August 20, 2012
How Big Government and Big Business Squeeze Entrepreneurs
It's one thing for bus drivers and medical staff to need state licenses. But interior designers and florists?
Chip Mellor, Wall Street Journal, August 17, 2012
Wisconsin's Elmer Kilian wants the chance to earn an honest living. So do Nevada's Lissette Waugh, Florida's Silvio Membreno and countless other entrepreneurs who have the drive and ability to put themselves and others to work.
Standing in their way are regulations imposed at the federal, state and local levels—regulations designed not to protect the public's health and safety but to protect politically powerful private businesses from new competition. These regulations are in many cases unconstitutional uses of government power, and in all cases they are unwise uses of public resources at a time when unemployment rates have lingered above 8% for 41 straight months, the longest such streak since World War II.
For decades, Elmer Kilian has prepared tax returns for his friends and neighbors on his lace-covered dining room table. He is typical of more than 350,000 American tax preparers who may now be put out of business because of an IRS power grab.
Under new regulations imposed last year—without congressional approval—the IRS now requires all paid tax preparers to become "registered tax return preparers" by paying extra fees, passing a government exam, and taking continuing-education classes annually. (Exempted from the mandate are attorneys, CPAs and politically powerful "enrolled agents.") Big tax-preparation firms such as H&R Block and Jackson Hewitt supported the licensing scheme, as did lobbying groups representing CPAs and others who are exempted from new regulation.
This new regulatory burden falls most heavily on independent tax preparers, who may soon be forced out of business. Compliance, especially for seasonal preparers like Mr. Kilian, is both expensive and time-consuming. Out-of-pocket costs of up to $1,000 for continuing-education courses, plus the travel and time required to take the classes, would make Mr. Kilian's venture unprofitable.
Lissette Waugh has a similar story, but her troubles stem from onerous state regulations. A highly sought-after makeup artist from Las Vegas—with clients including Salma Hayek and Arnold Schwarzenegger—Ms. Waugh wants to earn a living by teaching others her craft. The problem is that, even though you don't need a license to be a makeup artist in Nevada, the State Board of Cosmetology is demanding that Ms. Waugh obtain an expensive government-issued permission slip to teach others how to do what she does.
To get that license, she must submit to 700 hours of training and spend thousands of dollars. That's 700 hours she would otherwise spend teaching others to support themselves. Instead, she'll spend them pursuing a pointless piece of government-mandated paper. Nevada's incumbent cosmetology industry, of course, supports such requirements.
More than 100 low-income and moderate-income occupations require licenses somewhere in the 50 states and Washington, D.C. They range from the understandable (school bus driver, emergency medical technician) to the ridiculous: interior designer, makeup artist, florist.
These licenses don't come cheap. On average, they force aspiring workers to spend nine months in education or training, pass one exam and pay more than $200 in fees (as documented in the Institute of Justice study "License to Work"). One-third of the licenses take more than a year to earn. Rather than working, these individuals spend time and money jumping through hoops for the government's permission to work.
Sometimes the hoops can't be squeezed through, as Silvio Membreno of Miami has learned. Mr. Membreno seeks to do what countless immigrants have done before him: Come to America and provide for his young family as a street vendor, then grow that business into something bigger and better. Without much need for investment capital or formal education, street vendors can be their own bosses while climbing the economic ladder.
But the Nicaraguan immigrant's dreams are being dashed by the city of Hialeah, the Miami suburb where he works. Hialeah city officials make it impossible to be an effective street vendor.
They bar vendors from selling within a football field of brick-and-mortar stores that sell the "same or similar merchandise." They force vendors, unless in the middle of a transaction, to remain in constant motion when they would much rather stay put, sell and be safe. Vendors are even prohibited from displaying their merchandise anywhere on public or private property, even if they have the permission of the property owner. In a country with a long history of street vendors, local governments nationwide are increasingly quashing this traditional form of bootstraps entrepreneurship.
And what happens when entrepreneurs somehow overcome these government barriers to a better life? They create jobs for themselves and others, encourage other entrepreneurs and strengthen the social fabric around them.
Funeral-home owner Kim Powers Bridges of Knoxville, Tenn., typifies the power of an entrepreneur to transform the world around her. Years ago, the cartel of funeral-home owners in her home state of Oklahoma blocked her from selling discounted caskets because she didn't hold a government-mandated funeral director's license. So in 2005 Ms. Bridges moved to Tennessee, which had no obstacles of this sort.
Today she oversees an operation that owns funeral homes, cemeteries and crematories in nine states from the Gulf Coast to Tennessee, Texas, Colorado and New Mexico. Twice a month, she signs paychecks for more than 100 employees, and each year Bridges Funeral Services is responsible for the creation of more than $2 million in payroll in the states where it operates. Oklahoma's loss was Tennessee's—and the nation's—gain.
Americans are job creators by their very nature. Today, as always, untold entrepreneurs stand ready to start their economic engines—if only government officials would relinquish the keys.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."