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An E-Mail From A Restauranteur

Tuesday, July 21, 2009  |  posted by Hugh Hewitt
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E-mail from a restauranteur:

Hugh- as a small business restaurant owner I’m appalled that very few (politically, media) are discussing the massive impact Obama-care will have on small businesses. We simply cannot afford mandated employer health care in our industry, and keep in mind that our industry is one of the most critical backbones of the entire American economy- there are over 945,000 restaurants in America, employing over 13 million people. [# More #]

Keep in mind we primarily employ entry level and relatively unskilled laborers in the restaurant business. Our business models are built on razor thin margins as our customers (the American public) demand great value for their food- we simply cannot afford to provide health insurance for our majority unskilled and frequently transitory workforce whom in many cases are already paid higher wages than their skills could demand in an unregulated market via inflation indexed mandatory minimum wage laws. Mind you we do offer solid compensation and health benefits to management and senior staff who by virtue of their skills, responsibilities, achievements and longevity have earned them We are already hammered by mandatory minimum wage increase that have siphoned off critical profits from our business in this time of recession- contributing greatly to significant price increases and labor force reductions already. Now Obama-care is proposing an 8% payroll surtax to finance mandatory healthcare?! This is INSANITY. Restaurants are built on after tax cash flow business models of less than 5% (which mind you has already been chipped by about 2% for min wage increases and price discounting to maintain traffic during a recession has hurt profits as well). Given payroll represents on average 25% of a restaurant businesses sales, an 8% surtax represent another 2 % hit to the bottom line! The senate version is almost as bad. And don’t let the small business exceptions fool you as restaurants are VERY labor intensive, and even a single small restaurant operation typically employees 20-30 people- practically every restaurant in America will be impacted by the mandate. Given that most small business restaurant operators survive on scale (2-10 locations) and again at very low margins, the small business exceptions will provide no relief for the those in the restaurant industry who provide the majority of jobs.

What does the administration think businesses will do in reaction to this law? For starters we will be forced to drastically reduce staffing in an effort to reduce our payrolls and offset the tax impact on our profits- I anticipate the current hiring freezes in the industry to turn into massive layoff waves, and the industry to cut back dramatically to levels that will significantly impact our service models and even our ability to continue to operate. Second we will have no choice but to raise prices significantly- the HIDDEN TAX on the American public is that all taxes are ultimately passed on to the consumer. Third, and perhaps worse, many, many, MANY restaurants will simply not be able to cope with the cost burden and will fold almost overnight, swelling the ranks of the unemployed even more drastically. Finally, the financial incentive to build new restaurants in America will be gone. Say goodbye to new and interesting and convenient cuisine options in your neighborhood as no rational investor will put money in the future into a money losing business proposition.

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