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Government Loophole Will Slow Economic Recovery for Middle Class America

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A loophole created by the federal government is having a significant negative impact on the economic recovery of middle class America. The latest U.S. Census Bureau data shows that 98 percent of all U.S. firms have less than 100 employees. These firms employ over 50.2 percent of the private sector work force, create over 97 percent of all net new jobs and generate over 50 percent of the Gross Domestic Product (GDP).

Federal law stipulates that 23 percent of the total value of all federal contracts awarded each year shall go to small businesses.

With the annual federal acquisition budget hovering around $700 billion, the nation's 27 million small businesses should be able to count on approximately $161 billion a year in federal contracts being channeled into the middle class economy.

Unfortunately, the federal government has created colossal loopholes that have diverted the vast majority of federal small business contracts away from middle class America and into the hands of many of the largest firms in the world.

The federal government adopted a policy, which allowed large businesses to acquire a small business and retain that firm's small business status for 20 years. A reporter from CBS forced this out of an SBA official in a 2004 interview. In July of 2007, the Small Business Administration (SBA) implemented a rule change requiring 5-year recertification of small business status. This rule change "grandfathered" large businesses currently receiving federal small business contracts into the government's contracting data. As a result, the overwhelming majority of federal contracts intended for American small businesses will be diverted to Fortune 500 firms and thousands of large businesses around the world until the year 2012.

Last week, the Obama Administration released the latest data on federal contracts awarded to small businesses. The top recipient of federal small business contracts was Textron. Textron is a Fortune 500 firm with 43,000 employees and over $14 billion in annual sales. Their AAI division received $775,773,505 in small business contracts during fiscal year (FY) 2008. (http://www.asbl.com/documents/20090821Top100SBContracting%20Numbers2008.pdf)

Other firms receiving federal small business contracts included, British Aerospace (BAE), Lockheed Martin, Boeing, Raytheon, GTSI, L-3 Communications, Northrop Grumman, Booz Allen Hamilton, General Dynamics, 3M Company, Hewlett-Packard, AT&T, Dell Computer, Staples, Office Depot, Xerox, General Electric, Rolls-Royce and French firm Thales Communications. Finmeccanica SpA in Italy with more than 73,000 employees received $273,872,995 in small business contracts; Ssangyong Corporation in Seoul, South Korea received $254,149,950 in federal small business contracts. (http://www.asbl.com/documents/20090825TopSmallBusinessContractors2008.pdf)

The American Small Business League (ASBL) estimates that over $100 billion a year in federal contracts that by law should go to middle class firms are diverted to worldwide corporate giants. (www.asbl.com)

Please click here to watch my response to the Obama Administration's small business contracting statistics: http://www.youtube.com/watch?v=oV0jeTrYPsM