Only the cost of health insurance is greater

WASHINGTON, D.C., August 22, 2012 — Small-business owners prominently rank “Uncertainty Over Economic Conditions” and “Uncertainty Over Government Actions” as their second and fourth most serious problems in the quadrennial National Federation of Independent Business (NFIB) report, Problems and Priorities. The top problem remains “Cost of Health Insurance,” which has historically been the No. 1 problem for small employers; 52 percent labeled it as “critical”. Nearly 40 percent of those surveyed said that economic uncertainty is the most critical problem, followed by 35 percent who identified “Energy Costs, Except Electricity” as critical for their firms; another 35 percent of owners named  “Uncertainty Over Government Actions” as their most critical issue.

“This year’s survey was conducted on the heels of the worst U.S. recession since the 1930s; historically high levels of unemployment and housing foreclosures, and historically low levels of consumer confidence and hiring still plague the small-business community,” said Holly Wade, senior policy analyst and survey author. “The high level of uncertainty cited by small employers helps to explain the sector’s inability to recover and expand. Fears over increasing health insurance costs continue to dominate the list of concerns for small businesses, very much in spite of the president’s health insurance reform law—certainly not an endorsement of the policy, nor a good sign for the future of the sector.”

The “Cost of Health Insurance” has been the top problem for small employers for the 25 years of the survey history. The percent of small-business owners who cite this problem as critical overshadowed the runner-up by 14 percentage points. Health-insurance costs for small firms have risen 103 percent in the last decade, an increase outpacing wages and inflation, and rendering insurance unaffordable for many small-business owners. The contention around the Patient Protection and Affordable Care Act (PPACA), commonly called “Obamacare,” has proven valid, as it has failed to address the fundamental causes of rising health-care cost while opting to focus on coverage. NFIB challenged the law in the Supreme Court of the United States, after the overwhelming majority of its membership expressed a desire to have it repealed. Without a major refocus of current thinking, the cost of health insurance will almost certainly be the most critical business problem facing small-business owners again in four years.

Uncertainty has emerged as a major hurdle to small-business recovery and growth, prompting the addition of two new problems, “Uncertainty over Economic Conditions” and “Uncertainty over Government Actions” to this year’s survey. Small-business owners ranked these two problems as the second and fourth (respectively) most severe problems facing their businesses. In the last four years, the federal government has enacted significant policy changes of an immense nature; their impact will continue as the regulatory system works to implement new policy directives. Uncertainty also surrounds pending government action on the expiring 2001 and 2003 tax cuts, the debt ceiling and the federal budget. All of these policy changes create a huge “question mark” for small-business owners, impeding their ability to make short and long-term business decisions.

Other notable survey findings include:

• As a category, “Taxes” takes the top position as the most severe problem cluster in the 2012 survey, followed by the category “Regulations.” Five of the top 10 most severe problems are tax-related, including “Tax Complexity,” “Frequent Changes to Tax Rules and Regulations,” and “Federal and State Taxes on Business Income.” Comparatively, the most severe problem cluster in 2008 was “Costs.”
• Regulations and financing lead the problems of increasing importance to small-business owners. “Environmental Regulations” topped the list, rising 20 positions from a rank of 47th in 2008 to 27th in 2012. “Finding Out about Regulatory Requirements” increased 13 positions from a ranking of 38th in 2008 to its current 25th position. “Obtaining Long-Term (five years or more) Business Loans” moved up 17 positions from 73rd to 56th. “Obtaining Short-Term (less than 12 months or revolving) Business Loans” follows moving 14 positions from 72nd to 58th.
• The least severe problems identified by small-business owners include: “Exporting My Products/Services,” “Undocumented Workers,” “Access to High-Speed Internet.” Exporting, the least severe problem proves critical for three percent of small business owners, virtually unchanged from 2008. “Undocumented Workers” and “Access to High-Speed Internet” are both a critical problem for seven percent of respondents.
• While the critical nature of some problems increased, for others, it declined, perhaps as a sign of the times. The largest decline in the ranking was “Interest Rates”, falling 30 positions from 32nd to 62nd. Also declining in importance and severity were “Finding and Keeping Skilled Employees” and “Employee Turnover”. Both fell 21 positions from 17th to 38th for the former and 51st to 72nd for the latter.

While small-business owners tended to evaluate most problems in the 2012 survey as they did in 2008, the major changes that did occur are largely related to the recession and increased regulations. The magnitude and duration of the recession significantly altered the small-business landscape along with the problems owners now face in operating their businesses. The four years between the last edition published in 2008 and the current edition saw a near collapse of the financial system and housing market, unprecedented government bailouts of the banking and automotive industries, and the enactment of massive economic stimulus programs. While the economy is over two years into its recovery, progress is painfully slow as economic headwinds and uncertainty remain. The effects of the recession and fragile economic recovery are reflected in owners’ assessment of business problems.

The findings of this publication are based on the responses of 3,856 NFIB small-business owner/members to a mail survey conducted from mid-January through April 2012. A sample of 23,000 members was drawn for a response rate of 17 percent. Owners evaluated 75 potential business problems individually and assessed their severity on a scale of “1” for a “Critical Problem” to “7” for “Not a Problem.” A mean (average) was calculated from the responses for each problem. Problems are ranked by mean score. A copy of the report is available at http://nfib.com/priorities. More information about the NFIB Small Business Research Foundation is available at http://nfib.com/research.

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NFIB is the nation’s leading small business association, with offices in Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through our unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of our members to own, operate and grow their businesses. More information is available online at www.NFIB.com/newsroom.