[Congressional Record Volume 140, Number 83 (Monday, June 27, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 27, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           GET OUT OF THE WAY

                                 ______


                           HON. RICK SANTORUM

                            of pennsylvania

                    in the house of representatives

                         Monday, June 27, 1994

  Mr. SANTORUM. Mr. Speaker, I am particularly privileged to have among 
my constituents Dr. Ralph Reiland, assistant professor of economics at 
Robert Morris College in Pittsburgh, and his wife, Sarah McCarthy. Not 
only are Dr. Reiland and Ms. McCarthy among the sharpest writers I have 
seen on economic issues, but they speak from personal, practical 
experience, as they are co-owners of Amel's, a highly successful 
restaurant in suburban Pittsburgh.
  Dr. Reiland and Ms. McCarthy have published countless incisive 
articles and editorials on the conditions small businesses require in 
order to flourish and provide the greatest possible prosperity for 
everyone. As we discuss health care reform and its potential impact on 
small business, I thought it would be especially timely to submit for 
the record an article they wrote for Small Business Forum, the journal 
of the Association of Small Business Development Centers, last winter. 
They were asked to address the question, ``How Can the Federal 
Government Best Help Small Businesses?'' Their characteristically 
penetrating, thoroughly documented answer was entitled, ``Get Out of 
the Way.'' The full text of their article follows:

