Economic Outlook - June 2005

Rules cause big headache for small-business owners

Small-business owners in North Carolina are less satisfied with local business conditions than peers in neighboring states, according to a survey by the Washington, D.C.-based National Federation of Independent Business. Gregg Thompson is its state director for North Carolina. A former Republican state legislator, he is vice president of Raleigh-based Thompson Group Inc., which includes Nancy’s Novelties and a Christmas-tree farm near Spruce Pine.

BNC: Are things worse in North Carolina, or are business owners here just grumpier?

Thompson: The survey shows that the business climate in North Carolina is supportive of small businesses, yet we lag behind neighboring states. I think that has a lot to do with the high corporate- and personal-income taxes in North Carolina and government regulations.

Are our regulations more numerous or more stringent?

North Carolina seems to have more regulations than our neighboring states. It’s those two issues — taxes and regulations — as well as the cost of workers’ compensation insurance that make our business owners feel we are somewhat behind our neighbors.

Where do we have more rules?

Environmental, tax regulations, safety regulations and a myriad of rules that owners feel are an undue burden on the small-business atmosphere. They cause delays and cost increases to the small-business owners. And in turn, that is a deterrent to economic development in our state.

How do they cause delays and boost costs?

If someone is going to expand their business and they want to build a new building — maybe they have 65 employees and they want a building that will accommodate 108 — they may run up against an environmental regulation that postpones or delays the construction of that new facility. And that’s going to increase the cost. Any time construction is delayed, raw materials can increase in price, interest rates can increase. Regulations sometimes cause the delay. They cause an undue burden on the small-business owner who wants to expand.

Are these state regulations or federal?

Usually the state regulations follow the federal. Sometimes the state regulations are more stringent than the federal regulations, particularly in the environmental areas. I’m certainly not anti-environmental, but some of those regulations are more stringent than federal regulations, unlike probably other states where they just will follow the federal guidelines.

Can you give an example?

In the mining industry, the state requires a lower rate of fluoride discharge into the water than the federal government. That hinders mining production and increases costs to the small-business owner.

What's wrong with our tax laws?

In 2001, during the budget crisis, the General Assembly increased the sales tax and personal- and corporate-income taxes. Those tax increases were supposed to sunset in 2003. The assembly found itself in a financial crisis in 2003 and extended the sunset of those tax increases to 2005. We’re now facing probably one of the worst financial crises in a decade and a half in state government. Unless the assembly raises other taxes, it is unlikely that those tax increases will sunset in 2005. NFIB supports a full sunset of all of those taxes. But if those tax increases are not sunset, the governor is proposing to begin a reduction in personal-income tax for those who make $200,000 or more, I think by a quarter-percent per year over three years. That would benefit small-business owners because most run their small businesses through their personal-income taxes.

Why settle for a gradual decrease?

Something is better than nothing. If we cannot have a complete sunset of those tax increases in July 2005, then we support the governor’s proposal because that will help small-business owners, and it will hopefully help recruit small businesses. If that were to pass, we may have a lower tax rate than some of our neighboring states.

What else is bothering them?

The No. 1 issue among small-business owners in North Carolina and our NFIB members is the cost of health insurance for employees. It’s an issue nationwide. Senator Richard Burr spoke at our small-business issues forum about federal legislation that would allow small businesses to band together across state lines to buy health insurance.

How do you think small businesses here will fare in the rest of 2005?

Our survey shows there’s a lot of optimism. We’re optimistic that we’re going to make some gains in legislation. We’re optimistic there will be some changes in 2005 that will be beneficial to small business.