Obamacare: Exhibit A in how Washington doesn’t know business

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Last year, a number of restaurant franchise CEOs made news for declaring they would likely have to cut hours or employees as a result of Obamacare. They were hammered in the media for their alleged selfishness.

From Greta Van Susteren comes another franchise CEO complaining about Obamacare’s impact on his three restaurants – only instead of cutting back on employees, the owner is letting them all go. From Real Clear Politics’ transcript:

WESTBROOK: In 2010 I was president for the Texas Restaurant Association and it was my job to track the efforts of the House and Senate to pass that bill and then also find out what was inside it. The first thing that we did when it passed is take a look at penalties that were involved because there were so many other unknowns within the 10,000 pages of that law.

And so when I calculated personally on how it would affect me, I had 96 full-time equivalent employees at the time. And the penalty, which has now become a tax, was at the time, calculated at $2,300 per full-time equivalent employee. Well, that came out to almost $221,000. My three restaurants were top performing restaurants within the franchise, and that would have cost me $78,000 more than what I made out of my restaurants in 2011.

One of the key misunderstanding of business in Congress is the difference between gross revenue (income before costs) and net profit (money coming in after all costs have been taken care of). With 96 employees, Westbrook’s three restaurants were pulling in quite a significant amount of gross revenue, especially considering these restaurants all have fixed costs like taxes, possibly rent or a mortgage, and materials.  However, the CEO’s net profit – once all costs have been taken care of – is a mere fraction of the restaurants’ total revenues. According to the testimony by Westbrook above, he pulled in $133,000 in 2011, which puts him almost at the top 5% of earners in America.

In speaking with a veteran of business ownership earlier this year about the regulatory burden coming from Washington, it was pointed out that few in Washington respect a basic tenet of business: When the cost of compliance exceeds the potential for profit, business owners have no reason to stay open. This is exactly what Westbrook is describing; the cost of compliance will cost him more money than he makes every year, so he is being incentivized to close his restaurants.

So what will happen once Obamacare kicks into gear? Many smaller business owners who can’t afford the increased costs will either collapse, move their business (within the U.S. or to other nations), or sell to a larger competitor who can afford the mandates or has secured a waiver from the Obama administration. Thus will Obamacare be a boon for favored business, while hurting your economy.