                           Get Out of the Way

                 Sarah J. McCarthy and Ralph R. Reiland

       Health mandates, inequitable wage and retirement policies, 
     higher taxes, and laws that stifle job creation all hurt 
     small businesses. The policy makers in this administration 
     need to lighten up on the regulations and the litigation that 
     are strangling us, and get out of the way. Here, then, are 
     six ways the government discourages small-business survival. 
     The health ``cure'' is bad medicine.
       As the Clinton campaign rhetoric heated up in 1992, we 
     realized that we, as the owners of a small restaurant, were 
     targets. We had become somewhat accustomed, even resigned, to 
     the piling-on of government regulations, mandates, taxes and 
     the feel of lawyers breathing down our necks. It was one 
     thing to feel that Congress was micro-managing our business, 
     but quite another to realize that we would now have a 
     President who, through idealism or misinformation, might 
     eliminate us with a penstroke. Health care mandates looked 
     like the possible final straw.
       When Candidate Clinton attacked ``employers who dump their 
     employees'; health care on the rest of us,'' we knew we were 
     in for a bumpy ride. We currently pay for health insurance 
     for eight of 48 employees. The premium for one cook with a 
     wife and one child is $4,800 per year. Without a government 
     subsidy, our health care bill for the other 40 employees 
     could easily total over $150,000. With the government's 
     record of controlling costs and weeding out fraud in other 
     mandated programs, such as workers' compensation, there's no 
     reason for us to assume that we could long survive mandated 
     health care.
       Each one of these taxes and mandates has a smothering 
     effect on business expansion and job growth, and the 
     cumulative effect is becoming overwhelming. When a well-
     established, thriving business like ours is struggling under 
     these burdens, how can we expect new entrepreneurs to start 
     businesses and expand jobs?
       We, as employers arguing in our own behalf, are dismissed 
     by this administration as ``special interests'' or 
     ``defenders of the status quo'' or ``the forces of greed.'' 
     It's perverse politics that's turning mom-and-pop proprietors 
     into robber barons. It's politics that doesn't produce 
     confidence in government or faith that one's business can 
     survive in such a hostile environment.
       On just the Clinton health care proposal's cost to 
     business, a University of New Hampshire survey of 611 
     economists shows 80 percent predict net job losses at the 
     lower end of the job market due to health care mandates. In 
     an Arthur Andersen survey of 687 businesses with under 500 
     employees, 81 percent state that increased payroll taxes for 
     health care will have a ``major negative impact'' on their 
     businesses and their ability to hire.
       Nearly every new job since 1988 in the American economy was 
     created in the small-business sector. Firms with over 5,000 
     workers cut 2.4 million jobs in the last five years, while 
     companies with fewer than 100 workers created 5.9 million 
     jobs, with the fastest growth in the firms with less than 20 
     employees.
       Most of these small firms (and most of the companies with 
     less than 100 workers) do not pay for health care coverage, 
     and that's one reason they can afford to expand and provide 
     jobs. The problem is that the reverse is also true, even if 
     the Clintonites refuse to acknowledge it; government health 
     mandates will hike costs that will trickle-down to cut job 
     creation in our strong growth sector. General Mills recently 
     announced the shut-down of 31 Olive Gardens and Red Lobsters 
     to offset the higher Clinton taxes and anticipated health 
     mandates.
       Over-regulation creates economic failure. The anti-business 
     bias of government policy makers has created an adversarial 
     and destructive relationship between government and those who 
     create the jobs. George McGovern laments that after his 
     experience in the bed-and-breakfast business, he now realizes 
     that laws and regulations pertaining to small business are 
     actually hurting the lower-wage workers whom he had tried to 
     help during his political career. Public policies, though 
     well-intentioned, too often trickle-down to create economic 
     failure and misery.
       With McGovern's Stratford Inn in bankruptcy, he now says: 
     ``In retrospect, I wish I had known more about the hazards 
     and difficulties of such a business. . . . I wish that during 
     the years I was in public office I had had this firsthand 
     experience about the difficulties business people face every 
     day. That knowledge would have made me a better senator and a 
     more understanding presidential contender. . . . To create 
     job opportunities, we need entrepreneurs who will risk their 
     capital against an expected payoff. Too often, however, 
     public policy does not consider whether we are choking off 
     those opportunities.''
       We can tell you what we are choking off: we are choking the 
     small-business Golden Goose.
       Ross Perot said during the 1992 campaign that the 
     government should stop breaking the legs of our businesses. 
     Paul Tsongas, too, warned Bill Clinton that you cannot love 
     jobs and hate employers. Maybe they don't actually hate us--
     perhaps it's closer to mistrust. Increasingly, government has 
     usurped our decision-making power over who and how we hire 
     and fire, who can be promoted, who can have a tax-deferred 
     pension, and who gets sick leave.
       The Society of Professional Benefit Administrators states 
     that each year there are 1,500 new laws, mandates, 
     regulations, directives, and court decisions that affect 
     employees' rights and benefits. A new study from Congress' 
     Joint Economic Committee, ``Derailing the Small Business 
     Express,'' by Lowell Gallway of Ohio University and Gary 
     Anderson of California State University, concludes that the 
     government burden on business per worker in the form of 
     taxes, regulatory costs and mandates declined slightly during 
     the economic expansion of the 1980s, but increased from 
     $3,900 to $5,300 during the economic downturn from 1989 to 
     1992. Business owners, like anyone else, buy less of anything 
     that's more expensive, and that applies to their purchase of 
     labor.
       The workplace is a litigious minefield. If Congress 
     seriously wanted to help, they could educate, mediate and 
     arbitrate rather than unleash lawyers armed with $300,000 
     lawsuits that crush businesses. It seems that Congress 
     doesn't seek to educate or provide managerial assistance when 
     a lawsuit will do.
       And they do sue. A jury in Portland, Oregon held a 
     McDonald's restaurant liable for the fatal traffic accident 
     of a 19-year-old employee who was driving home after a 12-
     hour split shift. The company had not compelled the hours and 
     the shift violated no labor laws or company policies. Now, in 
     addition to being responsible for drunk drivers, we're liable 
     for sleepy ones as well.
       ``Everybody and his mother are now suing their employer for 
     anything he does to them,'' says labor lawyer Richard G. 
     Moon. The topless dancers at Pacer's in San Diego have 
     charged the owner with creating a sexually harassing milieu. 
     Richard Vetter, owner of the General Sutter Inn in Lititz, 
     Pennsylvania, was sued by a customer for a handshake that was 
     too enthusiastic.
       There are now over 200,000 lawsuits a year for wrongful 
     discharge, with the average jury award approaching $500,000 
     according to Theodore J. St. Antonine, professor of labor 
     law at the University of Michigan Law School. A Rand 
