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Obama Jobs Bill Ignores Basic Principle of Job Creation: Small Businesses Create All the Jobs

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Imagine that you're President Obama and one of your economic advisers tells you that you can create millions of jobs without raising or cutting taxes and without any additional spending. Now imagine that same adviser telling you that you already know what the plan is, and in fact, you promised to fulfill it during your presidential campaign.

In February 2008, Barack Obama stated, "Small businesses are the backbone of our nation's economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants."

Every year billions of dollars in federal contracts awarded to companies like Lockheed Martin, General Electric and British Aerospace are recorded as small business contracts, which helps the government appear to be trying to hit its congressionally mandated 23 percent small business contracting goal. During FY 2010, 60 of the top 100 small business federal contractors were actually large businesses. It costs a fortune to win an election, even more to stay in office, and big companies have funds to foot the bill. There are enough of these contracts to buy the House and the Senate, which is at the root of the problem.

Without money or lobbying power, even the most vigilant small businesses barely stand a chance, and it's killing the middle class. There is irrefutable proof that small businesses create virtually all net new jobs. According to data from the U.S. Census Bureau, since 1989, small businesses have created 90 percent of all net new jobs. Large businesses destroyed more jobs than they created almost every year from 2000 to 2008. The Kauffman Foundation says that young firms, which are also small, have created virtually 100 percent of all net new jobs since 1980.

Congress understood this in 1953 when they passed the Small Business Act, which remains the statutory mandate that the federal government award 23 percent of contracts to legitimate small businesses. Unfortunately, that goal might as well be in outer space. The federal government has never come close. It is difficult to pin down the actual federal acquisition budget, but it seems to be about $1 trillion, which means small businesses should receive about $230 billion annually. Based on data the American Small Business League (ASBL) has collected through the Freedom of Information Act and by simply looking at the federal government's own publicly available data, we estimate that small businesses are receiving closer to $50 billion annually.

The federal government is the largest purchaser of goods and services in the world. Small businesses need those contracts, not the tax cuts proposed in the president's jobs bill. If you own a business and the government cuts your payroll tax, you're not going to hire more employees. Tax cuts don't create demand. You're going to hire more employees when demand goes up, which is where the federal government could work wonders for the economy by directing federal contracts to small business, where all the jobs are created.

I drafted legislation that would finally stop the government from spending in all the wrong places. The bill is H.R. 3184, "The Fairness and Transparency in Contracting Act of 2011," and was introduced in the House by Georgia Congressman Hank Johnson. The Small Business Act says that to be considered small, a business must be independently owned, which means not publicly traded. H.R. 3184 would prevent any publicly traded company from receiving small business contracts.

If President Obama really wants to create jobs, he'll stick to his campaign promise and support H.R. 3184, or he will issue an executive order that simply states, "The federal government will no longer report contracts awarded to publicly traded companies as small business contracts." That would create more jobs and do more to save our devastated economy than anything he has ever proposed.