With Pasty Tax, Britain Harms Small Business Growth, Just Like President Obama

Last week, George Osborne presented the new UK budget for 2012. And as it goes with such things, nobody can seem to agree on whether this budget helps or hurts the British economy. 

One of the main points of contention is over the change in VAT rules and application. While the British public and press are always quick to criticize VAT raises, these changes are particularly puzzling. 

The most striking example are the new VAT rules over hot and cold pasties. (For the non-Brits in the audience: an explanation of a pasty here.). A 20% VAT now applies to hot pasties due to the closing of a loophole that allowed some fast foods to go tax free, while cold or lukewarm pasties remain free of taxation. While this may have been an attempt to make the British tax code more fair by extending this particular tax to all businesses, the new rules are totally nonsensical. If the British government is concerned with creating more growth within their economy, the last thing they should be doing is creating more confusing taxation or regulation. Not only do seemingly arbitrary, confusing regulations such as the new VAT create barriers to the creation of new domestic business, but they also keep old businesses from being productive.

On our side of the Atlantic, we have a similar problem with regulatory overreach. From our 1,300 page tax code to our standards for occupational licensing (see the requirements for getting a license in hair braiding which, funny enough, don’t involve any training in the actual braiding of hair), the American government seems to put up every barrier in the creation of new economic activity. 

In everything from a bill for new rules for food trucks on the distance they must park from schools in California to the arguments over the creation of a new Washington, D.C. medallion system for taxis, the odds are stacked against those who want to strike out on their own. While we might expect regulatory confusion from our slightly more socialized neighbors across the pond, America is the mythical land of opportunity, and we should make it as easy as possible for those who have the will and creativity to be entrepreneurial and productive. 

Isn’t Congress always crowing the praises of small business owners in stump speeches and sound bites? Or is that merely rhetoric? Even with the creation of a new Senate Committee on Small Business and Entrepreneurship only a year and a half ago, the Obama administration does not seem to care about the creative people who really do power our economy. If they are actually interested in creating real growth within our stagnant economy, the White House should take a hard look at occupational licensing laws, our tax code, and business regulations, in order to make it easier for new businesses to sprout up and old businesses to be more productive.