Many small business owners would agree that owning a company is more about sweat and determination than glamour and prestige.
But as policymakers confront double-digit unemployment and finally get serious about job creation, small businesses are suddenly getting marquee billing.
In his State of the Union speech last week, President Obama finally seemed to understand who the real job creators in this country are: “We should start where most new jobs do—in small businesses, companies that begin when an entrepreneur takes a chance on a dream, or a worker decides it’s time she became her own boss,” he said.
In spite of the fact that small companies employ about half of the country’s non-government workers and generate the majority of new jobs, an ADP report released last month shows that businesses with fewer than 50 employees cut another 68,000 workers in November, bringing the total number of workers that small companies have collectively laid off in the last year to 2 million.
To help reverse this trend and jumpstart job creation in the small business sector, President Obama called for a jobs bill, specifically focusing on small business.
Later in the week, during an appearance in Baltimore, President Obama revealed more details about his plan for a package of small-business loans and tax incentives. He’s proposing to give businesses a $5,000 tax credit for each net new employee they hire this year; startups that launch in 2010 would be eligible for half of the tax credit. He’s also proposing to offer reimbursements of Social Security taxes to businesses that raise employee wages this year. Companies would be eligible by raising wages, by increasing the hours of their current workers, and by hiring new employees.
The President is also calling for an extension of tax credits for capital equipment purchases and the elimination of capital gains taxes. The latter two are not new, having been approved as part of last year’s stimulus legislation; however, both are up for renewal. In the previous legislation, the amount of capital investments that small businesses could write off increased from $137,500 to $250,000 and allowed small companies to pay only 25 percent of their capital gains taxes.
While the Obama administration is rightly focusing on job creation and on small business as the source of those jobs, many questions remain about whether the program will work as intended: to put unemployed Americans back to work. It’s difficult to ask a small business owner to bring on a new worker for a $5,000 tax credit if the work isn’t there and cash flow is poor; however, for business owners who are in a position to hire but have been reluctant, the $5,000 credit will be an incentive.
Giving businesses a tax credit for the Social Security taxes they pay for increasing wages or hours has stronger legs. It has tangible results on cash flow, allowing owners to reinvest those dollars back into their business. In fact, I’m not sure why we’re not looking at a broader payroll tax credit that any small business owner could take advantage of, not just those who increase wages. If all small businesses were allowed a payroll tax holiday for a specific time period, those dollars could be used for new hires, capital investment and other purchases that would help stimulate the economy. In a time of tight credit and very limited access to credit, allowing business owners to keep more of their own money would spur spending.
In the end, though, the government does not create jobs. Nor do short-term incentive programs. It’s people like you and me who have the long-term confidence to carry out the vision we have for our businesses and decide that adding more people to the payroll is worth the risk. That’s an individual decision that each of America’s 29.6 million business owners needs to make.