In any country, the relationship between governments and businesses is complicated and often controversial. Relations between the American government and American business are no different, with the government acting as one of the primary stakeholders in various industries. The government’s actions and involvement can help or harm businesses depending on the context. The following are only a few of the ways that the government is directly linked to American businesses.

Taxing Workers

Workers in the United States are taxed on every dollar that they earn. This money goes to the government to help cover the cost of infrastructure, social welfare, health care, housing, education, and administration. Some people believe that taxation reduces workers’ motivation, as their personal earnings are significantly decreased. Others believe that it increases employee drive to work and earn, as employees have to work more hours to make up for what they pay in taxes.

business couple

business couple

Taxing Employers

Businesses pay taxes, too. The more taxes a business pays, the less money they have to invest in other goals, such as creating more jobs or expanding their products and services. However, the government also offers loans and grants to businesses. Taxes paid by businesses may be used directly to fund projects that benefit business owners.

Market Volatility

The business cycle is one that includes many ups and downs. The economy is in a constant state of flux, where nothing stays the same for very long. Governments may lower taxes or interest rates to jump start businesses, encouraging them to borrow and spend money.


When the government has debt to pay off, they sometimes sell it to foreign investors. In order to do so, the government may offer high interest rates, thereby attracting the interest of investors. This process can make it more difficult for businesses to grow. In addition, it can leave the government with more and more debt which becomes difficult to pay off the more it grows.

Government Contracts

Governments often contract work to national businesses. Unfortunately, this can mean that businesses are implicated in government affairs. If funding is cut for a particular contract due to differences in politics, the business can be left trying to replace a substantial contract. The business must quickly find new clients, which can be difficult since government projects often happen on a very large scale.

Rules and Regulations

Governments draft legislation that control how companies and organizations conduct their business. For instance, environmental regulations control how much waste is acceptable from a business according to the industry. Some rules and regulations from governments can make business more difficult for business owners.


When a business develops a monopoly, it means that they have no competitors. New businesses may be fearful of a company with an established reputation that has outlasted all of its competitors. However, the government will often take action to prevent monopolies, ensuring a free market is maintained. This is believed to keep prices for goods and services low, thereby attracting customers.

Quick Summary

Businesses and governments interact in a number of ways, often indirectly. Governments may either help or hurt businesses according to how much tax they demand from workers and employers and market regulations.