The Small Business Restaurant Case Against Obama-care

This is a letter written by a friend of mine:

America – as a small business restaurant owner I’m appalled that very few (politically, media) are discussing the massive impact Obama-care will have on small businesses. We simply cannot afford mandated employer health care in our industry, and keep in mind that our industry is one of the most critical backbones of the entire American economy- there are over 945,000 restaurants in America, employing over 13 million people.

Keep in mind we primarily employ entry level and relatively unskilled laborers in the restaurant business. Our business models are built on razor thin margins as our customers (the American public) demand great value for their food- we simply cannot afford to provide health insurance for our majority unskilled and frequently transitory workforce – in many cases they are already paid higher wages than their skills could demand in an unregulated market via inflation indexed mandatory minimum wage laws. Mind you we do offer solid compensation and health benefits to management and senior staff who by virtue of their skills, responsibilities, achievements and longevity have earned them. We are already hammered by mandatory minimum wage increase that have siphoned off critical profits from our business in this time of recession- contributing greatly to significant price increases and labor force reductions already. Now Obama-care is proposing an 8% payroll surtax to finance mandatory health care?! This is INSANITY. Restaurants are built on after tax cash flow business models of less than 5% (which mind you has already been chipped by about 2% for min wage increases and price discounting to maintain traffic during a recession has hurt profits as well). Given payroll represents on average 25% of a restaurant business’s sales, an 8% surtax represent another 2 % hit to the bottom line! The senate version is almost as bad. And don’t let the small business exceptions fool you as restaurants are VERY labor intensive, and even a single small restaurant operation typically employees 20-30 people- practically every restaurant in America will be impacted by the mandate. Given that most small business restaurant operators survive on scale (2-10 locations) and again at very low margins, the small business exceptions will provide no relief for those in the restaurant industry who provide the majority of jobs.

What does the administration think businesses will do in reaction to this law? For starters we will be forced to drastically reduce staffing in an effort to reduce our payrolls and offset the tax impact on our profits- I anticipate the current hiring freezes in the industry to turn into massive layoff waves, and the industry to cut back dramatically to levels that will significantly impact our service models and even our ability to continue to operate. Second we will have no choice but to raise prices significantly- the HIDDEN TAX on the American public is that all taxes are ultimately passed on to the consumer. Third, and perhaps worse, many, many, MANY restaurants will simply not be able to cope with the cost burden and will fold almost overnight, swelling the ranks of the unemployed even more drastically. Finally, the financial incentive to build new restaurants in America will be gone. Say goodbye to new and interesting and convenient cuisine options in your neighborhood as no rational investor will put money in the future into a money losing business proposition.

Don’t pretend for a second that the administration doesn’t know this. Isn’t it convenient that they have planned the tax increases to be time delayed till 2011, hopeful that the American consumer will separate cause (Obama-care passes in 2009) from effect (massive unemployment waive in 2011)? Perhaps in the interim the unemployment numbers will trend up temporarily to mask his economically unsound strategies. I can assure you that come 2011 the economic consequences will be stunning to say the least.

Also, don’t be fooled by big businesses (Wal-mart, GE, etc) which have the scale and size to absorb these costs and are supporting Obama-care/similar measures. They see the law as a means to strangle their small business competition with regulations that will overwhelm and bankrupt them, freeing up market share for them to absorb. In fact, these big business bedfellows are counting on reduced competition from the small business sector to offset their losses on health care costs. Much like the big business-government collaboration of the past (railroad regulations) and the present (green initiatives trumpeted by Goldman Sachs and GE), their support is calculated and self-interested and in no way reflects the ability of the broader small business economy to absorb misguided policy.

Please put the word out to others that the consequences of this bill are far, far reaching and dire throughout the economy to consumers and businesses alike. Obama-care could kill the small-business economic goose that has laid golden eggs almost uninterrupted since the Reagan revolution. Do we really want 20% unemployment and small-businesses shuttered up all across America? Mandate business funding of employee health costs and you will see just that. And when small businesses are no longer here to foot the bill, guess who the government will come calling to NEXT to make up for the shortfall in funding? To quote Pastor Martin Niemöller:

“In Germany, they came first for the Communists, And I didn’t speak up because I wasn’t a Communist;
And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;
And then they came for the Jews, And I didn’t speak up because I wasn’t a Jew;
And then… they came for me… And by that time there was no one left to speak up.”

Wake up America, before it’s too late!

Shane
Phoenix, AZ