Mariotti notes that the U.S. tax code now runs to 38,000 pages. (Alone, the tax rules relating to owning a car for your business run to 68 pages.) He points to a 1993 issue of Fortune, featuring a photo of Chrysler's chief financial officer dwarfed by his company's nine-foot-high tax return, which, in turn, prompted a letter to the editor from Citibank's CFO, with mention of his 26-volume tax return.
But Chrysler and Citibank can get their IRS horror stories publicized in national magazines. They can also muster armies of accountants and fold tax-preparation costs into the price of products and services. An inner-city youth with marginal reading skills trying to make $180 a week by running his or her own business can do nothing of the sort. "There's no simple way to cut through the red tape," asserts Mariotti. "You've got to pay someone, and that means you've just added $4,000 to your start-up cost, which is nothing to someone with $1 million. To someone with $300, which is what we're talking about with at-risk people, it's an enormous amount."
Mariotti notes that beyond the tax code's sheer length and density, there is something equally insidious. "The tax code changes all the time, so there's no established body of knowledge. It's like studying a science and finding there are no basic principles." He says that a standard part of the NFTE curriculum is a field trip to New York's labyrinthine permitting and licensing offices -- which he admits is depressing but necessary. He believes that a radical overhaul of the tax code and a streamlining of the business-licensing process are vital. Would-be entrepreneurs, he thinks, should be allowed to walk into city hall, register their business at one location for a nominal sum, and walk out with the necessary license and a tax identification number.
The paperwork, cost, and confusion resulting from not being able to do that drive would-be entrepreneurs away from certainty and down a slippery slope. They develop contempt for the government because they no longer see it as their ally. That drives people into the underground economy, where, says Mariotti, "there are no contracts. Matters of dispute are often settled with a gun or a beating." In the mainstream economy, he adds, there is an implicit understanding that government becomes a de facto partner to entrepreneurs by agreeing to protect their property rights. Underground, "each person becomes his own government. He has to. He can't go to the police or a court, because he's illegal."
Once an entrepreneur moves into the balkanized -- and chaotic -- underground economy, growing the business is not a viable option. "Psychologically, you always want to be broke, because the accumulation of assets becomes evidence of your illegitimacy to your peers," says Mariotti. "You can't have a checking account, an office, a lawyer, or an accountant. Maybe you can gross $50,000 or $60,000 a year and clear $18,000, but to do better than that is difficult."
Mariotti contends that a simple lack of legitimate trade lies at the core of much inner-city decay and despair, playing into every pathology from a booming drug industry to the soaring cost of health care resulting from violence and a high rate of teenage pregnancy. He says a big piece of the American urban experience involves people's being able to trade their way freely to a better life -- beginning as street peddlers and one day possibly building retail or service empires of storied proportions. He says that is all but impossible today in New York City, which resembles a cramped and graying socialist state, where the government is a principal property holder and dispenses access to the economy to a favored few. He notes that New York City gives out only 1,100 peddler licenses each year, while it has at least 100,000 homeless people roaming the streets. "These people can ask you for money whenever and wherever they want, but they can't legally sell you a thing."
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Protectionism
Welfare for the Haves
While government regulation is a large and obvious barrier to many would-be entrepreneurs, it also has its nasty private-sector underside: protectionism. Another barrier to many aspiring entrepreneurs is the ability of those on the inside to exclude new entrants. About 10% of all jobs in this country require some sort of a license, and many of those are low-skill entry-level occupations such as taxicab driving, working as a street vendor, cosmetology, trash hauling, and recycling. Nonetheless, the licensing process in those fields is often onerous and reinforced by antiquated laws written decades ago, when the economy looked far different. "Traditionally, in our country these kinds of entry-level opportunities started people on the way up and out of poverty and into the middle class," says Jerry Hill, president of the Kansas City-based Landmark Legal Foundation, a public-interest law firm. "You would have a family that would start with one pushcart; then maybe in a few years that number grows to three or four, and eventually the family has a trucking company." But, says Hill, what happens too often today is that you have "the haves regulating the have-nots. You have licensing boards dominated by people already in the business. They sit back and decide who their competition should be. The effect is to preserve existing monopolies at the expense of those least able to defend themselves."
