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Monday, May 21, 2012

A Serious "To Do" for National Small Business Week

With National Small Business Week scheduled for May 20 to May 26, it’s an ideal time to take a quick look at the state of small business, along with policymaking directed at small business.

No doubt, the last few years have been tough on our nation’s entrepreneurs.

Consider the number of unincorporated self-employed (Bureau of Labor Statistics data). The recent high was hit in December 2006 at 10.9 million (seasonally adjusted data), and the direction ever since has been down. There was a leveling off from early 2009 to early 2010 around 9.8 million to 9.9 million, with the decline subsequently resuming. As of April 2012, the numbers stood at 9.3 million, and has hovered around that mark for the past three months. That’s the lowest level since mid-1985.

The data on incorporated self-employed only goes back to 2000, and is seasonally unadjusted. In terms of the yearly averages, the high was hit in 2008 at 5.8 million, and has declined in each year since, registering just over 5.1 million in 2011. In April of this year, incorporated self-employed came in at 5.26 million, which was up from 5.03 million in April 2011 and 5.12 million in April 2010, but down from 5.48 million in April 2009 and 5.73 million in April 2008.

The SBA Office Advocacy’s latest “Small Business Quarterly Bulletin” also offers some annual data on business births and death, along with business bankruptcies.

The births and deaths data are not terribly up to date. But on the births side, they came in at 870,000 in 2006, for example, and then fell to 845,000 in 2007, 786,000 in 2008, and 701,000 in 2009, with an uptick to 722,000 in 2010. As for deaths, from 737,000 in 2005, they increased to 763,000 in 2006, 804,000 in 2007, 901,000 in 2008 and 877,000 in 2009.

In terms of business bankruptcies they rose from 19,695 in 2006 to 28,322 in 2007, then increasing to 43,533 in 2008, and 60,837 in 2009.  The numbers then decreased to 56,282 in 2010 and 47,806 in 2011.

No matter how you analyze these trends, the news is not good.  Therefore, it’s not good for economic growth and job creation.

That takes us to the key policy question: What can be done to help small business get back on its feet, and get the economy back on a track of solid, robust growth?

President Obama served up some ideas on May 16.  As stated in a White House press release: “Today, President Obama will visit a small business in the Washington, DC area where he will urge Congress to act on the ‘To Do List,’ specifically highlighting the need to invest in small businesses and jumpstart new hiring and entrepreneurship by passing legislation that gives a 10 percent income tax credit for firms that create new jobs or increase wages in 2012 and that extends 100 percent expensing in 2012 for all businesses.”

What about these ideas?

Well, extending 100 percent expensing for capital expenditures certainly would be a plus. Although it must be noted that its temporary status tends to shift the timing of investments, while making it a permanent option for all businesses would provide a clear incentive for investing now and into the future.

Meanwhile, the 10 percent income tax credit for firms creating new jobs or increasing wages in 2012 is more gimmicky. It certainly would give a one-year bump for small firms already hiring or planning to hire. But as for creating additional hiring beyond that, it’s unlikely to have much of an effect. Not many business owners are going to make the long-term investment in new workers based on a one-year tax credit.

In reality, the best policy course for small business turns out to be the best course of action for the entire economy. A productive “To Do” list would include:

First, all of the increased taxes and regulations that are either in the pipeline or being pushed must be stopped, including ObamaCare and its increased taxes and regulations; and massive personal income, capital gains, dividend and death tax increases scheduled to kick in at the end of this year.

Second, the massive increase in federal spending that has been imposed in recent years must be rolled back, so that those resources can be more productively used by consumers, investors and businesses in the private sector, and to remove the accompanying threat of still more tax increases down the road.

Third, a positive, pro-entrepreneurship, pro-growth agenda must be adopted that revolves around substantial and permanent tax and regulatory relief. For example, both personal and corporate income tax rates must be reduced to encourage productive economic activity, boost the bottom lines of business, and to make the U.S. more competitively globally. Ideally, capital gains, dividend and death taxes should be eliminated, as they simply amount to multiple layers of taxation that deter entrepreneurship and investment. And as noted earlier, expensing of capital expenditures needs to be made a permanent option for all businesses as a clear incentive for investment that will improve efficiency and expand production for businesses, and boost worker productivity and therefore income.

Fourth, on the energy front, the political, tax and regulatory attacks on domestic oil and gas firms not only need to be rolled back, but government prohibitions regarding both onshore and offshore oil and gas exploration and production must be removed. Such actions will help to expand supply, and reduce pressures on oil and gasoline prices.

Fifth, the U.S. needs to regain global leadership on reducing international barriers to trade. By lowering trade barriers, U.S. entrepreneurs, businesses and workers have expanded opportunities in the international marketplace, while enhancing choices and reducing prices for consumers and businesses in terms of consumer and capital goods.

Sixth, Congress needs to narrow the duties of the Federal Reserve. Namely, the Fed’s dual mandate for monetary policy, i.e., full employment and price stability, must be replaced by a singular mandate of focusing on price stability. That lone purpose makes sense for monetary policy, as inflation always is a monetary phenomenon, while monetary stimulus accomplishes nothing in terms of economic growth. To the contrary, the added uncertainties and inflationary threats that come with Fed efforts to gin up the economy only wind up hurting the economy. When the Fed is focused on keeping inflation in check, that means businesses are better able to plan and invest.

Seventh, Congress needs to place a moratorium on regulations moving through the pipeline. Across all federal agencies, the thousands of regulations being proposed and promulgated is mind-numbing and investment sapping.  The uncertainty continues to breed low confidence among entrepreneurs, and fear among investors.  In addition, intrusive and government-knows-best thinking at the Federal Communications Commission is harming innovation and investment in our nation’s broadband ecosystem and wireless infrastructure. The spectrum crisis is real, and the federal government must quickly free up more of our nation’s airwaves for auction (without conditions) and allow the private sector to utilize these and its own resources in the most effective and efficient way to create more capacity.  Unfortunately, the FCC has become an obstructive force. It first slammed the door shut on one critical merger, and now is nitpicking and micromanaging the details of another.

That’s a serious “To Do” list that would make a real, immediate and lasting difference for small businesses, and therefore for economic and employment growth.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

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