Up until last month's now-infamous "somebody-else-made-that-happen" speech, I wasn't ready to completely throw in the towel on President Obama when it comes to small business. However, recent actions (and inaction) prove to me that Obama has little regard for small business. While it is difficult to say he hates entrepreneurs and Main Street, his policies continue to hurt us and our prospects for growth. Why the current administration takes this stance is the subject for next week's column, but this week, I want to explain what the president has done to prove my point.
First, some important figures. We have all heard the statistics about small businesses as an important economic driver, but the overall influence is significant. Small businesses:
- Employ half of all private sector employees
- Pay nearly 50 percent of total U.S. private payroll
- Create more than half of the non-farm private GDP
- Generated 65 percent of all net new jobs in the past 15 years
Virtually every economist insists small businesses will lead us into a more robust recovery. Despite all of this, the president has done little to bolster small business since he took office. Here's what we know:
1) When federal funds get doled out, small businesses bring up the rear.
With control of both houses and a sympathetic Congress, Obama signed into law the American Recovery and Reinvestment Act (ARRA), commonly known as the first stimulus plan, in February 2009, shortly after coming into office. Unfortunately, the law overwhelmingly benefitted big business and big unions. Only 0.899 percent of stimulus funds targeted Main Street businesses. A motion-graphics video on the topic that my firm commissioned two years ago is sadly still relevant today.
That $730 million came in the form of temporarily larger government guarantees for SBA loans; waivers on loan fees normally already financed into loans; and the creation of new ARC loans, a very small loan program that many predicted would not address real problems and fail -- it did. To put this in perspective: This stimulus amounted to about $104 for every one of the 7 million small businesses in America that have employees.
Contrast this with the bailout for two of Detroit's auto companies: They received the equivalent of $472,941 per U.S. employee ($60.3 billion for 127,500 workers). Can you just imagine what America's small business sector could have done with even a fraction of that $60.3 billion? Is there any doubt the recovery would have come more swiftly and unemployment figures would have declined considerably?
2) Regulations have a greater negative impact on small businesses, but that doesn't stop Obama from seeking more.
Regulations place a heavier burden on small business than on big business. Small businesses don't have resources to hire compliance staff, they rarely hire lobbyists to seek waivers and these added costs can't be easily distributed over smaller budgets. According to the SBA's Office of Advocacy, federal regulations cost small businesses about 36 percent more per employee to comply than their big business counterparts. And yet, the Obama administration approved 613 regulations during his first 33 months in office, with the number of significant federal rules (those costing the economy more than $100 million) at 129. Compare this with only 90 approved significant federal regulations for former president George W. Bush and 115 for Bill Clinton over the same period in their first terms. This amounts to an increase of nearly 44 percent.
3) Obama believes tax increases on small businesses are necessary, perhaps even "fair."
When it comes to taxes, Obama is farther to the left than his Congressional leaders on this important issue. Obama wants to raise taxes on Americans making more than $250,000; Nancy Pelosi, Harry Reid and Chuck Schumer initially proposed raising taxes on those making more than $1 million. Yet, economists suggest raising taxes in January will disproportionally impact all small business owners. Regular threats of coming tax increases and short-term tweaks to the tax code pervasively chip-away at the confidence of small business owners.
In a recent article about taxing small business owners, Professor Scott Shane cites data indicating that only 4 percent of small business owners would be subject to a tax increase if the Bush tax cuts expired. However, he went on to cite 2007 Federal Reserve data (most recent available) showing that families who own small businesses and earn more than $250,000 per year employ 93 percent of the people working in small businesses. While letting the Bush tax cuts expire will indeed only affect a low number of small business owners, it hits those who employ the vast majority of the small business workforce.
When government takes money away from businesses (in the form of higher taxes) to use elsewhere (infrastructure projects or otherwise), the private sector gets smaller and has fewer jobs. History proves the public sector is less productive with funds than the private sector. Unemployment is higher when government is big versus times when government is small. This suggests a path toward shrinking government and marginal tax rates in order to once again grow our way out of this mess.
In response, small businesses have stretched responsibilities and hours of existing staff -- rather than hire more workers. This keeps unemployment figures up, while the economy continues to tread water. Long-term fixes to the tax code would give everyone the certainty they need to plan for the future, which would inevitably include growth and hiring to further propel that growth. Temporary tax reductions (even the 18 of them cited by Obama on the campaign trail) do not stimulate jobs and economic growth. Only permanent cuts and incentives create permanent jobs and growth. When cuts are too narrowly targeted, overly complicated or only temporary, they don't have the intended effect.
4) Promotion of the SBA Administrator into his Cabinet came with strings attached.
Obama referred to his recent promotion of the SBA Administrator to his Cabinet as a "symbol of how important it is to spur entrepreneurship." And that's exactly what it was: merely a symbolic gesture. My guess is it won't matter much to small businesses in the long-run.
What will impact small business, albeit negatively, is Obama's proposal when he announced the Cabinet upgrade: The SBA will merge with five other government offices that all purport to represent business. The fact is, these offices -- the Office of the US Trade Representative, the Export-Import Bank, the Overseas Private Investment Corp and the Trade and Development Agency -- are dedicated to big business, not small business. This merger will only drown-out the voice of small business in Washington. It's easier to marginalize government offices when they all comprise one business department.
Many praise Obama's Small Business Jobs and Credit Act of September 2010 with spurring SBA lending to new heights. But some of its best provisions (such as the temporary SBA 504 loan refinance provision and the new secondary market for SBA 504 first mortgages, known as the FMLP program), were so delayed in their implementation by bureaucrats that they've only just begun to have an impact and are nearly out of time, with nothing from Obama encouraging their extensions beyond the sunset dates in September.
5) Big Business and Big Unions got Obamacare waivers.
The president's marquee piece of health care legislation came with a few loopholes. Some businesses were eligible for waivers and became exempt from its requirements, but the overwhelming majority of them were big companies tied to big unions. Except for businesses with less than 50 employees, hardly any waivers were granted to small businesses. By the way, there are many "small" businesses with more than 50 employees, including general contractors, most restaurants, numerous small manufacturers and so forth.
All of these factors combine to suggest that Obama has practically written off small business voters for the November election.
Up to this point, I've demonstrated ways in which Obama appears to align himself against the interests of small businesses. I've given few reasons explaining why he's done this to such an important sector of the economy. For the why, we have to examine that speech in Virginia from a few weeks ago. And more information is always available at my own blog.
To be continued...
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