Businesses: $1 of every $3 goes to compliance, regulations

During the fiscal cliff debates, the American public was inundated with tax percentage figures. For simplicity’s sake, there were two schools of thought with the tax rates. The first was to raise taxes to enable the government to do more to help grow jobs. The other was to lower taxes so businesses would have more revenue in their pockets to help grow the economy. Unfortunately, one of the biggest factors hindering businesses isn’t the tax rate — it’s our convoluted tax code.

Jason Blair is a contributor to The Brenner Brief. Twitter @jasonblair79

Jason Blair is a contributor to The Brenner Brief. Twitter @jasonblair79

The Brenner Brief spoke with Dan Chatfield who has worked for over 12 years at one of the top payroll management companies in the country. His primary clientele are small/mid-size businesses with 50-250 employees. Chatfield pointed out that, “These are the businesses that get hurt the most by our tax code and regulations.” Noting, “They fall into a hole where they are too large to effectively manage their own taxes and payroll, and too small to have a full-time staff enabling them to stay in compliance.”

As a result, nearly 74% of small businesses are forced to outsource at least some part of their payroll to a company like Chatfield’s. When asked how much this costs a business, he replied, “About the same cost as another full-time, mid-level employee.” Adding, “You could try and do it yourself or choose to hire a person instead of outsourcing, but you’re not going to be as efficient or effective.”

He’s not kidding. A study by Automatic Data Processing (ADP) in 2012 found that 33 percent of mid-sized businesses incurred some penalty for non-compliance with government regulations. Worse yet, those that chose to manage their own payroll “in-house” received about three times the fines or penalties than businesses outsourcing their payroll. Additionally, IRS reports show 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments.

Businesses not only lose money from paying penalties, they lose money by not being aware of all the credits available to them. Chatfield added, “Our tax code puts the onus on you to find credits. When the IRS audits you, they only look for where you weren’t in compliance, they aren’t going to tell you when you are missing out on a benefit you eligible for.”

One of the ironies is how many of the stimulus efforts actually hinder businesses. As an example, Chatfield pointed to the two percent social security tax deduction and the recent increase. In his words, “This may not seem like a big deal, but it was similar to the whole Y2K debacle where all of these programs had been written to match the rate and a whole bunch of other pieces relied on that, so entire portions of the software had to be re-written, tested, then rolled out.”

If this is what the left means by government creating jobs, count me out. I can’t think of a worse way to go about creating jobs than to do so through increasing burdens on our nation’s innovators. Furthermore, how many people are opting to stay on the sidelines out of fear over this regulatory nightmare?

When the fiscal cliff talks ended, both sides mentioned how great it will be now that businesses will have stability with respect to the tax rates. However, with one out of every three dollars going toward compliance with federal regulations, one can see there is a lot more that needs to be done.

Sign up for The Brenner Brief newsletterFree subscription; unsubscribe any time. Connect with conservative, alternative media — we are “rendering the mainstream media useless” at TheBrennerBrief.com!

Comments

  1. chuckrussell3 says:

    Brilliant. I’ve been saying for a long time that the taxes and regulations imposed by democrats are the main reason companies outsource. It is impossible for many to remain profitable and competitive otherwise. I hate to use the cliche, but buisness owners are forced to choose between the lesser of two evils, outsource or go out of business.

  2. Thanks Chuck. There have been many times where I have floated the idea of someday opening a business of my own. Dan’s expertise made me truly understand that I don’t even know what I don’t know. Unless something changes drastically in the future, I think this idea will remain just that – an idea.

  3. Kevin H Clark says:

    The intersection of politics and economics is a treacherous corner! How many bad business decision are made because of misguided public policy (who sold assets just before the end of the year….and then with a fiscal cliff deal, didn’t really have to?). I’m surprised the ratio is 1:3….I would have thought higher. Good article.

  4. I’m sure government is aware that when there are changes to the tax code it is onerous and expensive for businesses to comply.

  5. I think the problem is that lawmakers don’t care, they are only interested in feathering their own nest, (especially if everyone else is that way) even ron paul said he has tried to reform congress enough to make a difference but he said he realized it won’t happen, they are just not interested in the american people only in their own interests, and corporations who can afford the regulations are the ones writting the laws. wow talk about conflict of interest and fraud on the part of government. the corp who write the laws know exactly what they are doing. this is how you get rid of competition.

  6. The headline is unexplained. Yes, you say that a third are noncompliant – but that doesn’t come to a third of (what? sales?). And compliant to what? Regulations that prevent small business from killing or maiming those they come in contact with; that prevent them from soiling where people eat; that require them to pay taxes and provide employees a wage that coupled with food stamps allows them some degree of shelter and nutrition. Unregulated businesses freely kill and poison and remit neither taxes nor wages – ask anyone who was tasked with addressing some of the horrendous chemical dumps of unrepentent small business in the 70s and 80s. If there are too many or too egregious regulations, remember that each regulation addresses a propensity of business to permanently damage people and environment; to lie, to cheat, to steal. They are, after all, only people. Likewise the SS software saga is heartbreaking — 2009 was, after all, the very first time the tax code had ever been amended with respect to withholding rates, caps, contributions or depreciation. For a nation standing on the brink of financial suicide to implement such a plan to save itself — what were we thinking?

  7. Larry I apreciate you reading the article.

    I’m not going to apologize for the businesses you mention. They were wrong for doing what they did and should be punished for it. Unfortunately government prefers to rule with a sledgehammer over a scalpel. Rather than deal with these violators on a case by case basis, they create massive bureaucracies that morph into entities they were never intended to be. Just off the top of my head I’m reminded ot the EPA who recently tried to get rain runoff defined as a polutant, and attempted to fine businesses for not using products that aren’t even comercially available.

    100,000s pages of rules have taken things to a level where the even businesses with the best intentions can’t begin to hope to know all the rules. Those who can afford to get a lawyer to muddle through this do so. Those who can’t, try their best and pray the fines are low when the inevitable audit comes.

    Either way, consumers and workers pay in the end. Prices must go up to offset the risk and wages and benifits are kept lower as more money is used to offset compliance cost.

    I’m not advocating anarchy, I’m advocating streamlining how our government goes about the task of fostering a healthy climate for business while ensuring businesses are good stewards to the planet and it’s people. I don’t believe the two variables are mutually exclusive.

  8. Thank you for the reblog!

  9. Thank you for the reblog!

  10. Thank you for the reblog!

  11. Thanks for the reblog!

Trackbacks

  1. […] During the fiscal cliff debates, the American public was inundated with tax percentage figures. For simplicity’s sake, there were two schools of thought with the tax rates. The first was to raise t…  […]

  2. […] Blair: twitter, Businesses: $1 of every $3 goes to compliance/regs, Jason’s […]

  3. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  4. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  5. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  6. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  7. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  8. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  9. […] example, compliance with labyrinthine taxes and regulations costs small to middle-sized business 1 in every 3 dollars. This expense gets passed along to consumers while the benefit goes to the […]

  10. […] compliance with labyrinthine taxes and regulations costs small to      middle-sized business 1 in every 3 dollars.      This expense gets passed along to consumers while the benefit goes to the      […]

Leave a comment or question. Report abusive, harassing or annoying behavior by clicking on Tips/Contact in the top menu.

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: