Government and the Little Guy
Governing bodies have a reputation of not only forgetting about the little people, but often stepping on them when they are down.
Even before he was elected, President Obama, a self-proclaimed voice for change, has recognized that small businesses are the financial backbone of the economy and, as such, must be nurtured and maintained.
In his short time in office, some moves have been made to help small businesses, including the passing of a stimulus package in February. The plan provided the U.S. Small Business Administration (SBA) with program tools that offered new economic incentives to small businesses. These incentives are aimed at growing the economy through job creation, restarting lending and investing in small businesses. The package contains loan-fee reductions, higher guarantees, secondary market incentives and new and enhanced SBA programs that aim to help unlock credit markets and begin economic recovery for the nation’s small business sector.
Small business advocates said some of what has come down under the administration is beneficial, but things on the horizon may actually work against the little guys.
“I believe they will hurt small businesses more because of the tax increases and regulatory proposals [being floated during the past few weeks],” said Karen Kerrigan, president and chief executive officer for the Oakton, Virginia-based nonprofit, advocacy group Small Business & Entrepreneurship Council. “Obviously, the current economic situation compounds the impact of his policies because they impose more costs on business. That is why we are trying to get the message through that raising taxes now is not smart economics.”
However, taking care of small businesses is definitely an intelligent idea. Small businesses, which the SBA defines as an independent business having fewer than 500 employees, are pretty important to the nation’s financial health. According to the SBA’s Office of Advocacy, small businesses have created 60 percent to 80 percent of the net new job since the mid-1990s. And, the U.S. Department of Commerce, Bureau of Statistics noted that small firms employ about half of U.S. workers.
What Lies Ahead
Several weeks ago, the president unveiled a budget overview for fiscal year 2010 providing nearly $700 million to the SBA for an agenda that supports lending to small businesses by deploying capital through guaranteed loans and investment products, according to the White House Office of Management and Budget. The spending plan also supports approximately $28 billion in loan guarantees intended to expand credit availability to small businesses.
The dollars earmarked in the proposed budget come on top of the $730 million in funding the SBA received from the stimulus bill.
Kerrigan explained that those plans are promising as are the programs for training and technical assistance for small businesses, which will see more federal funding.
“President Obama also plans to open up the federal government procurement process, so that more small firms have access to government contracts—there are billions of dollars of opportunity in this market space and the stimulus package includes billions more, so hopefully there will be positive movement on this front. He (Obama) has made a commitment to do this.”
Kerrigan went on to say businesses that have the ability to access SBA loans—those that are “credit-worthy and in a position to increase debt exposure”—will benefit from reduced fees and greater access to loans.
Kerrigan and Julie Riccio, director of government affairs for Printing Industries of America, agreed that all of this is beneficial if the president’s plans also did not include hefty tax hikes for small businesses.
“There is definitely some good stuff in his plans,” Riccio said. “But it would be most helpful if this did not have small businesses fac[ing] such tax increases. But, all we’ve seen is the budget so now is the time to make sure he is listening to our concerns.”
Kerrigan asserted the real negatives of his plans are higher taxes for certain small businesses, those with higher income business owners, on their personal income, capital gains and inheritance or death taxes.
In addition, Obama has proposed repealing Last-In/First-Out, which is a method of accounting that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first. This method provides both a more conservative measure of the financial condition of a business and the way in which it should be taxed. Kerrigan explained if this method were repealed, the tax bills for many small businesses would increase.
Besides access to credit and capital, Kerrigan said that small businesses need certainty and confidence.
“That is why we are dumbfounded by proposals to increase taxes,” Kerrigan added. “The private sector needs as much capital as it can get its hands on. ... Small business owners are uncertain as to their investments, growth and human capital strategies because of the various tax increases that may or may not happen. Also, we are hearing mixed messages from the administration on the economy. Is this the greatest economic challenge since the Great Depression, or are the fundamentals sound? Business owners are hearing two things—so are consumers, which impacts their decisions, confidence, outlook and buying decisions.
“We also need certainty on the policy front. There is great concern that tackling energy, health care reform, the economy and government spending initiatives in one swoop is too unwieldy. It would be a sound strategy for the administration to get the financial system problem in order as a first step.”
Small business advocates have said these firms will survive despite policy mishaps. But without squashing the proposed tax increases and affording them additional assistance, Kerrigan said, there will be less opportunity and economic growth.
“Many of these will grow slowly as opposed to becoming the type of high-growth firms that generate job creation and innovation,” Kerrigan noted.
“Certainly, over the next year, more small businesses will close. But others will open. I think you will continue to see hesitancy among small businesses to hire as they are getting squeezed by costs and lower profits. If tax increases go through, I do believe this will prolong the recession and add to our economic woes,” Kerrigan continued.
But the buck can’t stop once the economy begins to recover. In order to continue to not only survive, but thrive, Kerrigan urged the government to think more about the future.
“I believe they (small businesses) need long-term policy consistency on the part of our political leaders. That is, certainty on taxes as well as knowing that they can access affordable health coverage for their employees for the long-term. It would be very nice if Obama’s new initiative on reforming the tax code will lead to a fairer, simpler system for small business owners,” she said.
Kerrigan added that small firms need elected officials at all levels to focus on education.
“We need a long-term commitment to helping our current and future workforce remain competitive in the global economy. The U.S. should also remain the leader on trade. The more access small business owners have to global markets, the more opportunities to expand their customer base,” she stated.
Despite all the uncertainties surrounding the future, Riccio remains optimistic. “The administration’s focus is right,” she said. “He may not have pumped everything out yet, but there are reasons to be hopeful.” PPR