     Corporation study shows that even when companies win these 
     cases, they pay legal fees averaging $84,000 and in a 
     vigorously contested case, defense costs can easily hit 
     $250,000.
       For business owners, the workplace has become a litigious 
     minefield where one misstep cab destroy everything they've 
     worked for, for a generation. George McGovern says: ``Today, 
     despite bankruptcy, we are still dealing with litigation from 
     individuals who fell in or near our restaurant. Despite those 
     injuries, not every misstep is the fault of someone else. Not 
     every such incident should be viewed as a lawsuit instead of 
     an unfortunate accident.''
       A waitress at the Blue Coat Inn, Delaware who was abducted 
     from her car in the restaurant's parking lot, raped and 
     robbed was successful in suing the restaurant owner for 
     negligent security. In fact, the restaurant had routinely 
     provided escorts for waitresses to their cars, and in this 
     case a busboy did accompany the waitress to her car. The 
     criminal gained entry through the waitress's open car window 
     as she sat counting her tips. The Delaware Supreme Court 
     upheld a $600,000 jury verdict against the inn.
       A McDonald's in Oak Forest, Illinois recently paid a 
     $1,250,000 judgment for a robbery and murder for allegedly 
     negligent security. A study by Liability Consultants of 197 
     lawsuits by crime victims charging inadequate security by 
     business owners shows jury verdicts averaged $700,000 for 
     robberies, $1.2 million for assaults, $1.8 million for rapes 
     and $2.2 for wrongful deaths.
       These jackpot awards and the oversupply of lawyers have 
     turned ``victimhood'' into a growth industry and business 
     owners into cash cows.
       The wage and retirement laws hurt instead of help. Well-
     intentioned government man-dates frequently harm the very 
     people they're supposed to help. Restaurants, for example, 
     usually have a small group of full-time workers and an ever-
     changing group of primarily part-timers who work as servers 
     while attending college or until they land their ``real 
     job.'' Though teachers and other professionals are entitled 
     to 401(k) and 403(b) retirement plants, workers at our 
     restaurant are excluded from such advantages.
       The law mandates that if 401(k)s are available to anyone at 
     a business, they must be available to all. Since we can't 
     afford contributions for all of the employees, we aren't 
     permitted to provide them for the five or 10 of our longtime 
     and hardest working people. Our full-time employees who have 
     worked at the restaurant for over a decade should enjoy 
     the same tax-deferred saving plans that are available to 
     first-year teachers, but they are victims of this one-
     size-fits-all government mentality on benefits.
       With time-and-a-half pay rules, we agree with the 
     Department of Labor that a 40-hour work week is usually 
     enough for anyone (especially in a restaurant). We discourage 
     our employees from working over 40 hours, but occasionally 
     someone who is extra ambitious or energetic or needs extra 
     money for something like a down payment on a house will want 
     overtime. As it now stands, we're penalized with a 50 percent 
     labor cost increase if we approve the employee's request for 
     longer hours.
       Job creation is stifled With the family leave mandates, 
     Labor Secretary Robert B. Reich says we should have ``family 
     friendly companies,'' but Ruth Stafford, president of Kiva 
     Container in Phoenix, says, ``Fifty is the magic number.'' 
     She has 48 employees and won't hire any more full-timers. 
     Stafford is not alone in trying to stay under the mandate 
     levels. The Economic Policy Institute. Estimates that 60 
     percent of all new jobs created this year were part-time, up 
     from 26 percent in the two years prior to the 1992 election. 
     Survey after survey shows business owners reporting that 
     Clinton's new taxes and mandates are killing full-time job 
     creation.
       Professor Reich may not like Ms. Stafford's approach, but 
     she's in the real world and may have to worry about cheap 
     Mexican containers coming into her market with NAFTA. On the 
     other hand, we doubt that Professor Reich ever lost any sleep 
     about Harvard's bottom line or his labor costs at the Labor 
     Department. The Clintons, too, in making the quick jump from 
     campus to the governor's mansion, haven't had to worry much 
     about such mundane things as grocery prices or car repairs, 
     let alone the rising costs of employees benefits or the costs 
     of fraudulent lawsuits.
       The cumulative tax picture spooks small business It's clear 
     to us that Clinton's plethora of new taxes and mandates has 
     spooked small business. The 4.8 percent annual growth rate he 
     inherited from the final quarter of 1992 collapsed to an 
     annual rate of 0.7 percent in the first quarter of 1993.
       As the owners of a small restaurant, we're faced with the 
     same new taxes and regulations as other business owners, plus 
     new insurance liability increases, higher alcohol taxes and 
     smaller entertainment deductions for our customers.
       Unfortunately, we also have a more elastic demand curve for 
     our product than the car repair shop does next door, since 
     our customers can cook at home easier than their customers 
     can install new brakes. That limits our ability to raise 
     prices to cover new government costs. The bottom line is: we 
     are being forced to fire some people who have done nothing 
     wrong. They're the ones Bill Clinton promised to help, ``the 
     ones who do the work and play by the rules.''
       Clintonomics is an attack on the only sector of the economy 
     that still works. Nearly three-fourths of those $200,000 
     family incomes targeted for the largest tax hikes are small-
     business owners' incomes. These are the people who invest and 
     create nearly all our new jobs. That's the reality of 
     trickle-down economics, even if Bill Clinton is in denial 
     about it.
       Before the election, Candidate Clinton had independent 
     business owners on a pedestal: ``My plan will not add new 
     taxes on small businesses. I know that 85 percent of the new 
     jobs in this country are generated by small businesses and I 
     am committed to helping them prosper.'' Now we are on the 
     receiving end of a class warfare campaign from the Oval 
     Office--we've been turned into the``elite few'' who haven't 
     paid our ``fair share.'' In Commerce Secretary Ron Brown's 
     words, we're now the ones ``who made out like bandits in the 
     1980s.''
       Our modest prescription--How much better it would be if the 
     Clinton administration enlisted the help and cooperation of 
     small-business owners instead of threatening and alienating 
     them with class-envy rhetoric and economic penalties. This is 
     no longer a Yale teach-in where everyone gets top scores by 
     expanding the areas of litigation and sneering at the greed 
     in the business sector.
       It's time to junk the appeals to class envy and tell the 
     truth. The top 10 percent of American income carners receive 
     one-third of the national income, pay 58 percent of the 
     federal taxes, and create nearly all of the jobs. They're not 
     bandits, they pay more than their fair share, and they are 
     the unique factor that separates our country from the failed 
     statist economic systems of Eastern Europe, the Soviet Union, 
     and Cuba.
       This administration still has a chance to get out of the 
     way and let what has shown to work, actually work. It's time 
     the administration learns that it can't make good on its 
     pledge to ``grow this economy'' by killing the Golden Goose 
     of small business.

                          ____________________