The cost of doing business in the United States just got more expensive.

On Friday the federal minimum wage was increased for the third time in three years, jumping from $6.55 an hour to $7.25 an hour, a staggering 10.7 percent jump.  This comes at a time when unemployment is rising and people are finding it difficult to find a job and employers are struggling to keep their doors open.  

According to a 2003 study by economists at the Federal Reserve, a 2-3 percent decrease in employment can be expected from a 10 percent increase in the minimum wage.   In fact, small business owners will be paying 40.8 percent more per hour than they were paying in January 2007. Unemployment was 4.6 percent then, today it is 9.5 percent.

But increasing the minimum wage is only part of the problem. The health care reform bill moving through Congress poses an even larger threat on small businesses who can least afford to absorb more taxes and increased costs.  The impact of health care costs could be as much as an additional $6 per hour. 

According to an analysis done by the National Center for Policy Analysis, a worker who is earning the minimum wage but receives a family health insurance benefit would have to produce a value of $13.25 per hour for an employer. In addition, if the proposed health care bill passes, lower income workers and those with fixed incomes would be hurt the most. When the minimum wage increases, the first thing that employers do is cut benefits, reduce employee hours, lay off workers or raise prices. They can't raise prices right now!

The problem lies in how Congress is proposing to pay for its health care reform bill.

To pay for expanding coverage, House Democrats are proposing a surtax on those individuals who make $280,000 or more (the tax would range from 1% to 5.4%).  The tax continues to rise the more money you make.  The proposal doesn't include any exemptions for S corporations or other small businesses, many who file as individuals for tax purposes.  In fact, half of all small businesses with 20-249 employees are likely to have their income affected by the surtax.

If the surtax doesn't generate enough revenue to cover the costs of the bill by 2013, the surtax automatically doubles.   For business owners, that is like charging your customers double for a product because you can't meet your numbers for the year.

And still, it gets worse.  Employers whose payroll exceeds $400,000 and cannot provide coverage to their employees would be hit with a penalty that is equal to 8 percent of workers' wages.  According to the National Federation of Independent Businesses, this new mandate would result in the loss of more than 1.6 million jobs over five years; one million of those from small businesses.

Most small businesses are struggling with rising costs, smaller margins and are not able to absorb more labor costs.  The double whammy of an increased minimum wage and new health care taxes is only going to make it more difficult for small businesses to survive.  It's time to stop raising the cost of doing business in the United States.

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