of these credits, others do not. When planning for myself and my clients, I know what the current income tax and capital gains rates are, but I have no idea how long they will last. The same can be said for the estate tax, or what some folks refer to as the “death tax”. The future of these taxes seems to depend upon upcoming elections.
In a recent casual internet search I discovered that the US Tax Code has become so long and so complex that the “experts” can’t even agree how big it is! It is said the Federal Tax Code is longer than the Bible, the Koran, and the Torah combined-enough to offend everyone but atheists and the agnostics. (No-I haven’t had a chance to fact-check this. You’re welcome to try.)
That’s just taxes. As a business owner in my particular industry, I also have to follow regulations, rules, and guidelines put forth by an alphabet soup of agencies including the SEC, DOL (ERISA law), DHS, CFTC, and the Department of the Treasury. Now, those are just the ones I can remember off the top of my head!
If I ran a business that made physical things, I would also need to keep up with constant updates from the EPA, and comply with safety rules put forth by OSHA. If I were shipping those goods, I would need to consult with the DOT. And if I had union employees, I would be reading headlines about the recent case with a major airplane manufacturer, wondering what would happen if I ended up afoul with the NLRB.
It’s enough to make my head hurt….really bad. This is just the stuff a businessperson faces on the Federal level. I’ll have to talk about state and municipal regulations in a separate post, once I muster up the time and energy.
When a businessperson is considering a new venture, or even hiring one or a few new employees, there is risk and uncertainty. The businessperson tries to figure out if that decision will lead to profits in the future. If you run a small business, like mine, you might consult with your lawyer or your CPA, perhaps put together a spreadsheet or two, and eventually decide whether or not take the leap of faith. Bigger businesses have more resources to help them make the decision. But, it all comes down to the same question-“Can I make money on this?”
In my humble opinion and first-hand experience, “rules from the man” have become a significant factor in the cost portion of this profitability calculation over the last decade or so.
“But wait, there’s more!”, in the words of the famous infomercial. It’s not just the number of rules or the complexity that inhibits economic growth, but also the fact that they are constantly changing. This creates greater perceived risk. The greater the uncertainty in future profitability, the greater the potential return a business owner will demand before taking the risk. Think about it in terms of your own portfolio-if you were considering an investment and you felt that it was somewhat risky, wouldn’t you also expect greater potential profits before taking the leap? Now, ponder this in light of my comments above about the increasing complexity of rules, and how they seem to be constantly changing.
If you have been unemployed, underemployed, or struggling to grow your business, this huge morass of red tape in Washington, D.C. could be part of the problem. If you have a chance to talk to your elected representative, you might want to ask them about this.
If you’ve been reading this carefully, you might guess that I’m not a big fan of the current administration, and you could be right. But this is a problem that is bigger than the current occupant of the White House, and there are plenty of elephants and donkeys who have been acting more like members of the “horse’s behind” party in the last few years. We need to elect representatives who understand that their actions have profound consequences.
As always, happy to hear your feedback (positive or negative) via email, or on twitter via @jpgriffard.
Cheers,
Joe Griffard, CFP®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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